Islamic Finance in Dubai

Buying an off plan with a mortgage, buyers have the option to choose between the conventional product and the Islamic finance product in Dubai. Now if we talk about Islamic Finance, indeed has emerged in the market as a stranglehold within the overall Islamic finance region. Islamic Finance works differently and offers unconventional financing structure choices to home buyers.

In Islamic Finance, the bank buys a property of the client and resells the same to the purchaser at a profit rate. Since, in Islam, making income from the offering loan is prohibited. The buyer pays back to the bank scheduled installment on the principal total in the form of rent.

The Islamic funding is based on three contract models Ijarah, which means ‘lease’ Musharaka, which means ‘partnership’ and Murabaha, which means ‘profit’. When the buyer buys off-plan with Islamic Finance providers, then the agreement is based on forward Ijarah contract where the bank buys and leases back the property to the buyer.

However, based on the installment structure provided in the Sale and Purchase agreement and on the successful construction landmark achievement, the bank issues the funds to the developer and would earn a profit on the pay-out amount, from the buyers.

In 2007, the new law with reference to the guarantee accounts of real estate developments in Dubai got implemented to regulate the ownership of property in relation to off-plan sales, commonly referred as the Escrow Law. The main objective of this law was to offer protection for the buyer’s money investing through off-plan sales.

Mortgage on Off-plan Property

In 2013, the Central Bank of the UAE issued a new set of regulations on mortgage offering. The Regulations say that property bought off plan will be granted a 50 percent loan to value (LTV), regardless of category, value, or purpose of the buyer. Wherein, 50 percent need to be paid by the buyer and afterward, lasting 50 percent bank would pay into the developer’s escrow account, as per the payment schedule, this applies to both conventional banking and Islamic Banking.

The main value to remember with the Islamic funding is that all forms of interest (riba) concept are banned. The difference of Islamic funding is that there is only profit amount is charged during the construction period unlike the conventional mortgage product, wherein the buyer has to pay the principal and interest amount during that period.

So, if you planning to buy a property in Dubai call our certified mortgage consultant. They will help you to get the valued advice and the best mortgage consultancy in Dubai for your off-plan purchase. 4C Mortgage Consultants provide best mortgage consultancy for a resale property, new purchase property, off plan purchase, construction mortgage, project finance, commercial mortgage, buyout, equity release, Non-UAE Resident mortgage in Dubai. Follow us on Twitter, Facebook, and LinkedIn and keep yourself update. Happy investing!