Investing in Dubai: Opportunities, Prospects, and Potential Risks

Dubai appeals to investors with its inviting climate, both literally and metaphorically. As a resort destination and a crucial trading hub in the Middle East, the emirate fosters robust partnerships with markets in the USA, Russia, Europe, Turkey, India, and China. This opens significant opportunities for business and investment, thanks to lenient compliance regulations and zero taxation on most income types, such as rental income, employment earnings, and dividends from securities. In collaboration with the experts at Housearch, we have compiled insights into the most promising investment sectors in Dubai.

• Investment Climate in Dubai
• Investing in Fintech and Banking
• Venture Investment Directions in Dubai
• Investing in Dubai Real Estate
• Potential Risks and Unique Aspects of the Country

Investment Climate in Dubai 

The United Arab Emirates boasts the highest proportion of expatriates in the world, with foreigners accounting for 88% of the total population. Furthermore, it stands as the most advanced emirate, drawing a majority of well-educated and highly skilled economic migrants. These individuals come to work, establish businesses, invest in Dubai, and either purchase or lease high-end real estate properties.

The emirate holds the distinction of being the world's premier deep-sea port and re-export hub. Over the past 35 years, its portion of international trade has steadily expanded at an annual rate of 11%.

Dubai confidently showcases economic stability and a strong commitment to flexibility in its dealings with foreign investors, large enterprises, and international corporations. The emirate is increasingly becoming a focal point because of its streamlined business bureaucracy and minimal requirements regarding the source of funds. Foreign investors benefit from a simplified company registration process, and Dubai has established 30 free trade zones, with a tax-free regime applying to a substantial portion of income.

Firstly, there is no requirement to pay income tax when working as an employee. The tax on renting out real estate is entirely the responsibility of the tenant. Additionally, there are no taxes on inheritance, real estate, dividends, and securities. For a considerable period, companies were not subject to taxes other than VAT, and corporate income tax was only introduced for specific sectors such as banks and oil companies.

Furthermore, Dubai boasts an English-speaking common law court system, complete with independent arbitration courts. There are no limitations on the repatriation of capital, and it permits direct foreign ownership for certain limited liability companies. Notably, the compulsory local ownership rule has recently been abolished, meaning that, for most types of licences, 51% of a company's shares no longer need to be registered in the name of a UAE citizen.

All of these factors, coupled with its political stability and economic collaborations with 179 countries, position Dubai as one of the most appealing investment destinations globally—a sentiment echoed by numerous experts in the field.

Matteo Salvatori, Italy, a venture investor, in his commentary for Housearch says, “The UAE has an interesting potential for investors of all levels, who are attracted by the country’s stable macroeconomic growth, a clear mission of the state – to become a convenient trading and business platform for the whole world – and relatively transparent geopolitical positioning. As crowded as the market may seem, there are still quite a number of investment opportunities in Dubai.”

Investing in Fintech and Banking

Dubai is a well-established modern banking hub that serves as a gateway for investors to the Middle East, Africa, and South Asia (MEASA), encompassing a population of over three billion people. A substantial portion of this population still lacks access to banking services, but with the advancement of mobile technology, fintech is increasingly penetrating society.

That's why the return on capital in the banking industry in the MEASA region is, on average, 50% higher than in the US and Europe. Additionally, the margins on major financial products such as deposits, loans, payment cards, and investment products are one-third higher than the global average. Over the past two decades, this market has experienced three times faster growth compared to developed markets. Analysts predict that it will continue to grow at a rate of at least 4.6% per year for the next five years.

The Dubai International Financial Centre (DIFC), thanks to its strategic geographical location and time zone, serves as a convenient trade corridor connecting London, Hong Kong, and the Middle East markets. It is home to 17 of the world's 20 largest banks and prestigious wealth and investment management firms. Among them are industry giants like Citibank, HSBC, Barclays, as well as global payment leaders Visa and MasterCard, all of which have their headquarters in the city.

It is also home to the world-class Dubai Stock Exchange, which serves the insurance, banking, and commodity markets, including the gold, diamond, and oil exchanges. Plus, an important argument in favour of investing in the banking sector of Dubai is the 20-year stability of the dirham exchange rate against the dollar: $1 = 3.67 AED.

The average interest rate on savings accounts in local banks ranges from 0.20% to 0.80% in the national currency and stands at 0.35% for dollar accounts. When it comes to investments in stocks and bonds, the yield is approximately 3%. Foreign investors also have the option to participate in mutual funds. For those looking to start with a modest investment, the minimum entry threshold for a foreign investor is $1,361 (5,000 AED), which allows you to open a deposit in a local bank. However, for more confident investments in mutual funds, stocks, and bonds, an optimal budget of $50,000 (183,649 AED) is recommended.

Furthermore, Dubai boasts a thriving cryptocurrency sector, with Bitcoin brokers operating under the supervision of local banking regulators. This regulatory oversight facilitates the widespread use of cryptocurrencies for transactions and investments, placing them on equal footing with traditional fiat currencies.

Venture Investment Directions in Dubai

Dubai is home to around two dozen major venture funds, including notable names like the Dubai Future District Fund, Global Ventures, and Plus VC. Additionally, there are individual investment firms such as Nuwa Capital, Hambro Perks, and Woodstock Fund, along with prominent platforms and accelerators like Techstars and Flat6Labs.

