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What does a real estate investment portfolio include in Dubai

Over the past 2 years, the real estate market of Dubai has witnessed an influx of investors from across the globe thanks to its significant growth trends, beneficial business and economic conditions, and its speedy recovery from the pandemic. For instance, in terms of rentals, the Emirate can generate an ROI of up to a whopping 9%, which is much higher than most markets across the rest of the world can offer at the moment. As well as this, when investing in a property in Dubai, you have the opportunity to benefit from a residence visa with a term of 3-10 years. We understand that it can be quite confusing on where to start in terms of real estate investments, so we have compiled the most in-demand investment directions, which are completely safe and will suit all budgets.

What a Property Investment Portfolio Includes

Purchasing and owning a property is an attractive investment strategy as it can be very profitable. As opposed to stocks and bonds, real estate can be acquired with only a part of the total cost needed upfront, and you are already considered a rightful owner. In Dubai, many master developers offer a wide range of off-plan projects, with a down payment as low as 5–15%. Mortgages are also a worthy option in this case since mortgage rates are now at an all-time low in the UAE – at or around the 3–3.5% mark. Meanwhile, we will review the 5 most popular strategies in terms of property investments, including rental properties, REIGs, REITs, house flipping and online real estate platforms.

Rental Properties

As Dubai is steadily attracting more and more individuals to live, work and manage their businesses, it has become a city with major rental opportunities. In fact, about 70% of residents rent their homes here. Even if you do not possess enough funds to cover all costs upfront to buy a home, you can take out a loan, the LTV of which may reach as high as 80% for an expat. Moreover, some developers can offer payment plans even after a property is finished, for example Marquise Square in Business Bay. Once you find a tenant, you can enjoy a steady stream of cash flow, as the usual lease for renting property in the city is for 1 year for residential properties and mostly from 3–5 years for commercial properties. Of course, being a landlord will require a certain amount of research regarding current trends, and you will need to manage everything, from maintenance of the property to the paperwork. Here is where a property management service comes in as useful, with experienced specialists finding a reliable tenant, drawing up the contract, keeping up with any maintenance issues and collecting fees on your behalf. This way, you will enjoy a completely passive income, even if you stay overseas, without having to spend your time and efforts on managing your properties yourself.

Another advantage of a rental property is that it will keep rising in its price, as with any real estate. Thus, in about 7 years, you should be able to double your money through property appreciation and rental income. As the real estate market of Dubai is undervalued, you can find a 1-bedroom apartment with full access to a private beach in a prestigious area, such as JBR or Palm Jumeirah, that can be acquired for AED 2,300,000 (USD 626,200), whereas NY, LA or Barcelona offers similar residences at a cost of AED 5,500,000–AED 7,400,000 (USD 1,498,000–USD 2,015,000).

As reported by the real estate consultancy, Asteco, in Q3 2021, apartment and villa rental rates registered a significant upward trajectory, with quarterly increases of 3% and 6% accordingly. In particular the villa market has consistently witnessed a spike in demand as it rose by 19% annually and this trend is expected to continue throughout 2022. According to the real estate portal Property Finder, the most lucrative areas in terms of investment in Dubai are Dubai Marina, DAMAC Hills, Discovery Gardens and International City.

Real Estate Investment Groups (REIGs)

REIGs are perfect for individuals willing to gain profit from rental real estate, but without having to perform the role of a landlord. You can compare REIGs to small mutual funds in terms of their operation. As a rule, companies of this type acquire or construct a set of apartment complexes or condos, enabling investors to buy them through the group. There are no limits in the UAE regarding the amount of units an investor may own. At the same time, the company operating the real estate investment group will take over all landlord responsibilities, such as marketing, interviewing tenants and handling maintenance in exchange for a certain percentage of the monthly rent. It is worth mentioning the fact that investing in REIGs requires a large amount of money and access to financing. One of the advantages of these groups is that you will obtain a profit even if your unit is unoccupied. This is due to the fact that all of the units, which belong to the REIG contribute a part of the rent to save income during any occasional vacancies of the properties.

