How To Invest In Dubai’s Real Estate Market: Tips For Foreign Investors
Having an estate on the shores of the Persian Gulf is quite profitable: acquiring real estate in Dubai lets a foreign citizen obtain a residence permit, and such properties have a high return on investment. Find out how to buy and invest in Dubai real estate in our article.
Why Should Investors Choose Dubai?
There is a clear increase in the real estate market in 2023 if you make a comparison of it with that of 2022. In the month of July of this year alone, the transaction numbers rose sharply by around 56.3%! Every sign of a «green» market, even if the global situation remains difficult.
The facts about real estate in Dubai are quite clear. It is estimated that the average return on investment is around 6-10%, depending on the area, property, and when the investor purchased the property. When renting out real estate for short-term rent, you can sometimes earn even more and exceed 10% profitability!
Important Things To Know Before Buying Property
Dubai has very favorable taxation on real estate investments. There is no property tax, and there is no capital gains tax. In fact, the money received from your property, especially when resale, is tax-free. Rental income is also not taxed.
Dubai has a low tax on home purchases and, more importantly, a one-time tax. When purchasing real estate, you must pay 4% of the cost of housing to the land department. In the future, no taxes will be required when selling real estate.
For example, for just $150 thousand in a Dubai business class complex you can purchase a fully turnkey studio with all the necessary equipment, furniture, and decorative items, with a swimming pool and a gym.
Create A Long-Term Investment Strategy
All developers in Dubai offer interest-free installments during construction. Moreover, for many companies such installments extend for several years even after the facility is put into operation. The first payment is usually 20% of the cost of the property.
Sale Of Estate Under Construction
The main task of a real estate investor is to choose the right property and investment strategy. A quick sale can provide a quick return on your investment. The essence of this strategy is to purchase real estate under construction for resale within 1–1.5 years. In this case, the developer does not have to pay the full cost of the estate. It is enough to pay only the amount necessary for resale.
This investment option is considered the most profitable. It brings up to 45% return on investment. But the risks here are also obvious: the selected object may simply not rise in price. In addition, promising properties are often sold out within a few hours after the start of sales, so decisions need to be made very quickly. When choosing this strategy, it is better to invest in several objects at once.
The quick sale tactic is justified when we are talking about new projects in prestigious, already-established areas. These include, for example, City Walk or Bluewaters. Many examples prove that in a year you can earn up to 45% profit on such objects.
Resale Of A Finished Object
With this strategy, an apartment or villa is bought “at the foundation pit stage”, and sold after the object is put into operation or shortly before it. It takes two to three years from purchase to sale. The profitability of such an investment can be up to 30%. And if you wait until the property is handed over, make designer renovations there, and furnish the home with furniture and appliances, you can sell it for even more.
The main advantage of real estate from an off-plan developer is the ability to purchase real estate in installments.
Different developers may offer different conditions, but the most common conditions in the Dubai market as of June 2023 are the following – 20% upon purchase, and 20% upon commissioning of the house. Then at one percent per month for six years.
These are very favorable conditions, because under them you can get ownership of an apartment by paying only 40%, and then rent it out, and if possible, rent it out at a high rental rate, this will mean that the rent will cover the monthly payments installments.
Choose The Right Location
We can highlight the new area of MBR City. The average profitability of real estate here is 8%.
The Palm Jumeirah area can be called a symbol of elite and comfortable life. The infrastructure here is amazingly developed: all significant objects are located within walking distance, and there is a large selection of both apartment buildings and luxury villas. Annual return is 8–9%
Dubai Harbor, a new coastal area of Dubai, promises to soon become the most popular among tourists. Here is the largest marina in the Middle East, a modern cruise terminal, unusual new buildings, and more. The average return is 7–8% per year.
Projects such as Rashid Yacht & Marina and Dubai Creek Harbor are taking shape, offering luxurious and elegant living environments. In short, many projects are currently being implemented or have already been announced, opening up wide investment opportunities.
Research All Types Of Property
If you’re searching for an apartment developer that provides several offers? For example, a 30 m2 studio to a large penthouse that overlooks the gigantic Burj Khalifa. Property in Dubai are always decked with top notch facilities like (a living room, swimming pool, gym, basketball court, children’s playground, parking, padel court, and others). All these residences have amenities like parking space , which is a mandatory requirement by Dubai law.
