How to Earn From Investing in Dubai real estate

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How to Earn From Investing in Dubai real estate

The rental business in Dubai is one of the most profitable options for generating passive income in the UAE. In the emirate, acquisition costs can be recouped in 15 years or less, since the average ROI (return on investment) exceeds 6% a year in the country.

Specific profitability will depend on several factors, such as the unit’s location, its area, the future of the region, and demand during a particular period. Those investors who do not receive rental income will be able to increase their capital by reselling houses some time after purchase at higher prices.

In this article, we will discuss the various ways to earn money by purchasing real estate in Dubai, tell you how much profit you can receive if you rent your property out, and explain how long-term and short-term rentals work in the emirate.

Dubai as a Platform for Investment

Even though the capital of the UAE is Abu Dhabi, the housing demand is higher in the emirate of Dubai. So, in 2020, transactions worth a total of AED 72.5 billion ($19.7 billion) were concluded here. In 2021 this figure was exceeded by four times, with AED 300 billion ($81.6 billion). Dubai trumps Abu Dhabi in the development of urban infrastructure. Dubai is home to the most well-known attractions of the UAE, the largest shopping malls, ultra-modern hotels, and lavish restaurants.

From October 2021 to March 2022, Dubai was the host city for Expo 2020, which attracted thousands of tourists and numerous international exhibiting companies. This wave of interest in Dubai has affected the demand for real estate and rental prices. In 2021, the number of rental transactions increased by more than 500% compared to 2020, amounting to 35,400. In the first four months of 2022, 15,300 rental transactions were concluded in the emirate. So, this figure has reached almost half of the record result of 2021 in just four months.

Prestigious Areas of the Emirate

Experienced investors know how to make money on real estate in Dubai. They choose the most liquid and profitable properties in sought-after neighbourhoods. In this regard, the most profitable will be short-term leases. If the area is popular, local houses can be successfully rented out all year round. Tourists prefer to rent accommodation closer to the sea or the city centre. Apartments and villas on the coast or busy city streets will always be in demand among tenants.

The following are the three most sought-after areas of the emirate among tenants and investors, with the highest recorded rental income in Dubai:

Dubai Marina. This area occupies an area of only 2 km2 but includes 200 skyscrapers, numerous restaurants, and premium hotels. Here, a square meter will cost on average AED 13,800 ($3,700), but the return on investment exceeds 6%.
Palm Jumeirah is a well-known man-made island shaped like a palm tree. Local apartments and villas are more expensive than in Dubai Marina, but demand among tenants and buyers is almost the same in these areas. People who want to live in a metropolis, but prefer peaceful places often choose housing here. In Palm Jumeirah, there are more cottages than high-rise residential buildings. A square meter of apartments costs an average of AED 15,300 ($4,100), and a square meter of villas costs AED 32,500 ($8,800). The return on rental properties is higher for apartments, 5.84%, while for mansions it is 3.6% a year.
Downtown Dubai is a busy district that is popular with tourists. The tallest building in the world, the Burj Khalifa, is situated here. The average cost per square meter is AED 17,500 ($4,700), and the apartment ROI is 5.44%.

Liquidity of Real Estate in the Emirate

Thanks to Expo 2020 and the successful fight against the pandemic, prices for property in Dubai in 2021 and the first quarter of 2022 rose in response to growing demand. Experts believe that investing in local properties remains attractive for investors, as the cost of housing will continue to grow. It has not reached its maximum level yet. So, from May 2021 to the end of April 2022, the price per square meter of apartments increased by 39.7% and reached AED 15,600 ($4,200) in the emirate. During the same period, villas have risen in price by 10.9%. Today, a square meter of detached mansions is sold for an average of AED 8,900 ($2,400).

In Dubai, liquid property prices start at AED 360,000 ($98,000). You can house-hunt for more affordable options, but if you plan to make money on real estate, it is better to focus on promising projects in developed or expanding locations. It is not easy to rent out cheap properties. In addition, it is not easy to sell these types of units for higher prices.

Long-term Rentals

Most investors prefer to rent apartments out rather than sell them. Renting a property in Dubai can be both long-term and short-term. Management companies that help find tenants and arrange accommodation do not take money from the homeowners for their work, tenants pay them about 5% of the rent price.

An agreement is concluded with tenants. A copy of this document can be found and downloaded on the Government website. This contract sets out the rights and obligations of both parties. This agreement is often concluded for a period of one year. If tenants move out early, they will be expected to pay a fine. The homeowner does not have the right to demand that the tenant move out before the expiration of the agreed period, but if it is necessary, he will pay the tenant financial compensation.

The tenant either pays immediately for the entire year or pays every quarter. If the entire year is paid in one installment, the parties can agree on a discount.

Short-term Rentals

Renting a house for a short period is more profitable for an investor, but it requires much effort. For comparison, when renting the same property for a long period, an investor receives 5-8% a year, while you may receive 11-13% if renting a home for a short period.

This option is not suitable for a management company, since the living premises should be cleaned and maintained before every new tenant. The company would also have to deal with the interaction with tenants. But, as in the case of a long-term rental, the owner himself does not pay for these services. The management company collects a commission of about 20% of the rental amount from tenants.

To rent your property out on your own, you need to obtain special permission for a Holiday Homes license. The Department of Tourism and Commerce Marketing (DTCM) controls this activity. Registration of a document for one year will cost you about AED 2200 ($600).

How to Make Money in Dubai Real Estate

The cost of rent in the emirate grows constantly. So, in 2021, even before the Expo 2020 exhibition, Dubai was included in the list of cities with the sharpest and most significant growth in rental prices. In this rating, it followed Miami and Moscow. The World Expo has taken this rate even higher.

Currently, one-bedroom apartments in Dubai Marina can be rented out for an average of AED 110,000 ($30,000) a year on long-term rentals. Average short-term rental prices are a minimum of AED 367 ($100) per day.

To make money in the real estate market in Dubai, you need to consider the following aspects:

It is easier to rent a unit out in a new building than in an old one. In the first case, rental prices will also be higher. Even though housing options in a building that is several decades old are cheaper, it is unlikely that you will be able to recoup this investment.
The unit can be bought at the construction stage or after it is commissioned. Some real estate developers offer an installment option when buying a home in a new building. In some cases, you may still have to pay for the purchased unit even after the apartment becomes yours. In this case, you can start renting out your property and pay the remaining amount to the developer, with the funds you receive from the tenants.
If this is an off-plan project, you can learn about its prospects by studying similar housing in the same area. The demand for similar homes, the development of infrastructure, available transport interchanges, and distance from the center, kindergartens, and schools in the area will tell a lot about your potential home.
The area the house is in is just as important as its location. Experts say that large apartments with three or more bedrooms are harder to rent out, while studios will always be in high demand.

The real estate agency, AX CAPITAL, provides services for housing acquisition and the registration of ownership in Dubai. Please get in touch with our specialists, whether you’re seeking a buy-to-live or buy-to-invest housing option. Any questions you may have will be answered by our competent agency specialists.