Time for reading: 10 min
The UAE’s investment sector is growing rapidly. At the same time, the range of asset classes is expanding. Thus, one can choose the most suitable option for themselves. There are investment options that are suitable for almost any risk profile: from trading stocks to buying real estate, private pension schemes, funds, and deposit accounts. And this applies not only for Dubai but also for Abu Dhabi, Ras Al Khaimah, and Sharjah.
As for real estate investments in Dubai, this asset class is one of the most popular among international investors. Newly-introduced stricter rules for buying and selling real estate, as well as renting, limit speculation in it. As a result, the market has become more stable and affordable. In turn, new laws on freehold ownership and specially created freehold zones allowed foreigners to buy apartments, villas, and land plots in Dubai and Abu Dhabi in 100% ownership, and not in 99-year lease. To further stabilize the real estate market in the country, the government launched a pension visa and introduced long-term residence visas in 2019.
In the article, we will give examples of investment programs, briefly review the advantages of investing, and ways to invest in real estate of Dubai.
In recent years, the UAE has taken numerous measures required to restore the national economy, including simplifying the rules for doing business outside of free zones. Twenty percent of restrictions for banks in lending to real estate, as well as increased business activity, were lifted.
As mentioned earlier in our articles, Dubai has become the business capital of the UAE, where almost every large company from all over the world has an office there. With the development of enterprises and industries, the investment sectors that have managed to attract a large number of foreign investors to the UAE have increased. Apart from that, the most important reasons that make Dubai the undisputed leader for investment are:
Dubai is famous for its exceptional skyscrapers and neighborhoods, unique premium residential real estate, low crime rate, highly developed infrastructure, and many other things. It all makes Dubai an ideal place for both tourists and those who want to work and live here. Moreover, the political situation in the city is quite stable, which ensures that your investments will not suffer due to geopolitical instability and disorders.
N.B. Those who has invested over AED 5 million in real estate in the UAE are eligible to not only the simplified visa application process but also to benefits provided by the Central Bank of the UAE. Moreover, they got the best out of affordable housing prices, especially after their reduction. Also, against the background of the pandemic, government fees and the cost of annual rent for commercial real estate have been decreased.
Based on the above, it is not a surprise that many residents and novice investors with an average income want to invest in real estate to secure their future.
The formalities of investing in real estate in Dubai are quite simple. However, they may differ from those which the investor has already known. It is a good idea to hire a reputable real estate agent and a lawyer to help you navigate the process. They should help with drawing up the terms of the contract for the buyer and seller, signing a Memorandum of Understanding, paying the remuneration and state duties, or transferring the ownership documents.
Even before the global crisis against the background of the pandemic, the policy of the UAE authorities was focused on attracting investors to the real estate sector. Despite the affordability of real estate purchase prices, customers are offered 2 mortgages to pay for one residential property at low-interest rates on the first loan. At the same time, the term of payment varies from 50 to 100 years with the right to transfer its repayment to the next generations. It affects the durability and quality of the residential real estate.
It is worth mentioning that banks contribute to the stabilization of the real estate market, and the mortgage market for expats in the UAE is competitive. Lower interest rates on loans and stable income from real estate contribute to the growth of demand, even though many buyers use bank loans at long-term rates.
When you plan to invest in real estate in Dubai, you should always take into account the fact that price growth does not always depend on the location. Furthermore, no object can guarantee a consistently high annual ROI from renting. Qualified real estate agents also cannot give a 100% guarantee of high return on investment. Nevertheless, they can help you avoid financial and legal problems when buying a property, save money and increase your investment, reducing the risks to almost zero.
You can choose different types of investment programs according to your needs and the amount of investment. Each investment instrument can be divided into 3 main characteristics: security, growth, and income. In this case, it is necessary to understand clearly that the higher the return on investment, the higher the risks, and vice versa.
If you are more focused on long-term prospects, then you should choose a property close to the sea with developed infrastructure in the central area. Or you can pay attention to the purchase of real estate near the city center, in proximity to metro stations, and with a developed transport system. Apartments with 1-2 bedrooms usually provide a higher rental yield than townhouses and villas. If we consider the option of resale to quickly increase the investment, then a smaller apartment can be sold much faster and at a better price, compared to a larger property.
N.B. Next, we will describe the investment programs in detail. It is worth considering that all these figures are approximate since all calculations are exclusively individual.
Term: from 1 year, with payback from 0% to 35% per year.
Amount: from USD 1 000 000.
When choosing this program, the risks are more likely. The profit is unstable and depends on the availability of offers below market value. In this case, the main goal should be liquidity, not high profitability. With this approach, the goal should be to prevent borrowing and panic during any financial emergency. The program includes the purchase of:
Term: for 5 years or more.
Amount: from USD 3 000 000.
Annual ROI: from 8% to 9%.
Profitability: up to 20% per year.
If you choose this investment program, the risks also take place, but minimal, unlike the previous program. They directly depend on the state of the market and the average market prospects for its development. Under this program, you can buy:
Term: for 10 years or more.
Amount: from USD 5 000 000.
Annual ROI: from 7% to 9%.
Profitability: up to 15% per year, rental income up to 15% per year.
According to the long-term program, the probability of losses is very unlikely, since all the terms of the lease are known in advance. It includes the purchase of:
N.B. According to financial experts, diversification is an excellent strategy for investors seeking to reduce the risk associated with their investment portfolio. Usually, the process of diversification involves investing in various market instruments that reduce all sorts of risks.
As an expat, you can invest in real estate with cash. Moreover, in Dubai, you can apply for a mortgage on the house you are going to live in or use as an investment property. However, depending on the circumstances and the property you want to buy, the amount of deposit you need to pay will vary. If you are looking for a property for an investment, you usually are at greater risk, thus the bank will ask for a higher initial deposit.
If you require a mortgage, you need to talk to a mortgage adviser and make sure that your loan application has been pre-approved by your local bank. The minimum deposit for expats is 25% of the cost of housing, and 6-7% for related expenses. If you want to purchase a property worth more than AED 5 million, the maximum loan-to-value ratio will drop to 65%. It means that you will need a 35% deposit.
Once the mortgage is pre-approved and the mortgage broker or bank has reviewed the available options with you to determine your maximum eligibility for the loan, you will be able to set your budget. The mortgage repayments usually amount to approximately 25% of your monthly income. However, you need to make sure you take out the right loan amount that suits your needs and ability to pay.
N.B. The borrower has the opportunity to pay the mortgage prematurely by paying a 1% commission on the remaining amount for early repayment.
If we compare the purchase of ready and off-plan real estate when using a mortgage, then:
Hire-purchase is not suitable for income. Nevertheless, the purchase of housing is more affordable. The hire-purchase upfront cost is approximately 5-8% of the property’s purchase price. The process of applying for this scheme is generally less complicated than applying for a regular mortgage. Lease payments help to accumulate capital as each contribution to the acquisition of an asset is accumulated.
Commercial real estate for further rental includes warehouses, office space, small hotels. This type of investment will guarantee stability regardless of market fluctuations and generally bring twice as much profit.
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