Buy Real Estate in Dubai - Experiences? Yield?

[JustAnotherNomad]

Friends of mine live in one of the Address serviced apartments. It looks really, really nice, but even they say that the quality is s**t. For example, tiles in the shower come off and have required fixing several times already even though the building is very new.
I really wonder what will happen once the Ukraine war ends.

 

[MiltonStone]

I really wonder what will happen once the Ukraine war ends.

A new war will start.

I believe that you need to monitor the workers of a new property project 24/7 to avoid all the bad work once finished.

 

[EuroKiss]

@Fred is it possible to buy an apartment in Dubai with a foreign company? E.g. you get a company registered in Bahamas buying a property (or an entire development) in Dubai.

 

[drumtraks]

My two cents about buying property for investment is only if you can get off-plan discounts and you flip it quickly. I would never hold property in Dubai as the market volatility is too much for me, but hey, that's for me. Be aware of shady agents who will promise the world.

Quality is absolute garbage left and right (if you're used to European standards). But then, as an investor you're wanting the upside after a few months or a year (for me at least).

Now, macro factors that will impact Dubai for the next years: population is growing with a lot more families. I see more foreign families now than before. Dubai still has a very low cost per sqm when compared to other capitals so all things being equal, price convergence still has a long long way, which makes it safe-ish on the long run. It all depends on the rate of construction and the capacity for the government to keep absorbing international talent to relocate with their families (this is major vs people coming to Dubai to work for 5 years and back to their country).
For tourism, last time I checked Dubai's hospitality sector had one of the highest occupancy rates in the world, if not the highest. Over 75% occupancy on average. This means Airbnb is a very good business here (just make sure you don't give it to some shady Indian to manage it).

If you already have a portfolio but lacks RE, I would tip-toe. But if you're starting investing, there's many other asset classes that provide for much better returns, currently.

 

[JimBeam]

I have bought one RE in Dubai two years ago and I'm renting it out (long term rental) so I have first-hand experience.

Feel free to PM me if you have any specific questions.

 

[Fred]

@Fred is it possible to buy an apartment in Dubai with a foreign company? E.g. you get a company registered in Bahamas buying a property (or an entire development) in Dubai.

No - you would have to setup an equal of the Bahamian Company locally which would be a RAKICC with British Common Law Regulations means Court Jurisdiction in DIFC. Next to Dubai Freezone Companies only RAKICC can hold Property within Dubai.

 

[clemens]

I lived in Marina Gate and I can confirm that quality is terrible.
It's just couple years old and already looks like 15 years old.
Already worn down. Everything inside very low quality

You mean the materials used are of a low quality or you're a messy

Sorry, for the joke. Wonder if it isn't possible to get high quality property there which don't look like what you say within a few years.

 

[JimBeam]

Wonder if it isn't possible to get high quality property there which don't look like what you say within a few years.

It is possible but the price you'll pay for it will be much higher.

All these big towers worn down pretty quickly as you have couple hundred apartment's in one building and that means a lot of people using all these areas (lobby, lifts, pools, gym, airbnb people dragging their suitcases trough corridors etc, etc)

 

[karishi]

Currently Dubai properties have crazy high prices because all the russian money is there. In general I think that it always depend on what you buy and at what price you buy it: I've been in Dubai for 3 years and I would still not be able to decide where to buy a property. It's true that there is oversupply, but it's also true that the more popular districts ( Marina / Palm / Downtown ) are now almost fully built. This means that while supply in other parts of the city will increase, supply in those district will not, which means that it's probably the safest place where to invest.
Dubai has possibly the highest scamming rate in the world, so you should never ever trust a word of what you are said. In general I would not advise you to buy a property unless you have some side interests in Dubai: if you live 3 months in your property and then rent it short term, it might be a good investment, if it's just for investing, it's probably not the safest real estate investment.

 

[JimBeam]

Currently Dubai properties have crazy high prices because all the russian money is there. In general I think that it always depend on what you buy and at what price you buy it: I've been in Dubai for 3 years and I would still not be able to decide where to buy a property. It's true that there is oversupply, but it's also true that the more popular districts ( Marina / Palm / Downtown ) are now almost fully built. This means that while supply in other parts of the city will increase, supply in those district will not, which means that it's probably the safest place where to invest.

