“Real estate investment even on a very small scale remains a tried and true means of building an individuals cash flow and wealth” Robert Kyosaki
The fact of the matter is that investing in real estate is something which is a great and proven strategy of building cashflows outside of your main job. Additionally, investing in real estate helps you build your asset size quite quickly. Building rental income stream is contrary to what many think – NOT EASY. It requires a lot of patience, skill and effort. In this article we will look at the process of buying, financing and renting a property in Dubai, the largest city of the United Arab Emirates.
There are many reasons. The main one is that this blog is factual and shares real life experience. Couple of years back, when I moved to the UAE decided to get on the property ladder. I literally, just rented the one bedroom property that I have, for the first time. Else the city is unique and attractive for real estate investors. Here are the facts that attract many buyers.
Due to various factors Dubai’s population has grown exponentially over the last thirty years. This can be explained with the oil boom that the middle east has seen over the last forty years as well as with the visionary leadership of the emirate leadership. The city’s population is set to cross the 5 mln mark by 2030. Today it stands at slightly above 3 mln people according to the latest report released by the Dubai government at the end of last year.
Yes this is true. Until, recently there were no taxes in the whole of the UAE. As of today there is only 5% VAT in the UAE which was introduced on January 1st 2018. The great news is that there are no other taxes ( literally any tax that you can think of does not exist here in Dubai). There is no revenue tax, no dividend tax, no wealth tax. I know it does sound fantastic, and yes it is the case, have a look at the federal government tax authority. However, it is good to know that there is some indirect taxation for expats. Examples of that are municipality tax, excise duties paid for alcohol and tobacco as well as high fees paid for telecommunication services to companies that are owned by the government or even school fees.
At least until the recent slow down, the growth rates were spectacular. The economy as the following tradingeconomics chart demonstrates has quadrupled in the last 15 years. Of curse this statistics needs to taken with a pinch of salt as GDP growth is highly correlated to the construction. This sector as seen in 2008 is sometimes expanding irrationally. Factually, the prospects of the economy as not as bright as they were 10 or even 5 years ago. We can assume that the same can apply to real estate. But what is better than buying at the bottom?
The UAE’s currency – AED is pegged to the USD. First news, is that the returns your property will generate are de facto USD denominated. When it comes to yields, the gross rental yield is about 7% in average. The actual number you will get out of your property depends from the exact location of your property as well as the type of property and your entry point. The real estate market after the 2008 meltdown has become very transparent. Number of regulations have been introduced by RERA. To get an idea about the indicative yield of the property you are thinking of buying, you can have a look at famproperties as well as at property monitor. In order to get a very good idea of what your net return will be, it is useful to check the service charge of the building in the community you are interested in. There is 100% transparency, and the numbers can be found on that link. Once you deduct your service charges as well as your building insurance should you decide to ensure your property, chances are that your net yield will be about 5%, which in dollars terms and tax free is great.
The government of Dubai is forward thinking. This eases the process of transacting in real estate. Most of the services that you need from the government are available trough the internet. In simple language therms this is a huge advantage, as there are no queues when you need to get something done as well as that in most cases what you need to get done happens within an hour or so. It also means bearucracy is low. For example, if you need to get a driving licence or register a car, it takes literally less than an hour from the moment you apply for your driving licence to the moment you get the printed document. Additionally, if you are an entrepreneur, who wants to get a licence to operate, there are many free zones, that can grant you a licence to operate within a day. All of these also come with a visa so that you can stay in the UAE and 0 tax.
It is simple, real estate in Dubai is more valuable than in other cities, as the emirate hosted about 15 mln tourists last year. The trend is going up, as there is a lot to see and do. It hosts more visitors than New York for example and it is the top 5 of the most visited cities in the world. This gives landlords the opportunity to participate in the short term rental market places such as airbnb or airdxb. Additionally, Dubai’s location in the Persian Gulf and the airport hub in the city offer you easy access to 4 bln people all in developing countries within 5 hours flight.
Dubai is as most of the middle eastern hubs is super safe and secure. Crime rate is technically zero. Drugs do not circulate. There is no pity crime. The police service is uniquely great, humane and helpful. Rape and woman abuse are contradictory to Islamic values and do not exist. Capital punishment exists. Burglary do not exist. Things like not locking your door while leaving your apartment or even not switching off the engine of your car while going to the shop are common. In the world where we live in safety is rare and Dubai offers plenty of that.
