How to choose property for investment in Dubai?

Property investment in such an active city as Dubai brings significant profit. A foreign investor in Dubai can count not only on a payback period of 10 to 20 years, but also on obtaining a residence permit. However, in order for the purchase to be successful, you need to know exactly how the emirate’s housing market works.

In this post we are talking about why it is worth investing in real estate in Dubai, how to avoid risks and what factors to consider when choosing.

Why do expats choose Dubai for investment?

In Dubai, real estate is considered the most profitable investment. There are several reasons for this:

  1. No income taxes.
  2. High standard of living and safety in the city and the country as a whole compared to many other popular destinations.
  3. A stable economy that has not been affected by the pandemic and political conflicts. According to analysts, in 2022 its growth will be 4.5%.
  4. The cosmopolitan nature of the emirate: only one of the 23 employees here is a UAE citizen, the rest are expats from other countries who successfully integrate into the environment.
  5. Simple process of buying and registering a property.
  6. Equal terms for all expats (in the case of purchasing housing in a freehold zone).
  7. Steady price growth: a well-chosen property will cost more over time. For instance, in 2021 the cost of residential units increased by an average of 42.2% and, according to experts, will continue to grow.
  8. An option to obtain passive income and obtaining a resident visa.
  9. Flexibility in terms of ownership: housing can be purchased and resold at any stage of completion.

Dubai has become a popular destination to buy a second home according to a recent survey of more than 12,000 respondents, thanks to its infrastructure, a successful strategy to combat the pandemic, and the introduction of visa and labor reforms. The survey was conducted by the company InterNations, which is engaged in establishing communications between immigrants around the world.

Many foreigners choose Dubai for investment, as they are sure that their funds will be safe here – the dirham exchange rate against the dollar has not changed since 1997. But another argument in favor of this condition is the possibility not only to save, but also to increase the investment. To do this, it is important to choose the right object.

Is it profitable to invest in real estate in Dubai?

There are several option to invest in property. One of the most obvious options is to rent out your property and generate income. Potential investors should consider the following:

  • In order to make a profit from rent, it is not necessary to permanently reside in the UAE or search for tenants yourself – the management company will do this for you. How quickly you can recoup your purchase will depend on a number of factors. For example, it depends on the location, the type of lease you choose, the features of the project, area, layout, condition of housing, etc. Thus, an investment with high profitability is guaranteed if housing is located in a sought-after area (objects in tourist and coastal areas are in constant demand, as well as developed communities located near business centers). The most popular apartment options are studios and one-bedroom units. Renting out an apartment is generally easier than renting out a villa.
  • There are options for short and long term rentals. In the first case, you rent out housing for a short period of time (as a rule, this format works successfully in locations that are in demand among tourists, for example, in the city center or with access to the beach). In the second case, the contract is for a long stay: in these conditions, the property may be located in a less popular area among travelers. So, a potential tenant may choose your offer because they work in a nearby office or your property has comfortable access to one of the main road interchanges in the emirate.
  • Each residential or commercial space that can be rented out has its own indicator – ROI (Return on Investment). This indicator shows how much profitability the unit of real estate that you are going to purchase can have or already has. This return on investment in Dubai is the final figure after deducting all mandatory expenses. The average ROI in the emirate today is about 5-8%. However, depending on the type of property, the ROI may vary. For example, a long-term lease can bring you 4‒7% per annum, while a short-term one can bring you 11‒13%.

Another way to make money on an investment is to resell it later. You can buy a property in an off-plan project. After that, you have the right to either transfer the property while it is being built and benefit from a small price difference, or wait until the construction is completed and sell the finished housing with a significant increase in value – up to 20%. In any case, the seller benefits, as any housing becomes more expensive as it approaches the completion of construction. The earlier you buy real estate, the higher your dividends will be.

How to choose an apartment for investment?