Agree

Dubai has possibly the highest scamming rate in the world, so you should never ever trust a word of what you are said.

Do not agree. If you go trough licensed well known and licensed broker chances you'll experience issues when buying a property are very, very small.
They have made many changes to ensure that there are less possible ways to scam buyers (as that's bad for their reputation).
Also, there are many worst and less regulated places even in Europe where you could get scammed easily.

In general I would not advise you to buy a property unless you have some side interests in Dubai: if you live 3 months in your property and then rent it short term, it might be a good investment, if it's just for investing, it's probably not the safest real estate investment.

You can buy it as an investment. No issues there. And currently you can expect decent rental returns.
Just make sure you do your DD first: why are you buying it, at what price, in what area, who are you going to rent it out, what's the cost of it being empty (service charges), at what price do you plan on selling it in 5,10,15 years, etc.
There is no such thing as a safe investment. Buying a property right now in Munich at €8-€12k/m2 may be riskier than buying it in Dubai for €2.5k/m2.

EDIT:
Here's for example how UBS sees real estate markets world wide:

UBS Global Real Estate Bubble Index 2023

Find out in which cities property prices and valuations have fallen the most, where (further) corrections are imminent, and where price increases are continuing or could happen in the future.

www.ubs.com

 

[karishi]

Do not agree. If you go trough licensed well known and licensed broker chances you'll experience issues when buying a property are very, very small.
They have made many changes to ensure that there are less possible ways to scam buyers (as that's bad for their reputation).
Also, there are many worst and less regulated places even in Europe where you could get scammed easily.

Ok, I mostly heard horror stories, and to be clear it's europeans f*****g europeans. I know of a guy who paid 20k EUR on top of a property to get the Visa, which is free...in any case happy to hear that there is someone honest

You can buy it as an investment. No issues there. And currently you can expect decent rental returns.
Just make sure you do your DD first: why are you buying it, at what price, in what area, who are you going to rent it out, what's the cost of it being empty (service charges), at what price do you plan on selling it in 5,10,15 years, etc.
There is no such thing as a safe investment. Buying a property right now in Munich at €8-€12k/m2 may be riskier than buying it in Dubai for €2.5k/m2.

Yeah agree that there is no safe investment, what I wrote was simply my opinion, I am not even buying a property in Dubai right now with me iving ther 2-3 months because the market is really high. What worries me is the impact of the Saudis project, as NEOM will be a direct competitor to Dubai, and what happens if in 5 or 10 years the russian money fades away. But as you say there is no safe investment, although I would rather buy a property in Ibiza or in Munich or in Milan at 8-12k/m2 because, as long as you are buying the correct house and not overpaying, I think it's safer: The center of Milan/Munich will not get bigger, and Ibiza has very strict rules on housing. But as you said it all depends on what you buy, you can get scammed / fucked in any place

 

[JimBeam]

Ok, I mostly heard horror stories, and to be clear it's europeans f*****g europeans. I know of a guy who paid 20k EUR on top of a property to get the Visa, which is free...in any case happy to hear that there is someone honest

So, they got their property but paid 20k EUR for service they could access online for free.
They didn't do their homework or where lazy - so why not pay.
But in the end they got everything they paid for (they overpaid but that's another story).

Yeah agree that there is no safe investment, what I wrote was simply my opinion, I am not even buying a property in Dubai right now with me iving ther 2-3 months because the market is really high. What worries me is the impact of the Saudis project, as NEOM will be a direct competitor to Dubai, and what happens if in 5 or 10 years the russian money fades away. But as you say there is no safe investment, although I would rather buy a property in Ibiza or in Munich or in Milan at 8-12k/m2 because, as long as you are buying the correct house and not overpaying, I think it's safer: The center of Milan/Munich will not get bigger, and Ibiza has very strict rules on housing. But as you said it all depends on what you buy, you can get scammed / fucked in any place

Sure. It makes no sense to buy a property in Dubai to live there for 3 months as there are many rentals or long-stay hotels one can use.
Nobody wants to live in Saudi Arabia and I doubt that would significantly impact Dubai in short to mid term (next 5-10 years or so).
Also, Saudi Arabia is a 40million nation so Neom could be enough for just for mid-to-high-class Saudis to move there.

