Commercial Mortgage Rates in Dubai & UAE Guide for Business
Author: Faizan Amin
Introduction to Commercial Mortgage
Commercial mortgage loans are used to finance a non-residential property. These include offices, warehouses, shops, factory land and every other property that can be used for commercial purposes. This helps businesses get through one of the major asset requirements with great ease.
These loans happen to be very popular among budding businesses, aspiring entrepreneurs, and established businesses alike. So if you are looking to get a workplace for your dream business, this is your best opportunity.
UAE is the land of business, being home to one of the top commercial centres of the world in Dubai. Here, new businesses are formed every day and from time to time, we find an inspiring success story of a new business venture reaching great heights.
With a diverse population, UAE brings perfect business opportunity, as you can find the right market for almost every product type and category. Whether you talk about IT, food, fashion, consultancy or anything else, the opportunities and diversity offered in UAE can rarely be found anywhere else in the world.
It’s not just the demographics that encourage business in the country, but the laws and financial opportunities also provide the perfect atmosphere for a new business to make a healthy start, and for the older businesses to consolidate their market.
A major relief for business is the presence of easy to acquire and helpful commercial mortgage loans in the country. There are minimum requirements and immense benefits offered through these loans.
Commercial Mortgage Advantages
A commercial mortgage is a loan that removes a major burden of paying for a commercial property in full. This helps businesses acquire commercial assets that are currently beyond their purchasing power, or help to save your cash flow from huge drawing even if they can afford it.
There is a multitude of advantages one can gain from these loans, which differ for every business depending upon the industry, business situation, opportunity and other factors. But one thing is for sure, all businesses have one thing or the other to gain from commercial mortgages.
When starting a business, finance is always one of the major concerns for entrepreneurs. There are a lot of things to invest in, which includes equipment, inventories, the workforce, and a lot more. The greatest chunk of your money usually goes towards buying or renting a workplace.
With commercial mortgage loans, new businesses can make sure that they can get a fixed asset with a convenient and easy repayment plan. This way, you get to maintain liquidity and save the cash, which can be used in many productive activities, and also get the benefit of gradually increasing equity in your property.
If you plan on renting a workplace, that is literally throwing away cash, which returns you nothing tangible over a period. In all the cases, going for a commercial mortgage to equip your startup with an ideal property is the right way to go.
For Established Businesses
Established businesses usually have greater monetary power as compared to startups. But when there is a need for expansion, funneling in a huge chunk of money can become a hurdle in continuing the business process in the same smooth manner.
Businesses can make use of commercial mortgage loans, which are available at attractive interest rates, to help their cause of expanding or enhancing their operations. The loan amounts and term of the loan offered to established businesses ensure longterm stability. So smart decision-makers will always look to get a mortgage loan to finance commercial property.
Commercial Mortgage in UAE
As discussed earlier, the UAE provides the ideal environment for a business to grow and thrive. The perfectly designed financial solutions are one of the major reasons which encourage new and existing businesses. As of commercial mortgage loans, they are highly attractive for all as they come with lesser interest rates than other business loans.
The main reason being that the lenders are also more secure in this form financing, as the property is held as the collateral. The terms and conditions applying on these loans are also comparatively more flexible. Let’s take a look at some of the key aspects of commercial mortgages, for ease of understanding the process.
Commercial mortgages can be acquired for purchasing any property that generates an income. So business in different industries and domains can avail this option. Some common properties which are bought through this financing tool include offices, hotels, shops, showrooms, warehouses, factory lands, and other industrial and commercial properties.
Commercial Mortgage Types
There are two types of commercial mortgage i.e. owner-occupier mortgage, and commercial investment mortgage. The first one, owner-occupier mortgage is used when the property will be used by the applicant to generate revenues from a self-owned business. So this applies to all commercial property types that will be used by the business.
The second type, commercial investment mortgage, is applicable when the applicant plans to rent out the property, to rental returns are the only gain. In both types, the expected revenue addition will be taken into consideration for approval, as the property must be yielding enough financial return to conveniently pay-off the loan.
Loan Terms and Loan to Value LTV
The numbers attached to commercial mortgage loans are different than those of mortgage home loans and commercial loans. In UAE, you can get an LTV ration of up to 80%, which means that you can own and use a commercial property by paying just 20% of its price upfront. The maximum loan terms for commercial mortgages are 15 years.