The easiest answer and perhaps the most straightforward is cash. On a more serious note researching the market carefully is also a very good idea. The good news is that there is a lot of information has been made available since the 2008 crash. The official statistics website of the Dubai government offers a lot of data. Like any government statistic this needs to be taken with a pinch of salt. Additionally, the RERA, the organisation which supervises the real estate market in Dubai offers a lot of transaction data with pricing of executed deals as well as. Lookup.ae is also great when it comes learning about buildings quality and fees. In addition to all the data available, I would personally hire a car and drive around the city to get a feel of what it is. This will give you a great idea about the infrastructure available, scarcity of the location as well as upcoming projects. It is also a good idea to speak with other people who have bought in that area to get a feel of what it is. Also, trying to understand the middle east and Dubai, before dicing to buy a property, which is a long term investment, is important. Remember construction in Dubai is a big and powerful industry. Think twice before any important decision.
Like anywhere else in the world, buying directly real estate in Dubai involves first and foremost doing your homework research the market and the neighborhood where you want to eventually invest. Once this is defined, it is time to clarify what is your budget and financing if any. The natural next step is to find out what exactly you want in terms of property ( ideal layout etc). Having your target future tenant in mind also helps. Next is finding a good agent. In Dubai, this can be a challenge as there are a lot of people from South East Asia, who come to work as real estate agents without good knowledge of the market or much of a service culture. Try and see as many properties as you can. Do not be afraid to try a number of agents. Once you have decided on a property, you need to have all your documents ready ( passport, visa, emirates ID, company documents if you are buying via company) and a pre-approval letter from your bank if you are getting finance. The costs to get on the property ladder in Dubai for expats, include 25% down-payment ( if you mortgage), 2% brokerage fee, 4% Dubai land department transfer fee, 4000 AED property registration fee, about 3000 property valuation fee as well as up to 1% to register your mortgage if you mortgage. The process takes up to 10 weeks. Once you have decided on the property you want to buy, you need to sign a Memorandum of Understanding with the seller of the property. This is a standard document and can be downloaded here. The MOU gets registered in an authorized Trustee office. The registration trustee sends the documents for clearance to the Dubai Land Department. If you are mortgaging the next step is to finalise the offer from your bank as well as to obtain an NOC certificate from the developer of the building you are intending to purchase. Once this is obtained, your bank will issue a final offer letter, if the property is mortgaged, the seller needs to get a liability letter from his bank. The final step is to sign the transfer documents that are issued by the Registration office, pay the associated fees with that and get your title deed. There are also other case scenarios while buying a property when you use a company or you are a cash buyer, for example. This article here is very good source of information.
While buying property three years ago, I did mistakes that I recognize today. The first mistake that I can say I did, is the fact that I did not see enough properties. Dubai is a big place, and there is plenty of real estate offering. The second mistake I can recognize, I did at the time, is that I did not do enough research about the region, the business culture and the risks associated with investing in the region. To avoid this one, I would say, do your research there is plenty of information available on the internet. The third mistake that I did was the fact that, I let the real estate agent push me and close the deal without enough negotiation, although I still got a good discount from the owner. In Dubai, many of the real estate agents come from South East Asia ( India and Pakistan). They have a particular business culture that involves countless phone calls and interactions for no reason repeating the same thing with little common sense. The advice, I would give to myself three years ago is to simply ignore them sometimes and do everything on my terms, as much as possible. Finally, it is important to always remember that the value of your real estate investment in Dubai will fluctuate a bit more violently due to the specific regional dynamics. No emotions are necessary. You are always a winner if you are for long term. As always like, share comment and let me know what you think about the article.
Boris Grozev is a seasoned fintech executive. Entrepreneur by heart Boris has helped number of businesses to create and implement business development and product enhancement strategies. His advisory work in Emerging and Frontier markets has promoted culture and technology change, fostered innovation and lead to tangible results. He invests in variety of asset classes and shares his experiences from the journey to financial independence. Boris is a fast learner, whose leadership abilities, ambition, stamina, passion to succeed and attitude naturally spread to others helping to achieve common goals.