Financing cost is the silent tax on a leveraged Dubai investment. In 2022 nobody noticed it. In 2023-2024 it ate half the expected yield on a lot of units.
Financing cost is the total cost of borrowing to buy the property — interest payments over the hold period, mortgage processing fee (typically 1% of the loan, capped at AED 10k by the Central Bank), mortgage registration at DLD (0.25% of loan plus AED 290), bank valuation fee (AED 2,500-3,500), property insurance tied to the mortgage, and life insurance premiums in most cases. It is not the headline rate. The headline rate misses the setup and ongoing carry.
On a AED 1.2M mortgage at 5.5% fixed over 25 years, annual interest runs around AED 64k in year one. On a unit generating AED 85k gross rent, financing cost alone consumes 75% of the gross. Strip out service charge and agent renewal fees and the cash flow is negative.
A client last year bought a JVT 1BR with 75% LTV at 6.1%, expecting rent to cover everything. It covered around 85% of it. He topped up from his salary for 18 months before rates eased.
Stress-test against rate rises before you sign. +200 bps minimum.
Related: Mortgage, Interest Rate, Fixed Rate, Variable Rate.