Buying an Investment Property in UAE: What Are the Options?

Today, investments in real estate represent an excellent way to make money. When it comes to foreign investment options, the UAE offers highly attractive rental rates. However, any investment comes with a risk. And before investing in the Emirates real estate market, you need to take a closer look and consider every nuance. If you are interested in acquiring an investment property that will generate the maximum income, continue reading.

• Why is it Worthwhile Investing in UAE Property?
• Things to Consider When Choosing an Investment Property in the UAE
• How to Obtain a High Rate of Return on Investments
• Completed Properties or Properties under Construction: What You Should Choose

Why is it Worthwhile Investing in UAE Property?

The United Arab Emirates is to all intents and purposes the financial centre of the Middle East. As over 80% of the population are expatriates, the Emirates have become a magnet for foreign investments due to the combination of high rental rates, flexible zero-interest payments and the world’s best property developers. Dubai is considered a leader in real estate sales in the UAE.

What is the investment appeal of the Dubai real estate market?

1. Property prices are lower than in many other big cities. You can buy property here for a reasonable price.
2. Attractive taxation. For example, the UAE has no property tax or stamp duties.
3. According to new visa legislation, investors can get a resident visa. If an investor buys property for more than AED 1,000,000, they become eligible for a two-year resident visa. Buying a property for more than AED 5,000,000 entitles the investor to a five-year visa. If the cost of the property exceeds AED 10,000,000, the investor is eligible for a ten-year resident visa.
4. Dubai is also extremely attractive as the rate of return on renting a property in Dubai is higher than in any other developed real asset markets. The average gross return fluctuates from 5% to 9% per annum.
5. In the UAE as the owner you do not have to constantly invest in the maintenance of the property. Almost all the expenses are covered by tenants.
6. The state underwrites deals. Every foreign investor buying property in the UAE is protected by the law.

Things to Consider When Choosing an Investment Property in the UAE

The following key factors can affect the return on your investment:

• The location;
• The size and floor area;
• The quality and condition of the property;
• The local infrastructure (stores, educational and medical facilities), access to public transport;
• Interest rates;
• Maintenance costs (the RERA Service Charge and the Maintenance Index).

How to Obtain a High Rate of Return on Investments

When investing in real estate, the key goal is the high rate of return on investments. Usually, you can earn more from renting a flat than a villa or a townhouse. This is not surprising: it is easier to find tenants for a flat because the majority of residential property tenants in the UAE are people on average earnings who are not looking for long-term tenancies. As a rule, they prioritise flats that are small in size and cheap to rent.

The best option is to buy smaller properties (studios or one-room flats) for letting. The property should be located in neighbourhoods with developed infrastructure. It is far easier to resell such property where necessary - expatriates tend to be able to afford a flat rather than a larger and more expensive property.

When buying a residential property, pay attention to the annual service charges that must be paid to the Land Department. These charges are based on the RERA Service Charge and the Maintenance Index. It defines the amount of payment per square foot and varies depending on the district. More information on this type of charges can be found on the DLD’s website. The charges can have a material impact on your future rental income.

The following types of property can be bought in the UAE for letting:

• Residential property — studios, flats, townhouses, villas etc.
• Prices start at AED 200,000;
• Commercial property — offices and retail premises, as well as warehouses. There is always demand for such property;
• Hotel flats. This option is handy if you don’t want to have to deal with the hassle of independently leasing a property. This task is assumed by the owners of the hotel, with the property owner paying a fee from the income.

Completed Properties or Properties under Construction: What You Should Choose

Some people prefer buying a completed property, whereas others prefer the option of investing in a property under construction. Both have their advantages and disadvantages that you need to consider before investing in property in the UAE.

Advantages of buying a finished property:

• The houses are often located in districts with developed infrastructure;
• Opportunities to make a quick profit: the owner doesn’t have to wait for a long time until the construction is complete and can start looking for tenants right away;
• Investments in completed properties tend to generate stable returns from letting.

Disadvantages of buying a finished property:

• According to the rules of the Central Bank of the UAE, if an investor buys a property costing more than AED 5,000,000, they must make an initial payment of 25% of the property cost (20% for UAE citizens);
• Initial expenses can account for about 7% to 8% of the total cost of the deal.

Advantages of buying a property under construction:

• The unfinished property is cheaper than the finished article;
• It is highly likely that the property will be worth more than at the time of its purchase once it is completed. So the value of the property will increase significantly;
• The initial payment for an unfinished property is less (5% to 10%) compared to a finished property (25%);
• Convenient payment schedules. Property developers often offer flexible payment schedules: for example, they can enable the buyer to start making payments two years after becoming the full owner. This enables investors to let the property before paying in full and start making a profit.

Disadvantages of buying an unfinished property:

• Market conditions can change. After a revaluation, the property might be worth less than at the time of purchase;
• When buying a property during its construction, buyers face the risk that the property may be finished later than the forecast date or may never be finished. It is advisable to look closely at property developers and choose the one that appears most reliable.

In a Nutshell

Now is a wonderful time to make property investments. The UAE is a promising option. Dubai, in particular, is viewed as one of the safest cities in the world and stands out as a leader in UAE investment opportunities. Giant skyscrapers, islands with luxurious villas, unique housing complexes: a true paradise for investments of any scale. Anyone considering the acquisition of real estate as a place to live can also choose from a wide variety of options - flats, villas and townhouses at attractive prices.

Cover photo: ArthurHidden (Freepik)