Benefits of Investing in Dubai Real Estate

Much has already been said about the highly profitable nature of investing in property in Dubai today. The market is booming with an abundance of investors, leading to rising sales prices and increased rental rates. Additionally, Dubai offers an incredibly comfortable lifestyle, as it is widely regarded as one of the most modern cities on the planet, designed with people's needs in mind.

While acknowledging the validity of these statements, our aim is to determine the specific individuals that would benefit most from purchasing a home in this emirate and when making such a purchase would be most advantageous for them. We will explore the pros and cons of such an acquisition and identify the key factors required to achieve your goals. By doing so, we can determine who will benefit and who may not from this investment opportunity.

• If You Need a Long-Term Visa
• If You Already Have a Visa
• If You Do Not Need a Visa

If You Need a Long-Term Visa

For individuals who intend to reside in Dubai for an extended period and do not currently possess a long-term visa, purchasing a residential property can be an advantageous solution. Holders of resident visas can enjoy the following benefits:

• Reside in the UAE for an extended period.
• Enjoy the freedom to enter and leave the country at will.
• Open a bank account or get a loan.
• Change the country where they pay taxes by becoming a UAE tax resident.
• Start their own business in the Emirates.
• Pursue employment opportunities with local companies.
• Enrol their children in schools in Dubai or other emirates.
• Study at a private university.
• Obtain medical insurance.
• Obtain a driver’s licence.
• Apply for a Schengen or US visa.

Resident visa holders cannot:

• Study in public educational institutions of the UAE.
• Obtain free medical care.
• Receive pension payments.
• Obtain a bank loan with a down payment of less than 50%.

All these options are exclusively available to citizens of the United Arab Emirates. It is crucial to understand that unlike a residence permit, obtaining citizenship in this country is extremely difficult, if not virtually impossible.

What You Need to Know When Purchasing a Home for a Long-Term Visa

1. The minimum price for a purchased property is 750,000 AED ($204,200).
2. If the buyers are married and they both register the ownership, the property price must be at least 1 million AED ($272,000) in order to obtain a long-term visa.
   
3. If these conditions are met, the buyers can apply for a two-year resident visa for themselves and their family members.
   
4. If you need a visa for a longer period (golden visa), you should buy real estate worth at least 2 million AED (around $545,000). In this case, you can register your property for one or both spouses, there are no additional requirements regarding the property cost for obtaining a visa.
   

Properties You May Purchase to Obtain a Visa

For instance, with a budget of 750,000 AED, you can purchase a one-bedroom, two-bathroom apartment measuring 78 sq. m in Jumeirah Village Circle, which is a comfortable neighbourhood located approximately 40 minutes away from the Persian Gulf. Similarly, in Dubai Marina, a popular seaside area, you can find similar apartments with an area of 70 sq. m. It's worth noting that prices in the central areas of Dubai tend to be higher. However, in Business Bay you can acquire a spacious 49 sq. m studio apartment with a separate kitchen for the same budget.

To acquire a resident visa, it is advisable to consider purchasing not just one, but two flats with a combined value of 750,000 AED. Renting out one of the properties can provide a steady income stream. For instance, within the Jumeirah Village Circle neighbourhood, you have the option to purchase a furnished studio measuring 41 sq. m for 320,000 AED. By renting it out, you can expect to generate an annual income ranging from 26,000 to 38,000 AED.

In the low-rise Discovery Gardens neighbourhood, you have the opportunity to purchase a fully furnished, more spacious studio measuring 51 sq. m for 430,000 AED. This neighbourhood features designer Mediterranean architecture. Renting out such studios in this area typically yields annual rental prices ranging from 26,000 to 35,000 AED.

If You Already Have a Visa

Let's consider another scenario. An individual holding a long-term visa, such as a study or work visa, is contemplating whether it would be more advantageous to continue renting or to purchase a flat and become a property owner.

Let's analyse the expenses involved in renting versus buying and maintaining your own home over a five-year period. For instance, consider an unfurnished studio apartment with an equipped kitchen and wardrobes, spanning approximately 45 square metres, located in the English cluster of the International City area. This vibrant neighbourhood showcases houses with various European architectural styles. The studio apartment in this area is priced at 235,000 AED, while the annual rental cost amounts to 22,000 AED.

