Global interest rates have been low for a long time—even if they are rising now. Smart investors have long since diversified their portfolios, with many looking towards property as providing good long-term prospects through both capital growth and rental income. After all, as the saying goes, ‘buy land, they don’t make it anymore’.

There are many possible options for buying investment properties, all round the world. Many investors are looking towards Dubai as a way to combine travel with investment opportunities. The only question is how to find the right property. One option is to buy off-plan, which means finding apartments for sale in development projects in Dubai. This page explains what you need to know to make the right investment.

Advantages and Disadvantages of Investing in Property

Why might you consider investing in property, either in Dubai or elsewhere?

There are several advantages to property investment, including:

• Over an extended period of time, property has tended to grow in value. This means that you are likely to get a reasonable return on your investment;

• Investment in a holiday property or rental property means that you will get some income from your investment;

• It is easy to understand property: you get a tangible asset, and you can sell it if necessary to raise money;

• It helps to keep your investment portfolio diverse, helping you to spread the risk of your investments (there is more about investment risk in our page on Understanding Investing).

However, there are also some downsides, including:

• The property market does not always rise.

  Recent years have seen good returns, but this may not continue for ever. Property is best seen as a long-term investment.

  It is also worth looking carefully at the local rental market to identify what kind of rental income you might be able to make. You need to be able to cover your mortgage easily from your rental income, and have a cushion to cope with interest rate rises or the need for repairs. Properties in more attractive rental areas are likely to be a better investment, because they are less likely to be empty for any length of time.

• Tax changes or interest rate rises may make your investment less attractive

  This is especially true if they mean that you are paying more for the property than you are bringing in from rental income. Tax changes can also hit your likely profit. Dubai is attractive to investors because it currently charges no income tax or inheritance tax on property. However, you will have to judge whether this might change in future.

• You are likely to be responsible for any repairs or renovations that are needed.

  This can be particularly challenging if your investment property is in a different country. Buying a new property is one way to reduce the risk of repairs or renovations being needed, at least in the short term, although addressing ‘snagging’ can take a considerable amount of time in new build properties. You may need to use a local agent to ensure that you can get work done.

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Specific Issues to Consider in Dubai

These advantages and disadvantages apply to buying investment property anywhere.

However, there are also some specific issues to consider if you plan to invest in property in Dubai. For example:

• Your eligibility to buy property

  Citizens from the United Arab Emirates or other Gulf Cooperation Council states can buy property anywhere in Dubai. However, citizens of other countries can only buy in certain designated developments. Fortunately, these include some of the most famous developments in Dubai, such as The Palm Jumeirah, Burj Khalifa, and Dubai Marina.

• Fees and taxes that apply to property purchases

  There is no income tax or inheritance tax payable on property in Dubai. However, there are some fees payable on buying a property. These may amount to several percent of your investment. They include a property transfer fee to Dubai Land Department, and a property registration fee, as well as administrative fees. You also have to pay a ‘housing fee’ each month, currently 5% of the average rental value in the area.

  Don’t forget about taxes in your home country

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  It is also worth checking the implications of any purchase (and later sale) for your tax situation in your home country, as these will vary. It is a good idea to get good professional (and specialist) advice about this, to ensure that you understand all the possible ramifications.

  
  

• The rental income and demand for rented property in particular areas

  If you plan to let your investment property, either as a long-term let or using a solution like AirBnB, you will need to be confident that your rental income will cover your mortgage, and leave you a cushion for emergency repairs. It is worth making inquiries about the average rental income in your chosen area to ensure that this is the case. Not all areas are equally desirable in any city, including Dubai—and a property that looks too good to be true may simply be in the wrong area.

  You therefore need to have good financial and numeracy skills, to understand exactly what you will need to pay, and decide whether you will make your required return on your investment.

• Your choice of real estate agent

  Real estate agencies in Dubai are highly regulated. Agents have to acquire the correct licences before they can operate—which gives investors more security in buying. However, make sure that you check your agent’s credentials carefully, to ensure that they are fully licensed and registered with the Real Estate Regulatory Authority. You also need to check that your estate agent has completed all the necessary paperwork for your purchase.

  There is more about this in our page on Starting a Real Estate Career in Dubai.

• The residency implications

  If you buy a property that is worth more than a certain value in Dubai, you may be eligible for a residency visa. The length of visa depends on the value of the property, so it is worth checking this well in advance. This is an additional attraction, because it means that you can spend time in your own property, taking advantage of your investment.

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A Final Thought

Property in Dubai is an attractive prospect for investors because of the relatively low prices, and relatively high rental returns, as well as the residency/visa programme. However, as with any investment, it is important that you understand the implications of your purchase, and are sure that this is the right investment for you.

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