If Russian money runs out we could probably see another downtrend in prices:

https://imgur.com/Ycqawqf

But then China might start a war in Taiwan and here we go again

From a long term rental perspective (so I'm not talking about short term - Airbnb rentals) Dubai is better choice for investors at the moment as the yields are in range 5-10% while yields in Germany are in range 2-4%.
Simply put even if you overpaid a property a bit in Dubai you could reclaim that money in a couple of years renting it while that won't be the case in for example Munich.

 

[manukahoney]

Simply put even if you overpaid a property a bit in Dubai you could reclaim that money in a couple of years renting it while that won't be the case in for example Munich.

Service fees and maintenance will eat your rental income, in some places it's crazy - like 30-50% of rentals go towards service fees. Price depreciation is real - in 10 years you might get 30-40% of rental income but the price may drop by 10-20%. When accounting to taxes (4% when buying + agency fees) you might get the income comparable with what you get in the UK or some EU countries.

 

[JimBeam]

Service fees and maintenance will eat your rental income, in some places it's crazy - like 30-50% of rentals go towards service fees. Price depreciation is real - in 10 years you might get 30-40% of rental income but the price may drop by 10-20%. When accounting to taxes (4% when buying + agency fees) you might get the income comparable with what you get in the UK or some EU countries.

Stamp duty in UK to buy a property ranges from 3% to 15%. Non UK residents pay +2% on top of the rate. In UAE it's 4% fixed. So I see no point there.
(It can be 0% in UK but only if that's your only property - so you can't rent the place where you live as that's not an investment/rental property)

Service charges do eat up some the yield so that's why you would need to take into account net yield (rental amount minus the service costs) and not just rental amount.
But all properties have some running costs and in many other countries you have to pay the property tax (no such thing in UAE).
The service charges in UAE are due the fact that most buildings have lobby with 24/7 staff, common areas that need cooling, pools and gyms that also need staff and maintenance, pool cooling etc.

Anyways, my net rental income is currently 8.5% per year for my property.
Let's say I average 6.5% in the first 10 years (rental prices go down, my apartment is empty for couple moths here and there) - that's 65% paid off in 10 years.
The 10 to 20% price drop wouldn't worry me much TBH as I'll be 45% in profit after selling it.
And I would pay 0% tax on that (0% capital gains and no stamp duty as buyer pays the 4% when buying) and would keep all that money.

In the same time, for the UK property one would have to pay:

1. Personal tax on rental income (20-45% depending in what band he is)
2. Once the property is sold one has to pay capital gains tax (18% if difference is less than 32k GBP or 28% if it's bigger than that amount).
3. Inheritance tax that can go up to 40% (if the property owner leaves this world before selling it)
4. And at last but not at least, the Council tax. For a 250k GBP property it costs more than my service charges for the property of about the same value!

I know that by opening a cheap company in UK you could lower or avoid some of the taxes (like personal tax) or avoid inheritance tax etc, but that introduces other things.

So, maybe long term UK is safer bet but I don't see how that's a better investment.
I see the same thing is for most of EU countries.

Sources:

Stamp Duty Land Tax

You pay Stamp Duty Land Tax (SDLT) when you buy houses, flats and other land and buildings over a certain price in the UK.

www.gov.uk

Council Tax bands and rates

Check your Council Tax band, how much you will have to pay, and find out how to appeal if you think you're in the wrong band.

www.lambeth.gov.uk

A Guide to UK Property Taxes for Non-Residents

Click here to learn more about UK property taxes for non-residents and what you can expect to pay when buying, selling and renting out UK property

www.globalcitizensolutions.com

 

[hokus]

Anyways, my net rental income is currently 8.5% per year for my property.
Let's say I average 6.5% in the first 10 years (rental prices go down, my apartment is empty for couple moths here and there) - that's 65% paid off in 10 years.
The 10 to 20% price drop wouldn't worry me much TBH as I'll be 45% in profit after selling it.
And I would pay 0% tax on that (0% capital gains and no stamp duty as buyer pays the 4% when buying) and would keep all that money.

Absolutely not worth it for all the circus you have to go through.