Expenses for acquiring a property:

• Flat cost: 235,000 AED ($64,000).
• Agent commission: 2% of the lot value, amounting to 4,700 AED ($1,280).
• No Objection Certificate (NOC): Typically ranges from 1,000 to 5,000 AED, with an average value of 2,500 AED ($681).
• Dubai Land Department (DLD) fee: 4% of the lot value, totaling 9,600 AED ($2,614).
• Admin fee: 580 AED ($158).
• Registration fee: Since the lot value is below 500,000 AED, the fee will be 2,000 AED + 5% VAT, resulting in a total of 2,100 AED ($572).
• Administration fee for issuing a title deed: 260 AED ($70).

Thus, the total cost with all related expenses and fees will be 254,740 AED ($69,370).

In addition to the mentioned costs, we need to account for the developer's service fee for the maintenance of common areas and infrastructure such as the pool, sauna, garden, gym, and lobby. This fee is applicable to all homeowners and varies based on the size of the flat. In our case, the fee is relatively low at 8.81 AED per square foot per year. Considering our selected studio has an area of 480 square feet, the additional cost of living here amounts to 4,230 AED per year. Multiply this by five years, and the total reaches 21,150 AED ($5,760). Adding this to the overall cost of the flat, we arrive at the final amount: 275,890 AED ($75,120).

If the owner decides to sell the flat after five years, they can expect to recoup at least the majority of the initial investment. To assess the price dynamics of studios in the International City area in recent years and provide a rough estimate for potential returns, let's examine the historical trends and make a rough forecast.

In the previous year, prices for studios in International City witnessed an increase of approximately 9.8%. At the start of 2022, registered transactions were valued around 205,000 AED ($55,800). In the first quarter of 2023, the average cost of such transactions has risen to 225,000 AED ($61,200). However, overall, the price dynamics in this area have remained relatively stable, and no significant growth is projected in the near future.

Considering the potential depreciation of the property over time and the gradual price growth, it is plausible to sell the studio after five years for a price similar to the initial purchase amount. However, this assumption holds true under the condition that the sale is not urgent and unpredictable macroeconomic factors do not come into play.

With this favourable scenario, the final cost of living in your own flat for 5 years will be: 275,890 AED to 235,000 AED = 40,890 AED ($11,100).

Rental Expenses

Now, let's shift our focus to the second option and calculate the rental cost for comparable accommodation. As previously mentioned, the average annual rental price for studios in International City is 22,000 AED. Therefore, the total rental payments over a span of five years would amount to 110,000 AED ($29,900) in total.

In addition to the aforementioned amount, we need to consider the cost of furnishing. It is common for owners of flats, townhouses, and villas in the UAE to rent them out unfurnished, with the exception of a reasonably equipped kitchen and built-in wardrobes. Tenants are responsible for purchasing all other furnishings. In certain cases, owners may choose to furnish the property at their own expense, but this usually results in an increase in the annual rental price equivalent to the cost of the furniture purchased.

The basic furniture set for a studio typically includes a sofa, a coffee table, a TV console, a dining table with two chairs, a bed, a bedside table, a lamp, and a mirror. The total cost for these furnishings typically ranges from 8,500 to 10,000 AED ($2,300 to $2,700). When moving out, it is possible to sell the furniture and appliances, such as to a new tenant. However, used furniture generally sells for about half its original price. Therefore, it's reasonable to add an approximate amount of 5,000 AED ($1,360) to the total rental costs to account for potential furniture expenses.

In Dubai, rental prices have been steadily increasing. Two years ago, the average cost of an annual rental contract was 26,000 AED ($7,000). As of the beginning of 2023, it has risen to 30,000 AED ($8,100). This indicates an approximate price growth of 7-8% per year in the recent market trends. 

In a long-term rental contract, the price is initially fixed for two years and can be recalculated no more than once a year. According to local laws, if the average rent in the area where the property is located exceeds the current rate by 11% to 20%, the owner has the right to increase the rent by 5%. If the average rent in the area surpasses the current rate by 21% to 30%, it is permitted to raise the rent by up to 10%. However, it is unlikely for the latter scenario to occur in the specific area we are discussing. Nevertheless, we should consider a potential 5% annual increase in the cost of the contract over five years in our calculations. In this case, the total increase would amount to 2,255 AED ($614).

