Investing in a property is a good method of building wealth and income. But all investments come with their risks and many aspects have to be thought through before finalizing the decision.
The real estate market of Dubai boasts some of the most appealing rental returns globally. If you want to invest in a property, keep on reading to know everything about investing in this city, curated by LuxuryProperty.com- a top real estate broker in Dubai.
Why invest in Dubai?
1. It offers high rental returns
As opposed to other mature property markets in the world, Dubai boasts superior rental returns. Investors enjoy a gross rental return of 5 to 9% on average.
2. Property cost per square foot is lower than other cities
The affordable or low price of property cost per square makes it a desirable city for investment. You can easily invest in this prime location.
3. New visa laws regarding property investment allows investors to receive a residence visa
For all the properties above the cost of AED 1 million, you can get a 2 years residency visa. As for the properties priced more than AED 5 million, you can achieve a 5 years of residency visa. Lastly, for properties valued more than AED 10 million, the investor can gain a 10 years of residency visa.
4. Very favorable tax conditions
The lack of property tax and stamp duties makes the investment easy. These taxes are applied in other cities’ real estate. These excellent pros paint the city as a very appealing investment environment.
What to consider while choosing an investment property
Strong yields on investment (ROI) is the long-term goal while investing in any property. Gaining a property which offers healthy rates of yields demands comprehensive diligence from the outset. Below are some of the factors that can impact rental returns:
- Maintenance costs (RERA Service Charge and Maintenance Index)
- Interest rates
- Amenities and facilities offered in the community
- Proximity to educational institutions, childcare, transportation, restaurants, supermarkets etc
- Market conditions and time of purchase
Where to invest to gain high rental returns
Dubai Silicon Oasis provided the highest gross returns of 9.5% for apartments, in the first half of 2019. Afterwards, Meydan, DAMAC and latest communities did the same, giving gross rental returns of 9.3% and 8.9% only for apartments.
As for the communities including townhouses and villas, Town Square offered the strongest gross rental returns at 7.8%. The Springs boasted 6.6%, Reem – Mira offered 6.4% and Mudon gave 6.3%.
Tips to gain strong rental returns
1. Apartments usually offer stronger rental returns
As compared to other properties, apartments are favorable due to the low to mid income population.
2. Choose smaller sized apartments in cheap Communities
It’s better to purchase a studio or 1 bedroom apartment with decent infrastructure. The property should be close to basic amenities such as healthcare and education and transport.
3. Resale of smaller units is quicker
Resale is not only quick but provides a better value as opposed to bigger sized properties. This is because a big portion of the city’s expat population can buy smaller units when an investor wishes to release equity.
4. Annual maintenance charges
The maintenance charges payable to the Dubai Land Department relied on the RERA Service Charge Maintenance Index can literally influence general rental returns.
This index finalizes a particular charge per square foot and compares by community. Up-to-date fees can be derived directly from the DLD’s website.
Off-plan and ready-to-move-in property
Both property categories come with their pros and cons. Each investor has his own financial status and risk appetite. Therefore, learn the risks and cons of both categories before choosing one.
Advantages of purchasing off-plan property:
Investors usually gain advantage of low prices from properties which aren’t completed.
2. Capital appreciation
There’s a big chance of property boosting in value when it’s almost complete and near handover.
3. Smaller down payments
Early deposits of 5 to 10% as compared to 25% for readymade properties, can make investment more easy.
4. Payment plans
Developers provide appealing and flexible payment plans. In some cases, they give post-handover 2 to 5 years payment plans. This means you can rent the property before starting the repayments.
Disadvantages of purchasing off-plan property:
1. Fluctuations in market conditions
The downward spiral in costs can lead to the property being valued at less than the early purchase cost.
2. Delays or cancellations
There is definitely a risk of the project being terminated or finished after the scheduled opening date. In order to avoid this risk factor, it is crucial to carry out thorough research on the developer to see their credibility and track record.
Advantages of purchasing ready-to-move-in property:
This benefit can be available relevant to market conditions at that given time. In the buyers market, it can be possible to purchase a property at a great discount. Currently, as the real estate market is undergoing a correction phase and new supply is introduced, the price will decrease. This means that buyers have the chance to bargain.
Readymade properties are usually in prime locations with finished infrastructure.
3. Immediate returns
You will instantly start earning rental income after finding a tenant.
4. Stable rental returns
There is the added benefit of rental returns.
Disadvantages of purchasing ready-to-move-in property:
1. Down payment
According to the UAE Central Bank rules, the lowest deposit needed for expats is 2.5% of the purchase cost for properties worth less than AED 5 million, for the nationals, it is 20%.
2. Immediate costs
Upfront transaction prices can be almost 7 to 8% of the purchase cost.
If you are gaining a mortgage to pay for the purchase, it is crucial to consider the turnaround time of the selected bank.
Wrapping it up
There has never been a better time to buy or invest property in the eclectic Dubai. Continuous new supply provides investors and buyers a variety of freedom and continues to slowly drive cost down to more affordable offers.
If you are searching for an investment opportunity at a cheap price on the prime real estate and gain high rental returns, look no further. Also, Explore here to know when buying property in Bahamas.