Commercial Mortgage Rates
The important thing to know about commercial mortgage loans is that they usually don’t have fixed rates. Moreover, commercial mortgage rates are higher than the interest rates of residential mortgages and less than those of business loans. The determining factor is the amount of risk that the lender has to face when financing through these loan types.
One can also get complete calculations of a mortgage loan by contacting a mortgage expert. If looking for an easier way, you can use DAMAC’s Mortgage Calculator which helps you estimate the total markup and monthly payments for a certain property.
Applying for a Commercial Mortgage Loan
Applying for this kind of loan follows the usual process as with other financing options. The initial stage is documentation, where you need to provide the required set of documents to the bank or any other institution offering the loan.
Here are the documents you will need:
UAE Nationals will have to provide the Emirates ID Copy while expats are required to submit passport and visa copies.
For Salaried Applicants
Salaried individuals will have to submit documents related to their employment and earning proof. These include salary certificate, latest salary slips, employment proof of past 3 years, and 6 months bank statement.
For Self-Employed Applicants
Self-employed individuals will have to present their trade license copy, MOA, 6 months bank statements and 2 years audited financial report.
How to Apply
There are just a few simple steps making up the complete process, from documentation, approval and finalisation. Here is how you will go about it:
- Submit the required documents in a bank of your choice. You can get help from a lawyer or mortgage broker as well.
- Once approved, find a commercial real estate as per the approved loan amount.
- Pay the deposit and provide any additional documents demanded by the bank.
It has to be noted that all mortgages are regulated by the financial conduct authority, so the applicants are suggested to read all the legal requirements and procedures so that they don’t miss out on anything.
For a more convenient and favourable process, one can apply for a commercial mortgage with DAMAC Mortgage Assist. This service can only be used for purchasing DAMAC’s properties, which are among the best in every way.
DAMAC Mortgage Assist ensures complete guidance and support at every stage of the process, whether it is registration at RERA or insurance company so that the buyers don’t have to take more trouble than needed. DAMAC Mortgage Assist has brought commercial lending within easy reach of all aspiring entrepreneurs.
New and old businesses have the perfect option in commercial mortgage loans to get the best properties for their commercial interests. These loans can help you maintain healthy cash flows at all times, as you won’t have to pay a huge sum of money when purchasing the property.
Moreover, an added benefit is that one can keep on increasing the equity in the property, which can result in a handy capital gain whenever there is a need to sell-off the property. The equity gained can also be used to acquire equity release loans, which is a huge benefit in itself.
Frequently Asked Questions
What deposit is needed for a commercial mortgage?
The LTV offered can go up to 80%, which means that you will have to pay at least 20% of the total property price as a deposit. This amount can vary as the banks offer different LTV to different applicants depending on the financial profile.
How does commercial mortgage work?
A commercial mortgage follows a simple mechanism. The bank finances a commercial property, after analysing its business aspect and the eligibility of the applicant for paying off the loan. The loan amount has to be paid as per the agreed-upon repayment schedule while the said property is held as collateral.
What is the term for a commercial mortgage?
The term is basically the life of the loan. It is the period in which you have to pay the amount back to the bank.
Can you get a 30-year mortgage on commercial property?
The usual loan term of commercial mortgages is up to 15 years. But some banks offer up to 30 years also depending on the profile and requirements of the applicant.
How to get a commercial loan?
Getting a commercial loan is easy. You need to approach a bank with all the required documents and then select a property within the approved loan amount.
What is a commercial property loan?
Commercial property loan or commercial mortgage is the loan offered for buying commercial properties. The property has to yield earning for the applicant for it to be approved.
What is a commercial mortgage ratio?
Loan to Value Ratio (LTV) is also referred to as the commercial mortgage ration. It is the percentage of the bank’s finance against the total price of the property. In the UAE, the LTV ratio offered is up to 80% of the property value.
What is the best commercial mortgage rate?
You can find different mortgage rates for commercial properties if you analyse the offers of different banks. Along with mortgage rates, other factors like loan terms, LTV ratios also vary so you need to find the most suitable combination. For buying a property by DAMAC, your best option is to apply with DAMAC Mortgage Assist.
How long is a typical commercial mortgage?
Generally, commercial mortgages have loan terms of up to 15 years. But this number can vary depending on the bank and its offers.