Any average investment advisor today can put together a bond portfolio for you that has a SIGNIFICANTLY better risk/reward ratio and you can liquidate the bonds more easily and easily move them back and forth across the world as needed.

The only point of buying real estate in Dubai or even London as an "investment" is that you can park your (questionable) assets offshore outside the banking sector (without CRS/AML/KYC checks).
For personal use, of course, anyone can buy what they want as "consumption", but it's a mystery to me who would bother with so much effort for such returns.
An interest rate of 4-5% on the dollar is currently considered a risk-free interest rate.

If you want more risk, have fun getting a high LTV at Dubai banks which can margin call you at any time according to local law.
Then rather invest in good REITS with leverage.

 

[JimBeam]

I understand but we're not comparing real estate investing to stocks/bonds here.

At the moment I bought the property the interest rates where - negative!
So far I got about 16% back in rents and the value of the property is at about 20-30% higher than I paid for so - so far so good.

Today it's easy to get 4% return as you can just put the money in bank and do nothing.
I don't think so that current 4-5% interest rate will remain for long (1-2 years max) and the longer it stays that high the more it will devalue dollar (due the inflation).
Actually, having 4-5% returns today means you're actually losing money.

NOTE:
Investing in stocks or REITs is easier than investing in real estate.
And I encourage everyone to do that instead of real estate.

 

[JustAnotherNomad]

Inheritance tax that can go up to 40% (if the property owner leaves this world before selling it)

Not really relevant here - but I recently learned you can avoid UK inheritance tax by owning UK real estate through an offshore company. As the offshore company wouldn't die...

 

[karishi]

The only point of buying real estate in Dubai or even London as an "investment" is that you can park your (questionable) assets offshore outside the banking sector (without CRS/AML/KYC checks).
For personal use, of course, anyone can buy what they want as "consumption", but it's a mystery to me who would bother with so much effort for such returns.
An interest rate of 4-5% on the dollar is currently considered a risk-free interest rate
Then rather invest in good REITS with leverage.

Well as usual it all depends on how you buy the property and how you reinvest. I'll make an example with a friend of mine who 22 years ago started working in London as a civil engineer coming from a poor family: he started renting a room and putting money away until he was able to buy a house paying 20% of it with a mortagage he could pay. a 2bdr inside zone 2 of London. He rented one room and started saving again until he was able to buy another house similar to the first with the money he had away + the fact that he was able to leverage the increase in value of his house. Buy / rent / repeat and now he has 4 houses in London and 1 house in Milan. All this without ever making insane amount of money from his job, 5k pound a month max. He makes a lot more than that with rents.
What makes Real Estate a potentially great investment of course is leverage, and the fact that a house might lose value, but rent usually oscillate less: of course you need to know the market and where to buy and at what price to buy, something that usually you can only do in places you know well: I would be able to do it in Ibiza or Milan, not Dubai.
So while leverage is usually what makes you poor in any stock investment, as even the best stocks can oscillate 90% during their life, with RE leverage is usually safer, although of course it all depends how you use it, the housing crises mostly derive by excessive leverage based on always growing prices: it happens everywhere in the world, always the same way

 

[hokus]

I don't think so that current 4-5% interest rate will remain for long (1-2 years max) and the longer it stays that high the more it will devalue dollar (due the inflation).

You mean to tell me that rising interest rates devalue a currency? Erdogan Theory

I'll make an example with a friend of mine who 22 years ago started working in London as a civil engineer coming from a poor family: he started renting a room and putting money away until he was able to buy a house paying 20% of it with a mortagage he could pay.

Correct, 22 years ago. In the current environment, the same story could also end in disaster.

 

[karishi]

Correct, 22 years ago. In the current environment, the same story could also end in disaster.

Well it's kind of hard that it ends in disaster, if you think about it. The first house is the house where you live in. The second house might be the riskiest, but the worst it can probably happen is that you have to sell it. Sure, if you lose your job it's an issue, nothing is risk free. What I wanted to point out is that if you know the market, buy the correct houses, use leverage in the correct way, have a bit of luck AND work a lot ( renting two houses becomes a job on top of your day job ) you can arrive at 45 not needing to work anymore. It's not the only way and it's not guaranteed to happen, let's say it's a slow and steady way.