Investing in property is a great way to build wealth and generate income. However, all investments carry risk and there are many factors to consider before investing in Dubai’s real estate market to ensure you yield the highest possible returns.
Why invest in Dubai?
- The city offers higher rental yields than many other mature real estate markets. On average, investors can achieve gross rental yields of between 5-9%.
- Property prices per square foot are lower than many other cities globally, making Dubai an affordable location to own prime real estate.
- New visa laws linked to property investment enable investors to gain a residence visa subject to certain conditions. For properties valued above AED 1 million, you may be entitled to a 2-year residency visa. For properties valued above AED 5 million, you may be entitled to a 5-year residency visa. While for properties valued at above AED 10 million, you may be entitled to a 10-year residency visa.
- Highly favorable tax conditions, in particular, the absence of property taxes and stamp duties, that are applicable in other global real estate markets, also paints the city as a highly attractive investment environment.
What to consider when selecting an investment property select an investment property
Strong return on investment (ROI) is the ultimate goal when investing in property. Securing a property which delivers healthy rates of return requires proper due diligence from the outset. Here are some of the factors that can influence ROI:
- Facilities and amenities available in the community, including proximity to transport, education, childcare etc.
- Market conditions and timing of a purchase
- Interest rates
- Maintenance costs (RERA Service Charge and Maintenance Index)
Where to invest for high ROI
In the first half of 2019, Dubai Silicon Oasis (DSO) offered the highest gross returns of 9.5% for apartments. New communities, Meydan and DAMAC Hills closely followed, offering gross rental yields of 9.3% and 8.9% respectfully, again for apartments.
For villa and townhouse communities, Town Square yielded the strongest gross returns at 7.8%, followed by The Springs (6.6%), Reem – Mira (6.4%), and Mudon (6.3%).
Tips for achieving strong ROI
- Apartments typically provide stronger rental yields than townhouses and villas due to Dubai’s largely transient, low to mid-income population with a budget geared toward smaller, affordable homes.
- Opt for smaller sized apartments (studio and 1-bedroom) in affordable communities with established infrastructure, near to transport and essential amenities such as education and healthcare.
- Resale of smaller units is faster and offers a better value compared to larger sized properties, mainly because a major segment of Dubai’s expat population can afford to purchase these when the investor wants to release equity.
- Annual maintenance charges payable to the Dubai Land Department based on the RERA Service Charge and Maintenance Index can materially impact overall returns. This index determines a specific charge per square foot and varies by community. Up to date fees can be sourced directly from the DLD’s website. Research the applicable charges for your preferred community before investing.
Off-plan property vs. ready property
Investing in off-plan property or ready property in the secondary market each have pros and cons. Each individual’s financial situation and risk appetite is unique, and as such, it is important to adequately assess the risks associated with both.
Pros of buying off-plan
- Price: Buyers commonly receive a price advantage with under-construction properties priced significantly less than ready properties.
- Capital appreciation: There is a high probability of the property increasing in value near to completion and handover.
- Smaller down-payments: Initial deposits of 5-10%, as opposed to 25% with ready properties, can make purchase more achievable.
- Payment plans: Developers offer highly attractive, flexible payment plans, in some cases offering post-handover 2-5 year payment plans meaning you can actually rent the property out before commencing the repayments.
Cons of buying off-plan
- Changes in market conditions: Downward movement in prices may result in the property being valued at less than the initial purchase price.
- Delays or cancellation: There is of course the risk of projects being cancelled, or completed after their scheduled date. To mitigate this, it’s vital to conduct independent research on the developer to verify their track record and reputation.
Pros of buying ready property
- Price: Price advantages may arise relevant to market conditions at the time. In a buyers market, it might be possible to buy a property at a significant discount. At the moment, as the market continues to correct itself and new supply enters the market causing prices to dip, buyers have the ability to bargain.
- Location: Ready property is often in prime locations with completed infrastructure in place.
- Immediate returns: You can start earning rental income from the moment a tenant is found.
- Stable rental yields: Investing in ready property often provides the added benefit of proven rental yields.
Cons of buying ready property
- Down-payment: In line with UAE Central Bank regulations, the minimum deposit required for expats is 25% of the purchase price for properties valued at less than AED 5 million and 20% for nationals.
- Upfront costs: Upfront transaction costs can be estimated at approximately 7-8% of the purchase price.
- Time: If obtaining a mortgage to finance your purchase, it’s important to take into consideration the turnaround time of your chosen bank.
There has never been a better time to invest in Dubai. Consistent new supply offers buyers a plethora of choice and continues to steadily drive prices down to more affordable levels. If you are looking to invest in affordable prime real estate and achieve strong rental yields, look no further.