From 2012 when residential property prices finally started recovering after the 2009 financial crisis hit Dubai, and up till 2014 when the city was making headlines in the global property market, the Dubai real estate market has seen it all!
But after being ranked second in the Knight Frank Prime Global Rental Index – Q4 2014 with the second-highest rental growth in the world (8% in 12 months), Dubai residential property is now going through more changes. Given this scenario, we try to analyze whether it makes sense to invest in a rental property.
Dubai property prices have fallen faster than rents – An opportunity for investors?
According to the JLL Dubai Real Estate Market Report Q1 2016, residential property sales prices have dropped by 10%-11% year-on-year, while rents have fallen by just half of that (5%). It is unarguably a buyer’s market now and if one is looking to invest in a buy-to-let property, the choices are endless.
The following table depicts the current annual rents for freehold apartments in Dubai:
| Area | Annual Rent (AED)* | ||
| Studio | One-bedroom | Two-bedroom | |
| Jumeirah Beach Residence | 75,000-85,000 | 90,000-120,000 | 120,000-150,000 |
| Downtown | 65,000-80,000 | 95,000-115,000 | 160,000-180,000 |
| Dubai Marina | 60,000-80,000 | 90,000-110,000 | 140,000-180,000 |
| Business Bay | 65,000-75,000 | 80,000-105,000 | 110,000-140,000 |
| The Greens | 60,000-70,000 | 80,000-90,000 | 120,000-145,000 |
| Jumeirah Lake Towers | 55,000-70,000 | 75,000-95,000 | 110,000-135,000 |
| Tecom | 50,000-55,000 | 70,000-80,000 | 85,000-110,000 |
| Discovery Gardens | 45,000-55,000 | 60,000-75,000 | 70,000-80,000 |
| Jumeirah Village | 40,000-50,000 | 55,000-70,000 | 80,000-100,000 |
| Dubai Sports City | 40,000-45,000 | 60,000-75,000 | 80,000-100,000 |
| Remraam | 40,000-45,000 | 45,000-60,000 | 75,000-85,000 |
| IMPZ | 30,000-45,000 | 50,000-55,000 | 65,000-80,000 |
| International City | 27,000-38,000 | 38,000-45,000 | 45,000-60,000 |
*Based on RERA Rent Index 2016
Your return on investment will not only depend on the current rent, but also the price you bought the property at. And getting the timing right can make all the difference. According to Elizabeth, a university professor living in the UAE since 2008:
“I decided to buy an apartment in Dubai in 2011, when the real estate market was just recovering. Although my employer provided housing, I thought the time was ripe to invest in a buy-to-let property since I didn’t see myself leaving the UAE for at least another 10 years. Having bought a one-bedroom apartment in The Greens for AED 700,000, I am now earning an annual rent of AED 85,000 which takes my return on investment up to 12%. Looking back now, it was a good decision!”
[Related: 68% of UAE home loans available at 4% p.a. or lower]
And here’s a look at the annual rents for freehold villas/townhouses in Dubai presently:
| Area | Annual Rent (AED)* | ||
| Two-bedroom | Three-bedroom | Four-bedroom | |
| Meadows | – | 220,000-230,000 | 250,000-290,000 |
| Arabian Ranches | 145,000-165,000 | 190,000-230,000 | 270,000-330,000 |
| Jumeirah Park | – | 190,000-230,000 | 250,000-300,000 |
| Dubai Sports City | – | 180,000-220,000 | 230,000-250,000 |
| Springs | 115,000-135,000 | 160,000-200,000 | 200,000-220,000 |
| Falcon City | 100,000-150,000 | 160,000-190,000 | 190,000-200,000 |
| Jumeirah Village Triangle | 130,000-150,000 | 150,000-170,000 | – |
| Jumeirah Village Circle | 120,000-130,000 | 130,000-150,000 | 150,000-170,000 |
*Based on RERA Rent Index 2016
Buying a rental property may become more or less attractive depending on the economic climate and real estate market conditions in a city. Take for example a three bedroom townhouse in Arabian Ranches with an average annual rental yield of AED 200,000 currently. If you had bought the property in 2011-12 when prices were fairly low, for say AED 2.6 million, your current return on investment would have been around 7.5% annually (adjusting for maintenance and other fees).
Now if you had bought the same property for AED 3.3 million in 2014 around the time when real estate prices were at their peak, your current return on investment would not have been more than 6% per annum. Property prices have softened to a great extent since then, so could this be a good time to invest? Probably so, if rents don’t drop at the same rate as prices.
[Related: How I saved over AED 100,000 on my home loan!]
Things you should know before becoming a landlord
Don’t invest more than you can afford
Many expats end up purchasing a property through a mortgage, assuming that the rent will take care of the monthly installments. Make sure that you don’t take a loan that will end up being too expensive to repay. Account for periods when the house may have to sit empty on the market while you’re looking for a tenant. Look at it as an investment, and don’t put all your eggs in one basket.
Account for maintenance fees, community service charges & repairs
Make sure you account for the foreseeable as well as unforeseen costs of maintaining a rental property. The developer may charge you an annual community fees, and you will also have to pay for unexpected repairs and maintenance work for the property. You could also enlist the services of a maintenance agency to look into the regular maintenance, repairs and replacements as and when required.
Dealing with problem tenants, collecting rent & evictions
Beyond the monetary aspect, being a landlord also involves dealing with the tenant and you may not see eye-to-eye every time. There may be arguments regarding increasing the rent, asking the tenant to vacate, upkeep of the property and so on. Be prepared to deal with such problems!
Are you looking to invest in a buy-to-let property? At Souqalmal.com you can browse through over 67 home loan products from 23 different providers in the UAE.