House Flipping

Widely popular in the USA, the house flipping scheme is a process of acquiring and reselling a property at a higher cost in less than 6 months, after making some minor renovation and construction changes. Undoubtedly, the cost of renovation must be kept minimal to generate maximum profit during a resale. While the scheme doesn’t sound too complicated, it actually requires high expertise in real estate valuation, repairs and marketing. Due to the fact that there is no check and balance of flipping for a long-term period, the real estate market can be badly affected by this strategy. In fact, house flipping was one of the reasons why the UAE real estate sector suffered from the crisis in 2008. To prevent similar scenarios from happening in the future, many developers and banks launched a number of restrictions and regulations. For instance, Aldar Properties does not allow its buyers to resell a property unless 50% of its value is paid. And some builders can claim at least 70% of the full value of the property.

Real Estate Investment Trusts (REITs)

REITs are public or private investment funds that are established when a corporation or trust buys and operates properties with investors’ money. This strategy is similar to stocks, as REITs are acquired and sold on the major exchanges, nevertheless, these funds are known for their high liquidity. Thus, you do not require a broker and a title transfer to cash your income. Unlike the previously-mentioned types of investments, REITs open doors for investors in terms of commercial real estate, such as offices and malls, which is not easy to do for an individual investor. There are 2 types of REITs:

  1. Equity trusts. This type is more traditional since it represents ownership in real estate.
  2. Mortgage trusts focus on the profit from mortgage financing of properties.

As stated by Haider Tuama, Head of Real Estate Research of ValuStrat, REITs are a hassle-free strategy to generate major and regular income from real estate, without actually acquiring a property. Moreover, an investor can shorten or exit their position at any time they choose. In the UAE, a public REIT is obliged to distribute at least 80% of its profit to shareholders annually. At the moment, this strategy is not seen as a good option due to the high fluctuation of prices in the UAE real estate market.

Online Real Estate Platforms

Online real estate platforms, also known as crowdfunding, are a perfect tool for those individuals who are willing to join others in investing in a larger commercial/residential deal. Its main advantage is that you can invest in a property with less capital than when purchasing real estate outright. In fact, SmartCrowd, MENA’s first and largest crowdfunding platform, announced the lowest ever entry point for investing in the real estate market of Dubai, at a cost of just AED 500 (USD 136), in September of 2021. Operated by the Dubai Financial Services Authority, this platform aims at enabling individuals of all incomes to benefit from real estate. This type of share earns income on a monthly basis and can increase its value over time. It is worth noting that the platform has distributed over AED 1,500,000 (USD 408,500) in rental income to shareholders, as of Q4 2021. The real estate and technology platform also caters to HNWIs and UHNWIs, requiring a minimum investment sum of AED 200,000 (USD 54,500). While crowdfunding platforms allow you to invest in a specific property, unlike REITs, and makes all kinds of real estate accessible, these deals are most often backed by a single asset and target investment periods of a minimum of 3 years.

Why should I Choose Dubai for Real Estate Investment?

Dubai is famed for its low crime rate, excellent infrastructure and wide choice of commercial and residential properties, among other factors promoting its investment appeal. As well as this, the city offers 100% real estate ownership in freehold areas, allowing individuals to lease, resell and renovate their properties without any restrictions.

If you are seeking to diversify your real estate portfolio, experts of Metropolitan Premium Properties will gladly provide their assistance in either locating, investment sizing up, or calculating renovation costs for a potential investment property to purchase or resell. Our services also include choosing the best strategy to generate passive income for your specific case. As certified brokers of many of the largest UAE developers, we also have access to the best offers in the Emirate market. Our company prides itself in excellent property management, where we will advertise your property, select a reliable tenant, register a contract, deal with any bounced cheques and collect rental payments on your behalf, to enable you to receive a 100% hassle-free passive income.

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