Executive Summary
Transaction friction consumes 6-7% of property value at entry. This analysis quantifies all cost components, demonstrates their impact on holding period requirements, and provides formulas for accurate IRR calculation.
Transaction Cost Summary
4%
DLD Transfer Fee
2%
Agent Commission
~5K
AED Admin Fees
6-7%
Total Entry Cost
Return calculations that ignore transaction costs overstate performance by 1-2% annually. This model provides the complete friction framework for accurate profit projection and holding period planning.
Entry Cost Breakdown
| Cost Component | Rate/Amount | Paid To | Notes |
|---|---|---|---|
| DLD Transfer Fee | 4% | Dubai Land Department | Non-negotiable, based on sale price |
| Agent Commission | 2% | Real Estate Agent | Standard rate, occasionally negotiable |
| DLD Admin Fee | AED 580 | Dubai Land Department | Fixed administrative fee |
| Trustee Fee | AED 2,000-4,000 | Registration Trustee | Required for transfer processing |
| NOC Fee | AED 500-1,000 | Developer | No Objection Certificate |
| Mortgage Registration | 0.25% | DLD | If financed (on loan amount) |
Complete Transaction Model
Example: AED 2,000,000 Apartment (Cash Purchase)
Exit Cost Considerations
At sale, additional costs apply:
- Agent commission (seller): 2% (if using agent)
- Early mortgage settlement: 1% of outstanding + AED 10K discharge fee
- Capital gains tax: 0% (no CGT in UAE)
Break-Even Holding Period
Entry costs create a minimum holding period before profit is possible. Assuming 5% net rental yield:
Break-Even Calculation
Assumes flat capital value. Appreciation accelerates break-even; depreciation extends it.
IRR Impact Analysis
Transaction costs significantly impact IRR, especially on shorter holds:
| Hold Period | Gross Return | After Costs | IRR Impact |
|---|---|---|---|
| 1 Year | 12% | 3.6% | -8.4% |
| 2 Years | 24% | 15.5% | -8.5% |
| 3 Years | 36% | 27.3% | -8.7% |
| 5 Years | 60% | 51.0% | -9.0% |
Assumes 12% annual gross return (7% yield + 5% appreciation) and 8.2% total round-trip costs.
Cost Optimization Strategies
- Direct seller negotiation: Avoid agent commission (2%) on private sales—saves AED 40K on AED 2M property
- Developer direct purchases: Off-plan from developers often waive DLD fees (4%) as promotion
- Portfolio discounts: Multiple property purchases may warrant agent commission negotiation
- Holding period optimization: Hold minimum 3 years to amortize entry costs effectively
Investment Rule
Never calculate returns without transaction costs. A property showing "20% appreciation" on paper delivers ~11% actual return on a 2-year hold after accounting for 8%+ round-trip friction. Short-term holds are particularly punished.
Investment Implications
- Include friction in all models: Use 6.2% entry + 2% exit as default assumptions
- Minimum hold period: Plan for 3+ years to optimize cost amortization
- True capital deployed: Calculate returns on (Price + Entry Costs), not price alone
- Fee negotiation: Agent commission is the most negotiable component—always ask
- Developer promotions: DLD fee coverage significantly improves off-plan economics
Methodology & Data Sources
DLD Fees: Dubai Land Department official fee schedule.
Agent Rates: RERA standard commission rates.
Admin Fees: Registration trustee published rates.
IRR Calculations: Standard time-value-of-money formulas with monthly compounding.
