For some, the dream of owning property in Dubai is a realistic expectation. So if you’re lucky enough (or hard working enough), to be looking to buy property in Dubai then you’ve come to the right place. Here we take a look at the benefits and disadvantages of investing in Dubai real estate.
You should invest in property in Dubai. Dubai real estate can be extremely profitable. For example a standard 2 bed apartment in Dubai Marina can yield returns of over 10% per annum.
Add to the above the fact that your asset, or apartment as it were in this example, is also gaining value over the years too and this shows you why Dubai real estate is becoming more and more popular.
Anyway, let’s dive in to the nitty gritty..
Things to Know Before Buying a Property in Dubai
When investing in property in any part of the world it is always important to learn about some basic aspects.
The Difference Between Freehold and Leasehold
The number one thing to know about when considering buying property is the difference between freehold and leasehold. This applies especially so to apartments, which are very popular in Dubai.
Freehold – As the name suggests, a freehold purchase means that anyone from anywhere can buy the property and that they own the property and the land which comes with it.
Leasehold – Again as the name suggests, the property is merely leased to you. A lot of people can confuse this term with renting a property. This is not the same as renting. For example, you can buy an apartment which has a leasehold agreement. This basically means that you only own the apartment for a set amount of time, most commonly between 10 and 99 years.
One good thing about leaseholds is that any maintenance to the building or its grounds will be carried out by the owner. However, some companies do charge a maintenance fee on top. When purchasing via a freehold agreement you will own the building and it’s land and be responsible for its maintenance.
You will notice that a lot of apartments in Dubai are with leasehold, however this doesn’t always have to be the case. Some apartments are sold on the basis that the owner shares the freehold with the other residents in the building, also known as a shared freehold.
In this instance you could appoint a management company for a monthly fee to take care of the maintenance of the property. This option will usually be offered when purchasing.
Another aspect to consider when purchasing property in Dubai is fee’s. Here there are two main fee’s to consider:
1. Agents Fees / Commission
The same as every place around the world. The seller is going to want his/her cut. Make sure you do your research at the start. Try not to get too passionate about a property before checking the agents fee’s. Otherwise you may fall in love too much and end up paying over the odds.
The average fee paid upon purchase of a property in Dubai is 2%. However, this can vary drastically depending on the agent or company.
2. Dubai Land Department Title Deed Registration Fee
Here’s where it can start to get expensive. Much like stamp duty in the UK, the Dubai Land Registration fee is 4% of the value of the property.
In comparison, stamp duty for most average property purchases in the UK stands at 2% but can increase depending on the value of the property.
The Reason Behind Investing in Dubai Real Estate
The next thing you need to know or ask yourself is for what purpose does buying a property in Dubai serve?
If you are planning on relocating to Dubai then make sure you do your research on the area you are buying in. Look into things such as schools and hospitals. Or how far away your workplace will be and the transport links around it. Also consider the average market growth in the area you are looking at.
If you are planning on treating your property purchase as an investment and to rent out then you are in for a treat. Dubai has historically yielded great gains of up to 10% on property purchases. However, the down side is that even though Dubai is a tax-free haven, the UK will have you paying tax on any profits; whether it’s in a Dubai bank account or not!
Learn About The Area
Choose your area, then the property. Not the other way around.
Another thing to consider when purchasing property in Dubai is to learn about the area. Are there many things to do close by? Is the beach close? If you’re planning on relocating what about school? Have a look at historical property prices in that area, does it sell well? What is the crime rate? Although in Dubai crime is extremely low as a whole, always check.
To make this process easier, why not make a list of all of your needs. Perhaps the main needs are to be close to the a beach and close to the city centre. Once you have identified your needs, narrow down the area search and then research the area before starting to look at property.
Once you’re hooked on the property you will find that many people don’t look into the area properly and then have regrets later down the line.
Research the Property
Next, make sure you learn about the property. How old is it? Does any work need doing on it? Are there any worrying signs?
Purchasing a new property? Then make sure you use a well known developer.
Purchasing an apartment? Then you can expect to pay service fee’s. Check out how much these fee’s are and compare them to other similar properties in the same area.
Check out the average market value of similar properties year on year. Also have a look at the average rental incomes from similar properties to get an accurate gauge on your investment.
Global Property Guide has great tools to check historical market prices and rental yields in Dubai.
UAE Nationals vs Expats for Dubai Property Investments
UAE Nationals can buy or rent wherever they please in Dubai. This is not the same for expats or people looking to invest in property here.
Foreigners are only allowed to purchase properties in certain community areas of Dubai. These properties must also be freehold (which isn’t a bad thing). Foreigners can purchase leasehold properties but at the end of the leasehold agreement, the property is re-signed back over to the original owner of the building.
Leaseholds can be as long as 99 years, so you may not see this as an issue. However, if you are wanting to leave property for generations to come then make sure you buy freehold.