The emirate is dedicated to fostering the growth of the startup ecosystem and encouraging venture investments in high-tech solutions. For example, Dubai recently inaugurated the Dtec technology entrepreneurship campus in the Dubai Silicon Oasis and established the DIFC Fintech Hive free zone. Furthermore, in 2022, the UAE was acclaimed as the top destination for commencing a business, as affirmed by the Global Entrepreneurship Index analysts.

Presently, there are over 10,000 small and medium-sized enterprises in the region, and the influx of talented individuals with both capital and innovative concepts continues unabated. IT and mobile solutions, alongside advancements in robotics and artificial intelligence, are assuming a prominent role. As per experts, nurturing an IT enterprise in Dubai has the potential to be a lucrative investment.

Matteo Salvatori says in his comment to Housearch, “The United Arab Emirates has a clear, coherent digital strategy that is currently under active implementation. The strategy envisages turning the country into a high-tech centre, covering all fundamental aspects, including attracting investment and developing technologies at an early stage. In my opinion, in the coming years, the UAE will greatly benefit from ties with its BRICS partners in the field of attracting artificial intelligence technologies.”

Dubai’s aspiration to develop alternative energy and sustainable ESG (‘environmental, social, governance) principles opens up additional opportunities for investors.

Aleksey Obukhov, Russia, a venture investor, in a comment for Housearch says, “In my opinion, investment in alternative energy is becoming one of the most relevant areas. This is increasingly promising in the context of political tensions in the world and difficulties with standard energy markets: we can already see that the volume of investments in alternative energy projects exceeds investments in classical energy areas. This is why I am focused on investing in projects that will be implemented at the intersection of alternative energy, artificial intelligence, and ESG.”

Investing in Dubai Real Estate

Despite the challenges posed by the pandemic, the Dubai real estate market initially felt the impact of the crisis. However, due to the swift vaccination efforts by the authorities, it was among the first to welcome buyers once again. Subsequently, it has not only made a rapid recovery but has also been setting new records over the past two years.

In 2021, housing prices experienced a remarkable 175% increase compared to the previous year, reaching $2,930 (10,775 AED) per square metre in 2022. Furthermore, the pace of sales also accelerated significantly. According to the Dubai Land Department, the number of transactions in 2022 exceeded 97,000, and during the first ten months of 2023, it continued to grow, increasing by another 42%. Experts anticipate that by the end of 2023, approximately 32,000 more flats, apartments, and houses will be sold in Dubai.

Dubai's real estate market is appealing to investors for several reasons. First and foremost, it provides favourable purchasing conditions for foreigners, including the ability to buy properties remotely, use cryptocurrency for transactions, and establish instalment plans with developers, all without requiring a resident visa.

The barrier to entry in the market is relatively low, with studios ranging from 30 to 40 square metres available for as little as $60,000 (220,380 AED). One-bedroom flats with furnishings, located in central areas, typically range from $200,000 to $300,000 (19 to 29 million AED).

Meanwhile, the average monthly rental income for such a flat, as reported by Numbeo.com, stands at $1,213 (4,458 AED). This translates to an annual profit of approximately 7.5%, with the investment expected to fully recoup in 13 to 15 years. The demand for such housing among tenants remains consistently high. As a global financial and trading hub, on par with London and Hong Kong, Dubai continually draws in a well-educated and skilled workforce. Furthermore, convenient remote property management services make it possible to rent out apartments without direct contact, ensuring a hassle-free income stream for investors.

By investing in real estate with a minimum value of 750,000 AED (approximately $204,000), you become eligible to apply for a resident visa valid for up to two years. Investors who commit two million AED or more, equivalent to $545,000, can qualify for a golden visa, which grants a residency permit lasting up to 10 years.

Potential Risks and Unique Aspects of the Country

The UAE maintains a strong focus on international trade and attracting investments. As a result, laws and regulations for prospective investors and entrepreneurs in Dubai are continuously evolving and becoming more investor-friendly. Additionally, the presence of independent courts ensures the protection of their interests in case of disputes.

Matteo Salvatori, in his commentary for Housearch emphasises that Dubai remains an “oasis”, one of the most business-friendly countries in the world. But there are some features that an investor should bear in mind, the expert believes, “First of all, these are intermediaries: they can sell services and solve business issues, but the benefits received will not always meet the investor’s expectations. Next is a highly competitive environment: Dubai is the centre of the business world, so investors face competition at all levels. So, it is necessary to think your strategy through, clearly and in detail. Finally, you need to know local specificities, understand local markets and the peculiarities of doing business. In Dubai, the way to resolve issues is transparent, but it may seem dragged out.”

When it comes to real estate, experts advise investors to avoid making emotional purchases from unverified developers. It's worth noting that certain developers have a tendency to inflate property prices during the construction phase, often targeting foreign buyers who may not be familiar with the local market. However, on the secondary market, the same property may be available at a lower price, typically around 10% to 15% less expensive.

You can explore the quality properties from reliable and successful developers available today in Dubai in Housearch listings.