Investor's guide: Making money on real estate in Dubai in 2023

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Christina
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25 Jul 2023
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article
25 Jul 2023
778 views
In this article

Dubai's real estate market is flourishing, attracting investors with its enticing features such as tax-free ownership and sale, secure transactions, a thriving economy, and easy access to residence permits. In this article, we explore the profitability of real estate investment in the Emirates and compare two main investment strategies.

Is investing in real estate in Dubai profitable?

In 2022, Dubai emerged as the world's fourth city in terms of real estate value growth, with apartments increasing by 8.5% and villas by 13%. The surge in prices is driven by the rising demand for rental properties, witnessing a significant 24% increase in rental rates during the first half of the year. Additionally, the growth was boosted by the Golden Visa program, offering foreign investors the opportunity to obtain residency by purchasing real estate worth $545,000.

The Dubai government is actively fostering a favorable environment for investors by maintaining zero taxes on ownership and sale, providing low mortgage rates, and further expanding the Golden Visa program. It is anticipated that prices will continue to rise by 8% annually.

Short-term or long-term investment options  

Investors in the Dubai real estate market can choose between two primary strategies: short-term resale and long-term rental business.

By opting for long-term rental, investors can expect to earn returns of 5-11% depending on factors such as the class of the residential complex, area, and rental duration. Moreover, the value of the property is likely to appreciate each year. On the other hand, the short-term resale option offers a potentially higher average return of around 30% per year.

Each strategy has its advantages and disadvantages:

Resale of real estate in Dubai

Advantages:

  • Swift capital appreciation; 
  • Feasible entry threshold with installment purchases.

Disadvantages:

  • Potential for incorrect property choice impacting sale income;
  • Construction delays by the Developer.

Rental Business in Dubai

Advantages:

  • High return on investment;
  • Yearly property value growth.

Disadvantages:

  • Risk of nearby construction affecting rental rates;
  • Requirement and cost of license for short-term rental;
  • Waiting period for properties in under-construction buildings;
  • Ongoing expenses for residential property maintenance.

No matter which strategy you decide to pursue, conducting a comprehensive study of the investment properties before making a purchase is crucial, as your potential income is directly impacted by this decision. Engaging the services of professional real estate agents is highly recommended, as they can help you identify the most lucrative and liquid options for your investment.

Reliability of this investment  

When it comes to investing capital, UAE real estate stands out as one of the most dependable choices when compared to other countries. The country consistently ranks among the top 25 nations in the Kearney FDI Confidence Index, reflecting strong investment confidence. Moreover, over the past decade, the national currency has maintained a stable exchange rate against the dollar, adding to its reliability.

Furthermore, the operations of developers in the UAE are subject to strict regulations by the Land Department, significantly minimizing the risk of encountering unscrupulous companies.

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Riviera residential project

Real estate prices

Currently, the real estate prices in Dubai exhibit a wide range, influenced by factors such as location, age, and class of the residential complex. The most liquid options start from $150,000 during the initial stages of construction, while the average price for an apartment is approximately $500,000.

Some investors express concerns about the rapid growth of real estate prices, fearing the possibility of a «soap bubble» formation. The Emirates market experienced a similar phenomenon in 2014, witnessing a 30% surge in apartment prices within a quarter compared to the previous year. In response, the government implemented measures like increased taxes and reduced loan percentages, leading to a 12% decline in average prices within a year. The lessons from this experience have been taken into account, and currently, the real estate market in Dubai is characterized by steady growth, far from a crisis state. According to the Swiss bank UBS, Dubai's «bubble» risk index for 2022 stands at 0.16, significantly below the 1.5 considered dangerous.

Mortgages and installments  

For foreigners, mortgage options in the UAE start at 2.5% per annum, with a prerequisite of 30% initial investment of the property's value. Various banks have their specific borrower requirements, including:

  • Minimum age of 21 to 65 for employees and up to 70 for entrepreneurs.
  • Possession of a valid residence permit. 
  • Borrower's life insurance. 
  • Official employment or business activity within the UAE. 
  • Ownership of UAE property (optional, but increases mortgage approval chances).  
  • Minimum income of approximately $3,000 for loan approval.

Alternatively, construction companies offer installment plans spanning several years. One such plan is the handover installment, where payments are made during the construction phase, and the property keys are handed over upon full payment.

Another form of payment is the installment post-handover, allowing payments to continue for 1-3 years after property delivery.