There are two types of villas in Dubai: the townhouse and the detached. While the detached villas possess a huge plot of space(and often have their own swimming pools), Townhouses, on the other hand, are creating a buzz in Dubai. They are an effective combination of expensive detached villas and family apartments. Dubai townhouses always have some other key elements, like a garden or a garage, which adds to the value of these residential spaces.
There is not enough free land to build villas, and the demand for them and townhouses among investors is increasing. A properly selected premium luxury real estate property in a good location can yield 9-10 percent per annum in foreign currency from rental.
Investments In Commercial Real Estate
Investments in commercial real estate in Dubai can also be very profitable. Tenants: from retail and catering to companies renting offices. Premises on the ground floors of houses are in demand among street retailers. Residents of new complexes especially need their services.
Renting out space for commercial purposes can bring investors up to 12% per year. Its advantage is additional reliability: premises are usually rented for several years, since street retail clients are tied to the location. The owner of commercial real estate does not have to look for new clients every month or year.
Analyze ROI
The location of the property plays a role in the issue of recoupment. For example, the return on investment (ROI) for purchasing an apartment located in the Palm Jumeirah area averages 3.7. The ROI of real estate in the Downtown Dubai area is above 3, and housing in Dubai Creek Harbor (The Lagoons) is from 4. You can look for a profitable option for any budget.
For example, you buy a 1-bedroom apartment in Golf Grand complex for rent for $374,000. The rental cost, on average, is $2,300, which means that in a year you will receive $27,600. Let’s calculate ROI using the formula = (income-expenses) / investment. It turns out that the ROI for an apartment with 1 bedroom will be = (2300 * 12) / 374,000 = 27,600 / 374,000 = 7.4%. We did not take into account one-time payments and tax payments upon purchase.
Stay Informed About Legalities And Regulations
To buy real estate in Dubai, the buyer needs to prepare the following package of documents:
- Original passport;
- Sales agreement or primary contract;
- Memorandum of understanding;
- Power of attorney if the transaction is conducted by the buyer’s representative;
- Confirmation of residential address in Dubai;
- A visa on the basis of which the buyer stays in the UAE;
- NOC Certificate.
Please note that some documents have a limited validity period. For example, the validity period of a completed and certified contract is 30 days if we are talking about secondary real estate.
Getting A Loan Or Mortgage
Approximately half of all sales transactions in Dubai are carried out using a mortgage nowadays. Currently, banks issue mortgage loans to non-residents at an average interest rate of 5%. You only need to pay 20% of the cost of the apartment; the remaining 80% can be used for a mortgage (if you are buying a piece of property there for the first time).
In this case, you must take into account additional costs:
- DLD fee – 4% of the property value;
- Administrative DLD fee ($157.9 for apartments and offices);
- Registration fees ($545 – $1089 + 5% VAT depending on property value);
- Mortgage registration – $79 + up to 0.25% of the property value.
Steps To Buy Property In Dubai
After you have found a Dubai property investment that suits you in all respects and prices, it is important to discuss all the terms of the transaction with the seller. Below we will analyze each stage in detail.
Step 1. Conclusion Of An Agreement
Once you have identified a suitable property, it is recommended that the initial contract be drafted in English or Arabic. It does not need to be notarized.
Step 2. Concluding A Sales Agreement
The next step is to sign an MOU, referred to as «Contract F» in Dubai.The Department of Land in Dubai has a website where you can download this document. The contract states that the buyer must pay the seller a deposit, usually 10% of the total price. A certificate of this payment is kept by the realtor.
Step 3: Application For NOC Certificate
Subsequently, the seller and buyer come together at the developer’s office to request a No Objection Certificate (NOC). This document allows the developer to demonstrate that the seller does not owe him any money. It may take up to five days for data to be processed. Receipt of this certificate means that title can be transferred by the seller.
Conclusion
To make an investment in UAE real estate profitable it is necessary to conduct thorough market research, select a suitable object and take into account possible risks. This is the only way to achieve maximum profits and protect your investments in this rapidly developing region.
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