Commercial Mortgage Rates in Dubai and the UAE – A Guide for Businesses

Mon, 21 Dec, 2020

what is a commercial mortgage loan?

A commercial mortgage loan is one that is used to fund the purchase of a non-residential property. These properties can include warehouses, offices, factory land, shop, and any kind of property that can serve a commercial purpose. These loans enable businesses to fulfill a major asset requirement. 

Commercial mortgage loans are immensely popular among established and budding businesses, as well as aspiring entrepreneurs. For someone looking for funding for a business workplace, a commercial loan might well be the answer.

The UAE, and more specifically, Dubai, is a major commercial center, and therefore, one of the world’s business hubs. The country witnesses the establishment of a new businesses on a daily basis, and quite a few of those businesses go on and achieve tremendous heights. 

UAE’s diverse population means that it serves as an excellent market for a wide variety of goods and services, and is therefore rich with business opportunities. Be it fashion, food, consultancy, IT, or pretty much anything else – you will be hard-pressed to find the diversity and opportunities that the UAE has to offer.

In addition to the favorable demographics, the financial regulations also serve the ideal environment for entrepreneurship, whether you are a new business or an established one. 

A huge benefit for current and potential businesses in the UAE is the ease with which commercial loans can be acquired. These loans offer massive benefits, while the qualification requirements are minimal. 

Advantages of Commercial Mortgages:

As we previously mentioned, commercial mortgages are loans that cover a significant portion of a commercial real estate or property’s purchase cost. Through such loans, a business can purchase commercial assets, which they might not have been able to purchase otherwise. Moreover, even if a business owner can afford their desired commercial property, commercial mortgage loans can help such businesses retain this cash for future use. 

Naturally, there are numerous advantages that come with a mortgage loans, depending upon factors such as business opportunities, industry, and situation. However, the one thing that is certain is a commercial loan can benefit every business in one way or the other. 

Advantages for a startup:

Finance is perhaps the biggest concern for any budding entrepreneur. Naturally, there are numerous areas to invest in, such as labor, inventory, and equipment. More often than not, the largest chunk of money is dedicated to the renting or purchase of a workplace. 

Thanks to a commercial mortgage loan, a new businesses can be assured of acquiring fixed assets, and repay the loan amount according to an easy and plan. Such an approach means that businesses will not only be able to gradually increase their equity, but also save money and maintain liquidity for other productive activities. 

When you rent a workplace, you are basically giving away money and not getting any tangible benefits. For this reason, you should keep your money intact and go for commercial mortgage loans for your business property. 

Advantages for an established business:

An established business is likely to possess higher monetary powers in comparison to startups. Despite that, when established businesses wish to expand, funneling large amounts of cash often becomes problematic and restricts the business from continuing operations smoothly and easily. 

At this point, established businesses can turn to commercial loans to enhance or expand their operations. A firm business is likely to get better loan amounts and terms, thereby ensuring stability for the long term. Hence, savvy and experienced entrepreneurs almost always turn to commercial loans for the purpose of taking their businesses to the next level. 

Commercial Mortgage Loans in the UAE:

As previously mentioned, the UAE is an ideal environment for business establishment and growth. One of the biggest reasons why the country is so desirable for entrepreneurs of all kinds, is the encouraging financial solutions on a offer. A commercial mortgage loan is normally offered at interest rates that are lower than those for other types of business loans.

Why are commercial mortgage loans associated with lower interest rates? Primarily because lenders offering this type of loan can keep the property as collateral, and are therefore more confident and secure in their lending. Consequently, the conditions and terms of a mortgage loan are relatively more flexible. 

Using a Commercial Loan:

A commercial loan can be used to buy commercial property, that is, property that will generate an income. This means that businesses belonging to any industry or domain can benefit from these loans. Mortgage loans are used for properties such as shops, hotels, offices, warehouses, factory lands, showrooms, and many other types of commercial and industrial properties. 

Types of Commercial Mortgages:

Commercial mortgage is available in two main types: owner-occupier and commercial investment. A businessperson uses the owner-occupier type of mortgage when they will be using the property to generate income through a self-owned operation. Therefore, any mortgage acquired to the purchase property for business use, falls under the owner-occupier commercial mortgage type. 

Commercial investment mortgages, meanwhile, are used when the applicants will be renting out their property – in other words, the sole gain will be in the form of rental returns. 

Either type of loan will consider the expected revenue during approval since it is vital that the property generates sufficient return to pay off the amount of the loan. 

LTV (Loan-to-Value) and loan terms:

The numbers for a commercial mortgage loan differ from those attached to regular commercial loans or home loans. For instance, the UAE allows a maximum LTV ratio of 80%; in other words, you will just have to make an upfront payment equal to 20% of the property value, and you will become the owner of the property and can use it for your commercial purposes. A commercial mortgage has a maximum term of 15 years. 

Rates for commercial mortgages:

It is important that you remember that a commercial mortgage loan is usually NOT associated with fixed interest rate.

