Dubai real estate market is one of the top places in the world when it comes to investment attractiveness. Local property owners receive high incomes from both the leasing and selling of higher-priced assets.
This article describes the main features of this sector. This is the basic information needed by every investor interested in real estatein the emirate.
The content of the article:
- Why invest in Dubai?
- What should you look out for first?
- How to find a high-return offer?
- Finished properties and "off-plan" – advantages and disadvantages
- General tips
Dubai stands out from other developed real estate markets in a number of ways:
- Among the many advantages of the city, the high rental rates, compared to other developed markets, are particularly beneficial. The average rental income for an investor is typically in the range of 8-9% per annum.
- Prices to buy a square meter of property are lower than the world average. Elite properties are particularly cheap, relatively speaking.
- It is worth noting that the laws make it easy for investors to obtain a residence permit, subject to just a few conditions. For example, for those who have purchased a property worth more than $205.480, a residence visa is granted for 3 years, and for properties worth more than $1,360,000, a residence visa is granted for 5 years. For properties valued at more than $2,720,000, a visa is granted for 10 years.
- Dubai is known for its extremely loyal tax conditions. In the emirate there are no taxes on property and income of individuals. There is no payment for land ownership.
Return on investment is measured by the universal ROI index. This indicator is always the end goal of the buyer’s investment activity.
The profitability coefficient is calculated by dividing the profit received during the year from renting out real estate by the cost of investments in the purchase. The resulting figure is multiplied by 100.
ROI is influenced by a variety of factors so you need to think about making the right choice at a very early stage. Some of these factors are listed below:
- Location of the property within the city and its neighborhoods.
- Amenities and access to social benefits such as shops, transport, crèches, nurseries and schools, medical facilities, parks and even entertainment facilities.
- The size of the property.
- The quality of the construction work, which often depends on the chosen developer.
- The current conditions in the Dubai market and approximate date of purchase of the property.
- Interest rates are set not only on the rent with which the investor is going to make a profit but also on taxes, credits and other expenses.
- The amount of annual fees paid to the Dubai Land Department (DLD) for maintenance, utilities and waste disposal. Summer is particularly expensive in this regard. For this, you can refer to the RERA Service Charge and Maintenance Index.
You can get all the necessary information on the official DLD website.
On average, investments in Dubai’s housing stock can yield up to 7% or more of annual returns.
Typically, apartments offer a higher rental yield. This type of real estate is designed for temporary workers in Dubai while villas and townhouses are designed for those who are looking for housing for permanent residence in the emirate.
According to the Dubai real estate market report by Bayut & Dubizzle, in the third quarter of 2021, the profitability of apartments for investment reached 7.37%. The International City community has the highest rates. Silicone Oasis and Jumeirah Lakes Towers have slightly lower figures with rates of 6.92% and 6.65%. The property in Dubai Marina was profitable at 5.25%.
For rentals, it would be most profitable to purchase smaller apartments (maximum 1-3 bedrooms) in areas with affordable prices for goods and services but at the same time, with developed transport and municipal infrastructure. Access to education or medical care is also an important factor in the choice of location. It is necessary to calculate how close to the apartments important resort or business districts are.
Small apartments are the most liquid product. The resale of such properties is faster and at a higher price compared to large properties like villas and townhouses.
The crucial question when choosing a property is always the choice between buying a finished property or a property that is at the project stage or in the early stages of construction. The last form of ownership is called "off-plan".
Obviously, each type has its own pros and contras, prices and risks.
Among the advantages of buying "off-plan" real estate are:
- Low purchase price compared to finished units.
- In addition to the increase in value of the property during the construction process itself, the chances are high that the general prices of real estate in Dubai will increase until the time of construction, therefore, the increase in profit consists of two price increases at once.
- For real estate under construction, the investor pays much smaller advance payments: the initial deposit is 5-10%, in contrast to 25% for finished real estate.
- Payment plans to be made as construction progresses are cheaper and more flexible. Often, the payment plan can be extended for years after the completed object is transferred to the investor. That is, you can start renting out housing even before you yourself have paid the amount for the contribution to the "Off-plan".
The disadvantages of "Off-plan" property include:
- Depending on the timing of construction, you may not have time to receive and, for example, resell the constructed object is profitable, since during this time the price of the object will fall below the original purchase price.
- Construction delays or project cancellation are also important risks.
Of course, in Dubai, such situations are extremely rare. Often, the property is more likely to be transferred to another developer than to be abandoned altogether. However, risks still exist and this must be taken into account. Check the track record of the developers.
The advantages of a finished property are as follows:
- These properties are often located in already developed areas where it is easier to assess the benefits of investment in these properties.
- Finished real estate allows you to start earning immediately after purchase, for obvious reasons.
- Finished real estate usually has a stable rental rate, which will allow you to calculate income in advance for several years in advance.
The disadvantages of finished real estate include:
- More expensive upfront payments. UAE Central Bank regulations require foreign buyers to make an initial deposit of 25% of the total value of the property. Moreover, even citizens of the emirates must pay 20% of the amount.
- Presence of upfront costs, including payment for transactions. Together, they can reach 8% of the value of the object.
- When applying for a mortgage loan for the purchase of finished real estate, you must carefully study the strict timing of the bank loan repayment.
The plus of this market include the general simplicity of the purchase process. So following the rules below will solve most of your problems.
Decide on your goals
The buyer needs to be very clear about whether he wants to invest and how he is going to return these investments. These are the main considerations when choosing the type of investment property. If the buyer is interested in renting - small apartments and studios are the best choice. If the buyer is looking for a resale profit, he may pay attention to the "off-plan" villas and townhouses.
Understand the timing of property acquisition
The best time to buy comes from a variety of factors: rising rents, low mortgage rates, oversupply, sellers' willingness to bargain, government regulations and tax incentives.
Find out all about the location of the object of your desires
Look for areas with high rents and demand and good infrastructure. Study the strengths of the area to understand what type of population it will attract. Find out if it is possible to purchase real estate in 100% ownership and without the need for local representatives - this will reduce the cost of your expenses and allow you to fully dispose of the acquisitions.
The Dubai market is dynamic and specific. It is diverse in its offers, sellers and developers. Real estate and market specialists can help you prepare for an important acquisition.
You should pay attention to the track record of real estate agents, whether they are registered with RERA, what partners they have, what reviews from clients they have.
The most important thing is to clearly indicate what information you need to obtain from a specialist in the sector and enlist the help of a lawyer.
Plan your finances
Even large capital holders prefer better investment options. These include mortgage loans. Some of the facilities under construction with an attractive payment plan are equally profitable.
In these cases, it is necessary to make sure that the resources are stable and that future payments and costs are predictable.
You should start with a real assessment of credit opportunities. You must ensure that the next mortgage payments can be made without the participation of tenants. It may take time to find the latter.
Contact agents and specialists
For many years, there have been a large number of tested and proven agents and real estate firms on the market that have both an experienced staff and the necessary connections in Dubai’s market.
The right agent will be able to take on the overwhelming number of problems and costs. All you need to do is indicate which object you want and wait for the asset that has already been issued for you to fall into your hands.
The main thing
Acquisition of real estate is an important, costly and risky decision. Always do your preliminary research and seek professional help to secure your investment.