The Risks of Buying Property in Dubai
With any investment, there are always risks. Some of the main risks of buying a property in Dubai are listed below:
- You purchase a leasehold instead of a freehold unknowingly
- You buy in an area with a lot of on-going construction work
- You buy thinking your profit will be tax free
- High agents fee’s / check first!
- You purchase in an area with low returns (do your research)
- You live abroad and have to pay someone to manage the property
If you follow our advice above, then hopefully you can cut out many of the risks of investing in property in Dubai.
The Advantages of Investing in Dubai Real Estate
Ok, so now you’ve done your research, you know where to buy and you’ve minimised the risk; so let’s look at the huge advantages of investing in Dubai real estate:
High Rental Yields
Rental yields in Dubai can be as high as 10% (depending on the building and area). Compare this with the likes of London and New York (3-4%), and your looking at a much more solid investment.
Easy to Rent Out
As long as it’s not a £5million villa on Palm Jumeirah then you’re going to have no problems renting it out. Dubai is still very much an up and coming city. Furthermore, Dubai doesn’t look like slowing down any time soon when it comes to tourist and expat increases year on year.
Over 50,000 new properties were built in Dubai in the year 2020!
Whether you want to rent out the property full-time to an expat or rent it out week to week as a holiday home, there will be no issues with occupancy.
Dubai is One of the Best Cities to Live in the World
Aside from being easy to rent out your investments over here, Dubai is the city of dreams. If you choose to rent out the property week to week for holiday makers or contract workers then you can also use it as a holiday home.
Given the yield on properties over here, you could use the pad as a holiday home for several weeks of the year and still make a tidy buck.
Cheaper Cost of Living than Other Cities
When people think of Dubai they imagine the lavish life style of the rich and famous. Whilst Dubai can be extremely lavish, it can also be very reasonable when it comes to the cost of living. In fact, the cost of living in Dubai in comparison to New York, Sydney and London is just a fraction!
Yes Dubai is home to some of the most lavish hotels and restaurants on the planet, but you don’t live in them!
Where to Buy Property in Dubai
Where to buy property depends largely on three things:
- Your Financial / Personal Aims
- The Type of Building
- Your Area Requirements
Your Financial / Personal Aims
First of all you need to consider whether you are buying in an aim to get the most ROI or for personal reasons. If you are buying for personal reasons, such as relocation or for a holiday home, then the area’s you will be looking into may be different from those of which produce the highest ROI.
If you are looking for high rental yields then places such as Dubai Studio City and Barsha Heights will return in excess of 10%. However, these area’s aren’t necessarily suited to a holiday home purchase.
If you’re looking at somewhere to rent out week to week and to use as a holiday home then you may look into places such as Dubai Marina and Downtown Dubai.
The Type of Building
The type of building is the next consideration. If you are looking for apartments, then Dubai has plenty to offer, for all budgets, in most areas. However, if you are looking for a house or a villa, you may need to explore different area’s to meet your budget.
The type of building will also depend on your ROI. Traditionally, villas will have a higher ROI than apartments. But apartments are cheaper and easier to buy.
Your Area Requirements
This next one depends on whether you are buying to rent out or relocate. However, even if buying to rent out you need to consider the user. If your aim is to rent out to an expat or someone living in Dubai then make sure there are good transport links nearby. Have a look into local schools and hospitals too.
If your aim is to rent out as a holiday home, then you wouldn’t be looking at where the nearest school is, rather the nearest beach!
Average Returns from Property in Dubai
As you can see, the type of building and area can affect the ROI of Dubai property investments greatly. The traditional market average across the city is 7% ROI, but check out the below infographic for a general idea of ROI’s from 2020.
Some Further Tips on Purchasing Property in Dubai
Below are 5 more tips when looking at investing in Dubai real estate:
1.Treat it as a long term investment
As with most property markets, prices to fluctuate up and down. Don’t think that just because Dubai has high yields that you can flip a property over 5 years to make a quick buck. As soon as you take into account fees and tax (if from the UK) you won’t be left with much profit. Aim to stick for at least 10 years.
2. Don’t Buy on Gut Feeling
Dubai can blow you away with one foul swoop. Try to stay grounded and make the most of our advice and tips above before jumping in head first. Be careful not to end up with a property which carries high fees and a low ROI.
3. Talk to other Expats or Residents
Another good way to gauge what you are buying. Maybe you bump into someone else in the building whilst you are looking at apartments? Ask them about their experience. Do you have any friends or know of anyone who has purchased in Dubai before? Do you know anyone that already lives in Dubai?
The experience of someone who has already been through it all can be extremely valuable.
4. Research the Developer
Is the property being developed by a well known company? If not, it’s best you do some further research.
5. Use your Bargaining Power
If you want to get the most value out of your investment and have a few options, try to pit them off against each other. Dropping in conversation that the EMAAR apartments around the corner look well, may trigger the agent to drop his price a little to keep you interested.
SO there you have our guide to investing in Dubai real estate. I hope this has been helpful information for your search of property in Dubai.