The most popular buy-to-let and buy-to-resell options are apartments. However, before investing in a property, it is necessary to take into account some aspects. Investing in real estate in Dubai today can be very profitable if you take a number of actions before the deal:

  • Make inquiries about the builder and make sure of his decency.
  • Evaluate those projects that were completed by the development company earlier in order to understand whether it fulfills its obligations on time.
  • Decide on the location you are interested in. For example, it may be a developed area with a complete infrastructure. If you are considering a purchase in new development areas, the potential of which is not completely clear, it is better to contact specialists. Brokers will advise you on any issue and help you choose the option that is suitable for the price and profitability.
  • If you are talking about housing under construction, you can find a similar property in the same area and find out what its ROI is and whether it is in high demand. Buildings at the off-plan stage have an important advantage – they can often be purchased on an interest-free installment plan from the developer.
  • Calculate or find out the ROI of an already rented residential unit. This indicator is directly affected by the location. The average profitability of apartments in popular areas today is as follows:
    • Business Bay – 5.31%;
    • Downtown Dubai – 5.42%;
    • Dubai Marina – 6.11%;
    • Jumeirah Village Circle – 6.21%
    • Palm Jumeirah – 5.59%.
  • Decide what type and footage of housing you want to purchase.
  • Understand if you have enough money of your own or if you need to attract a bank loan.
  • Decide whether you will qualify for a resident visa upon purchase of real estate. In Dubai, the minimum threshold for obtaining a residence permit for a period of three years is AED 750,000 ($204,000). The document can be issued for immediate family members and extended an unlimited number of times while you are the owner of the living space.
  • Understand whether the acquisition will be exclusively an investment step, or if you plan to live in the UAE for a certain part of the year. This decision can affect details such as finishes, views, layout, number of rooms, etc.

What are the risks when buying property in Dubai?

The real estate market of the emirate is strictly controlled by the Government of the country, therefore, in many aspects, both buyers and sellers feel protected. However, it is worth paying attention to some details in order to minimize the risks of investors. Thus, problems may arise when purchasing objects off-plan.

One of the main fears of potential home buyers at the construction stage is the question: what will happen to investments if the developer freezes construction or delays delivery? Although the situation with the delayed completion of the building is very rare, it still exists, and this problem may affect the buyer of the property.

To ensure the security of your property investment in Dubai, it is important to make sure that the sale and purchase agreement clearly states the date of completion of the construction, as well as the actions of the developer company in case it does not meet the agreed deadlines. Cases when the project ceases to exist even before completion are extremely rare, but no one is immune from them. In order not to find yourself in an unpleasant situation and not lose the money invested, you can either study the activities of the developer on your own in advance and make sure of the reliability of his reputation, or trust the professionals. Realtors strive to reduce the financial burden on the investor, and thanks to their experience they can minimize possible risks.

To protect off-plan homebuyers, the Real Estate Regulatory Agency (RERA) has introduced some requirements. According to the regulations, developers are required to accumulate all payments received by them in an escrow account, access to which they receive only after completion of a certain stage of construction. In other words, developers are also interested in handing over the object on time and on the terms specified in the contract – otherwise they will not receive t pay for your work.

Another important aspect to consider and check is the registration of the construction company, the ongoing project and their escrow account in the systems of RERA and its parent organization: the Dubai Land Department (DLD). If there is no information about the company on the regulator’s website, you probably should not consider it.

If the reason for freezing of construction is financial problems or the bankruptcy of the developer, anti-crisis enterprises can help. They provide affected investors with options for transferring ownership of already completed projects. Such companies work with objects ready for commissioning, offering them to buyers as alternatives, similar in characteristics, to the living space that the previous developer did not complete. Another way to solve the problem will be the transfer of rights to complete construction to another company.

Real estate agency in Dubai AX CAPITAL offers assistance at any stage of the purchase and sale and registration of property. The catalog of the company includes all types of real estate for foreign investors, and many years of experience of experts and their detailed knowledge of the local market will allow you to make the right choice.