[This article was originally published in Khaleej Times]
With Dubai house prices at around three-year lows and expected to rise ahead of Expo 2020, now could be the ideal moment to get onto the UAE property ladder.
Deciding where to invest and what type of property to buy can be confusing, so we at propertyfinder have put together 5 handy pointers to help you choose wisely.
- Consider some universal truths
Undoubtedly, nearby community facilities are highly sought after and can help a district command a price premium versus areas with inferior amenities for both owner occupiers and tenants. On the flip side of that, an excellent value can be obtained in new emerging communities where there is a lot of construction and the facilities and amenities are far from complete. For investors, it is these emerging communities that typically offer the best rental yields, in the high single digits and sometimes even over 10 per cent. Also for first-time homebuyers, they’re affordable; prices well below AED1,000 per square foot are obtainable and in comparison to fully complete projects such as Downtown Dubai, are 40 per cent of the price.
- Inconvenience – the obvious short-term downside
Views of construction sites and their accompanying construction site noises will put off many. Basic infrastructure not only means limited conveniences nearby but can also mean increased traffic. Some of these newer communities include Dubai Land, Al Furjan, DSO, Dubai Sports City, Motor City, JVT and others. Buyers should note that they often have a lot of stock under construction, with more in the planning pipeline which will have an obvious impact on supply and therefore potentially limiting your capital growth prospects.
- Real estate is a waiting game
High entry costs plus additional exit costs mean you need to have at least a 5-year time frame in mind. And with prices at 3-4 year lows, your chances of gaining a positive outcome by 2020 and beyond is highly likely.
If you are considering off plan, it’s advisable to factor in a minimum of a one-year delay from what you’ve been quoted by the sales agent. Whether by design or miss-happen, new projects nearly always take longer to hand over than expected. We’ve all heard the horror stories of buyers who have forked out large deposits many years ago and are still waiting.
Thankfully these days, buying off plan with a less than 50 percent deposit is the norm and progress payments are (usually) linked to construction milestones, which offers off plan buyers considerable additional protection than was available previously. That doesn’t mean though your apartment will be delivered on time, it just means that if it’s delayed, you hold onto your cash until the construction catches up.
The other obvious risk with off plan is not getting what you expected you paid for. The view, finish and even size is not (always) guaranteed. Always double check the fine print which can often be left deliberately vague.
- Off plan is risky but comes with discounts
The first instalments are often just 5 to 10 percent meaning you can seriously leverage your hard earned cash.
If you have a meatier budget and want to be in the midst of the action, Dubai Marina and Downtown Dubai are obvious choices. Here though, accessibility is a factor to scrutinise closely. Trial it yourself at different times of the day before taking the plunge.
Such concerns have made many people wary of living in neighbourhoods like JBR, so buyers must consider whether the other benefits of these locales sufficiently outweigh the negatives. If you believe they will, then investing in a heavily congested, but amenity-rich neighbourhood could provide a significant financial upside. The old adage of the three most important things to consider in real estate – location, location, location – is certainly true of the Blue Chip communities in Dubai.
For investors, these communities generally offer lower yields than the newer emerging communities. Six per cent to eight per cent is most common for small to medium sized apartments. This is still excellent by international standards and is more than double the interest you’ll pay on your mortgage. In these communities, furnishing the apartment and offering for short term rental can achieve excellent returns.
Most apartments in the UAE, excluding the very high-end penthouses, will be positively cash flowed for investors purchasing with a minimum deposit of 20 per cent to 25 per cent plus costs, even after you factor in all costs including mortgage interest, building management fees, DEWA, vacancy and maintenance.
For many buyers in Dubai, a water view is a must have. For this or any desired view you’ll pay a premium. However, views are not guaranteed anywhere in the world but never has that been truer than in Dubai where coastlines are fluid and a 50+ level building could pop up next door anytime.
- Affordable villas are an unsupplied and over demanded segment of the market
Emaar’s Reem and lower priced options within Akoya by Damac are great examples of successful affordable villa projects. These potentially have the best capital growth prospects and rental yields in this segment are also strong. Again high single digits are possible. Conversely, at the very top end of the Dubai market, Emirates Hills and Palm Jumeirah villas offer the lowest rental yields of just three per cent.
Again not bad compared to most parts of the world but for buyers in this segment with AEDh20 million plus budgets, rental yields are usually not at the top of the tick list. Value for money here remains excellent despite a record high dollar and falling property prices in the UK and most European markets.