Compare Results

The cumulative rental cost over a period of five years amounts to 117,250 AED ($31,900). This is 2.8 times higher than the expense of owning a similar property. Even if you have to sell the studio later at a significant discount (e.g., 15% of the property's value, totaling 35,250 AED), it still proves more advantageous to own the real estate rather than renting it.

If You Do Not Need a Visa

Suppose you do not have immediate plans to reside in the UAE. Many individuals contemplate investing in Dubai's real estate market or even seek to complete purchase agreements remotely, without physically being present in the country. The UAE tax system also serves as an enticing factor for prospective buyers. Notably, there is no property tax, a feature uncommon in many other countries.  

Let's explore whether it is worthwhile to invest your savings in flats or villas in Dubai and examine the advantages and disadvantages associated with such property acquisitions for the owner.

Some Statistics 

In 2022, there was an average price increase of 10% for residential properties under construction in Dubai, while secondary housing experienced a price rise of 16.8%. The positive aspect is that prices are still 21.4% lower compared to the levels seen in 2014. However, analysts predict continued price growth for at least another year or so.

Considering the average cost of one sq. m of luxury housing, which was 3,220 AED or $870 in 2022, the local market for luxury houses and flats in Dubai is considered one of the most affordable worldwide. This figure is already experiencing growth, and experts predict that this upward trend will continue for a considerable period of time. However, there exists a notable imbalance favouring flats in residential buildings, coupled with a shortage of premium villas in the prime areas of Dubai. The demand for such villas exceeds the available supply, creating a market dynamic where premium villas are in high demand. 

Finally, with the recent announcement of a new government program in spring 2023, Dubai aims to position itself among the top three most sought-after regions globally for business and tourism in the next decade. The ambitious initiative seeks to double many of the emirate's key economic indicators, further solidifying its status as a prominent destination.

Therefore, the answer to the question of whether it is worthwhile to preserve and grow your savings through Dubai real estate is a resounding yes. This region and its property market present favourable conditions for investments, and this trend is expected to persist, at least in the foreseeable future.

Take Your Time Before Making a Final Decision

Making an ill-informed choice when it comes to property can yield undesirable outcomes. It is crucial to meticulously analyse the market, identify properties of interest, create a shortlist, and gather comprehensive information about each one.

It is important to note that at this stage, you may require the assistance of an interpreter, and their services will come at a cost. Brokers in Dubai are not obligated to be fluent in your language, and their proficiency in English may vary from what you are accustomed to.

The expenses related to acquiring and maintaining a property have been explained in detail above, allowing you to calculate the total cost of your lot independently. However, it is worth mentioning that if the price of a house or a flat exceeds 500,000 AED, the registration fee will amount to 4,000 AED ($1,088) plus 5% VAT.

What Additional Expenses May a Property Owner in Dubai Incur?

If you own multiple properties and intend to sell them in the future, it is important to note that starting from 1 June 2023, you will be subject to income tax if your annual income exceeds 375,000 AED ($102,000). The tax rate for such income will be 9%. However, it's worth mentioning that this rule does not apply if you purchased a single flat or house for personal use and subsequently decided to sell it.

If you purchase a property in Dubai with the intention to rent it out, it is important to note that you will be required to pay an annual municipal tax. This tax is calculated at a rate of 5% of the annual rental price.

Every real estate purchase and sale transaction in Dubai involves the assistance of professional brokers. It is mandatory for both the seller and the buyer to have their own broker. Therefore, it's important to be prepared to pay a commission fee. Typically, the commission fee is around 2%, but in more complex cases, there may be variations in both directions.

In a Nutshell

Investing in Dubai property can be a highly lucrative venture, but it is essential to consider all potential expenses involved. We strongly recommend creating a comprehensive business plan for the acquisition, maintenance, and potential sale of your property, even before embarking on your search. This plan should encompass all relevant taxes and fees to ensure thorough financial planning.

Cover photo: Design Quarter (Housearch)