Investing in Dubai Property: To Buy or Not to Buy (and rent instead), that is the question.
Property investment in Dubai can be a tricky terrain to navigate. Here’s what you need to know when looking to settle down in the emirate, whether you’re looking to buy or rent.
Though traditionally seen as a reliable means of growing your wealth, capital and foothold in the region, today many people are hesitant to throw themselves into a full-fledged property investment, owing to the various and sundry factors surrounding an often-unpredictable market. Deciding whether to buy or to rent can be something of a conundrum. And going with either approach means being aware of a plethora of factors.
Underlining the emirate’s property market out here, however, are some strong, ever-present factors that make for a solid property investment climate. A vibrant and diverse city of more than 3.1 million people of more than 200 nationalities, Dubai is a home to a myriad cultures who see it as a home away from home. In recent years, previously rigid visa rules have relaxed, allowing more people to live in the emirate for longer, including a 10-year residency permit for some expats. And perhaps most significantly, Dubai’s average property yield is 7 percent, higher than the average among other expat-majority countries like Singapore (4 percent) and Hong Kong (3 percent).
However – and there’s always a however. Strong fundamentals alone are not always enough to convince a potential buyer or tenant to part with large sums of money. There are many other factors to consider.
For instance, new homeowners are obligated to pay a 25 percent down-payment the first time they purchase a home in the UAE. Parting with more than AED600,000 for a three-bedroom property is no small matter. So, you need to be sure you’re in the right location and the right market before taking the plunge. Given this framework, rentals are more appealing to many.
But renting throws up its own challenges and obstacles. The initial down payments are obviously not as high, but the feeling of “homeliness” is more elusive and chimerical, given the fact that you can’t always make modifications to your living space, unless you have a landlord who is proactively looking to upgrade their property. Add into that the fact that monthly repayments are generally higher for rentals than mortgages, and there can be a source of frustration there, too.
In short, determining the best financial option for home ownership is a double-edged sword. So here are several aspects that all consumers need to consider when considering property investment in Dubai.
Down payments for Dubai Properties
Potential buyers need to be aware that there are upfront costs associated with purchasing a home in Dubai. In addition to making a down payment on a home, buyers will also have administrative costs that cannot be avoided. These expenses can quickly drive up the cost of buying a home and need to be calculated when deciding whether buying a home is right for them. For example, buyers will need to pay a commission to their broker, as well as a mortgage processing fee. There is also a Dubai Land Department (DLD) fee, as well as several other administrative costs. The DLD transfer fee is one of the most important fees to understand, as it requires the purchaser to pay 4 percent of the property value in addition to AED 580. There is a limited amount of time to make the transfer fee payment. After that time, the fee is doubled and an AED 10,000 fine is added to the cost.
Renters also have upfront costs, however. Some landlords in Dubai request that tenants pay their annual rent in advance. While the monthly costs may be lower than a monthly mortgage payment, this expense may be surprising to some expats who expect to pay a low monthly fee each month. Renters need to be prepared for their landlords to request a higher amount of money up front, but this is normal in Dubai.
Outgoing for Buying and Renting in Dubai
Whether you rent or buy a home, there will be annual maintenance costs. A typical 3-bedroom home in Dubai, for example, will have maintenance costs of between Dh70,000 and Dh100,000 each year, according to The National. These costs are unavoidable and need to be considered ahead of time.
Homeowners in the UAE will have some additional expenses that expats need to be aware of. For example, homeowners are required to pay an annual fee that will vary based on the square footage of the home.
Tenants aren't excluded from continual expenses either. Renters will similarly have some expenses that will need to be paid each year. For example, tenants will need to pay an annual Ejari fee to register their tenancy contract.
Long-term versus short-term stays in Dubai
MyBayut notes that it's important to consider whether one plans to reside in Dubai for a long period of time. For travelers or people who enjoy working in different places, a long-term residency may not be ideal. For consumers who want to stay in Dubai long-term, however, purchasing a home could be the right choice.
Gulf News notes that expats who play to live in the UAE for more than 15 years may benefit from purchasing a property. Some expats may pay up to 40% of their monthly income to rent costs, so keep in mind that if you are going to live in the UAE for many years, you can reduce this long-term expense by making a purchase.
According to Gulf News, the long-term difference between renting a home and purchasing a home can be significant. The most important thing to remember is that when you make a purchase, you'll be able to later sell your home and regain some of the income you spent. For example, tenants might pay Dh2.16 million after renting for twenty years. Homeowners who purchase a property of the same size will only pay about Dh1.76 million after the same amount of time. Note that these calculations do not include additional utility fees or expenditures that both homeowners and tenants may encounter.
Is Dubai your home?
Understandably, many young professionals find that renting a home for short-term living is ideal, while long-term residents of Dubai may find that buying a home is more financially reasonable. Not only are the monthly expenses lower when compared with the cost of rent, but there may be other socioeconomic benefits to owning a property, such as social stability and the understanding that you have a social commitment to your new location. If you have been considering renting or buying a property in the UAE, make sure you consider all of your options and meet with a real estate professional to discuss the best choices for your life.