With Dubai house prices 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 have put together some handy pointers to help you choose wisely.
[This article was originally published at Khaleej Times]
Let’s first 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, 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%. Also for first home buyers they’re affordable; prices well below AED 1,000 per sqft are obtainable and in comparison, to fully complete projects such as Downtown Dubai, are 40% of the price.
The obvious downside of this is the inconvenience, at least in the short term. Views of construction sites and their accompanying 24 hour per day 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. But property 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 chance of gaining a positive outcome by 2020 and beyond is highly likely.
If you are considering off plan
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 handover 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% 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 your apartment will be delivered on time though, it means that if it’s delayed, you hold onto your cash until the construction catches up. The bigger, more reputable developers, in general, are more reliable when it comes to delivering on time as they are less dependent on buyer installments to fund construction.
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.
You can often save 30% of the completed property price by buying off plan. The first instalments are often just 5% to 10% 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
In that case, Dubai Marina and Downtown Dubai are obvious choices. Here though, accessibility is a factor to scrutinize closely – that high-rise Marina apartment might be achingly desirable, but what if it requires enduring a 30-minute traffic jam to make it home each evening? Please note that different buildings within the same community can enjoy much easier (and tougher) access both in and out. Trial it yourself at different times of the day before taking the plunge.
Such concerns have made many people wary of living in neighborhoods 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 neighborhood could provide a significant financial upside. The old adage of the 3 most important things to consider in real estate are location, location, location is certainly true of the Blue Chip communities in Dubai. Although there is still considerable construction and some vacant lots, they are essentially ‘fully developed’ and are likely to remain the most popular with buyers and renters in the short, mid and long term.
From the part of investors, these communities generally offer lower yields than the newer emerging communities. 6% to 8% 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.
Having it professionally managed by an appropriately licensed agent is highly advisable. Short term management is a very different business to the leasing service offered by most agents in Dubai. Short Term tenants come and go at different times for varying durations at weird and wonderful times of the day (and night), can leave a mess and be full of strange requests, all of which may be business-as-usual for a hotel manager but beyond the means of your average leasing agent. Short term Management fees often exceed 20% but after you factor in higher vacancy rates, your net yield may still exceed 10%. Particularly for studios and 1 bedroom apartments.
In fact, 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% to 25% + 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 very well pop up next door anytime. A friend gave me some good advice when I first arrived in Dubai. If you’re planning to invest, buy something facing a wall. At least then you know what you’re paying for!
Looking for a villa?
If you are considering a villa purchase, propertyfinder.ae search and price statistics have consistently shown that 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 3%. Again not bad compared to most parts of the world but for buyers in this segment with AED20M 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.