Also, the rates for a commercial mortgage will normally be higher than the rates for a residential mortgage, but will be lower than the rates for a business loan. The primary factor is the extent or risk that the lender is undertaking by approving a particular loan. 

Mortgage experts can help you calculate the true costs of your mortgage loans. Alternatively, the DAMAC Mortgage Calculator can help you estimate the monthly payments as well as the total markup that you will be paying for a specific property. 

Commercial Mortgage Loans – Application Process:

The application process for a commercial mortgage loan is quite similar to the application processes for other loan types. 

The first step, as always, will be the compilation and submission of the relevant documents to the financial institution that will be lending the money. Here are the documents that you need to submit:

Identification:

Every UAE national will be required to submit their Emirates Identification Copy. Expats, on the other hand, will need to provide visa and passport copies. 

Documents for a salaried applicant:

A salaried applicant will be required to submit earning proof and other employment-related documentation, which could include recent salary slips, salary certificates, employment proof (for the last three years), and bank statements (for the last six months). 

Documents for a self-employed applicant:

Every self-employed applicant will need to provide their MOA, a copy of the trading license, bank statements (for the last six months), and audited financial reports (for the last two years).

Applying for the Loan:

Here are the simple steps that make up the entire loan application process, from documentation to finalization:

  1. Submit the above documents to your preferred bank or financial institution. You could turn to a mortgage broker or lawyer for assistance. 
  2. Once the loan has been approved, search for commercial properties according to the loan amount. 
  3. Submit the deposit along with any other required documents. 

Do note that the FCA (Financial Conduct Authority) is the regulating body for every mortgage loan, and hence, you should closely go through the required procedures and legal requirements to make sure that you have everything covered. 

If you want to make the application process more favorable and convenient, you can use DAMAC’s mortgage assist to apply for the commercial loan. You can use this service to acquire any property under the DAMAC project – every one of which is premium in every aspect. 

DAMAC’s Mortgage Assist comes with comprehensive support and guidance throughout the process, be it getting registered at the insurance company or with RERA. DAMAC ensures that the loan application process is as easy and trouble-free for its clients as possible. With DAMAC, commercial lending options have become easily accessible to every aspiring entrepreneur. 

Final Word:

Commercial mortgage is the perfect option for every old and new business that is looking to obtain the perfect commercial properties. Commercial mortgage loans keep you from having to pay hefty lump sums, thereby keeping your cash flow healthy. 

Furthermore, you can make use of this loan to add to your property equity and benefit from substantial capital gains should you decide to sell the property off. This increased equity can also help you obtain an equity release loan – a major advantage in itself. 

FAQs:

What is the deposit requirement for commercial mortgages?

The maximum LTV is 80%, meaning that applicants will be required to pay a minimum of 20% of their chosen value of the property in the form of a deposit. Of course, the precise LTV amount can vary, since financial institutions assess an applicant’s financial profile before offering an LTV. 

How do commercial mortgages work?

Commercial mortgages adhere to simple mechanisms. The bank, after assessing a particular commercial property’s business aspect – as well as the applicant’s eligibility – will fund the property. The applicant will be required to pay off the loan money according to a pre-determined repayment plan. The bank will hold the property as collateral until the applicant has paid off the entire amount. 

What is meant by a commercial mortgage term?

When you use the word ‘term’ in the context of mortgage loans, you are essentially referring to the entire loan life. In other words, the loan term is the amount of time during which you are required to return the entire loan amount to the bank that offered you the loan. 

Is it possible to get a commercial loan term of 30 years?

Commercial mortgages usually have 15-year terms. However, there are a few banks offering 30-year terms, but this will depend upon the individual applicant’s requirements and profile. 

How to obtain commercial loans?

It is fairly easy to obtain commercial loans. Compile all required documents and approach a bank of your choice. Once the loan amount is approved, you need to look for commercial properties within that amount. 

What are commercial property loans?

Commercial property loans, also known as commercial mortgages, are loans provided solely for the purpose of commercial property purchase. Hence, in order to get commercial loans approved, the applicant needs to prove that a particular property will generate an income. 

What are commercial mortgage ratios?

Commercial mortgage ratios, commonly called LTVs, are the bank’s finance percentages against the property price. As we mentioned, the UAE has a maximum LTV of 80%.

What are the best rates for commercial mortgages?

The precise commercial mortgage rate can depend upon the type of property as well as the bank that you are using. You also need to consider other factors such as LTVs and loan terms, and pick an option that is best suited for you. If you want to purchase a DAMAC property, you should use DAMAC’s Mortgage Assist. 

How long are typical commercial mortgages?

A commercial mortgage usually has a maximum term of 15 years. However, this can vary on the basis of the bank, its criteria, the property in question, and the applicant’s profile.

If you are looking for more details on Commercial Mortgage Rates in Dubai and the UAE, feel free to reach out to the experts at DAMAC.