For the initial stage, typically 10-20% of the property value and 4% land tax are paid. Payment schedules may vary based on individual developer contracts, such as 20% at the beginning, 30% during construction, and the remaining 50% within 3 years after the building's completion.

Installment plans are often favored by investors involved in real estate resale, as it allows them to avoid paying the entire amount upfront and instead requires around 30% payment. Subsequently, after 6-12 months, when the property's value appreciates, investors can sell it and profit from the difference.

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Al Habtoor Tower residential project

Best real estate offers

Ways to generate profits in Dubai real estate

Resale of apartments  

Profits from reselling real estate in Dubai can reach up to 30% annually. Optimal choices include apartments with exceptional views, such as sea vistas or scenic attractions, apartments in coastal residential complexes, and elite new buildings in sought-after areas. Studios or 1-bedroom options on middle floors tend to appreciate the most rapidly and are the fastest to sell.

Short-term investments enable selling properties before construction completion, safeguarding against market fluctuations. Developers usually allow resale after paying 30% of the apartment's cost, or one can wait for property delivery to sell at a premium price.

Short-term and long-term rental  

Renting properties for the long term yields an average annual income of 5-8%, while daily rentals can fetch up to 15% returns.

To engage in short-term rentals, one must obtain a license from the Department of Tourism and Commercial Marketing, requiring identity documents, a certificate of ownership, and a DEWA account. An annual license cost starts at $500, and it can be applied for online on the Department of Economy and Tourism website. The management company handling apartment maintenance charges approximately 20% of the income.

For long-term rentals, a license is unnecessary, and the management company commission is typically borne by the tenant, amounting to around 5% of the payment.

Commercial real estate  

Investing in commercial real estate involves properties like warehouses, offices, hotels, or retail spaces. Well-located premises, such as high-traffic shops or premium offices, can yield up to 10% per annum.

Long-term leases in this sector, typically for 5 years or more, provide consistent income with minimal exposure to market fluctuations. However, one should note that the purchase of commercial space necessitates an additional 5% payment for VAT.

Assessing Dubai districts for investment  

The most attractive areas for investment in Dubai include popular tourist destinations like Dubai Marina, Palm Jumeirah, and Jumeirah Beach Residence. Business Bay and Downtown Dubai, being the primary business hubs, are also highly sought-after locations. These areas experience high demand for real estate, ensuring quick resales or minimal downtime risks for rental properties.

Investors should also consider actively developing districts such as Emaar Beachfront, Dubailand, or MBR City. These regions garner significant attention from investors due to the expectation of substantial real estate price increases in the coming years as the areas develop further.

Choosing the right property for investment in Dubai  

To ensure a steady stream of income from real estate in Dubai, it is crucial to select the right property for investment.

Several key criteria should be considered during this process:

  • Age of the Building. If the intention is to engage in a rental business and opt for the secondary market, it is advisable to focus on the most recent new buildings. Expats and tourists prefer modern residential complexes with fresh renovations, making them more attractive for rental purposes. 
  • Developer. When selecting a property under construction, thoroughly research the developer's track record. Investigate their previous projects, search for online reviews, and verify the company's credibility on the official website of the DLD Land Department.
  • Number of bedrooms. For resale purposes, studios or 1-bedroom apartments are the ideal choices, as they tend to sell the fastest. For rental endeavors, properties with up to 2 bedrooms are well-suited. 
  • District. For a successful rental business, it is advantageous to focus on popular tourist locations and key business districts within the city. Additionally, for resale, one can explore built-up areas in addition to these high-demand regions.

Society House  

Society House stands tall as a 52-floor tower located in the vibrant Downtown district, in close proximity to iconic landmarks like Dubai Mall, Burj Khalifa, and Dubai Canal Embankment. The project offers a range of options, from studios to 1-3 bedroom apartments, all finely finished and fully furnished for immediate rental opportunities.

Each unit in Society House boasts at least one balcony, providing residents with an ideal space to create a relaxing lounge area or an additional dining spot while enjoying breathtaking views of Dubai's towering skyscrapers. The building's rooftop presents a terrace and a 25-meter azure pool, offering an elevated perspective of the surroundings. A modern gym and an outdoor crossfit area cater to fitness enthusiasts. For work and business needs, the property offers a dedicated business lounge. After a productive day, residents can unwind in the private cinema or test their golf skills on the simulator.

The developer offers the convenience of a 5-year installment plan.

Apartment prices start from $299,000.

Project is scheduled for delivery in the 3rd quarter of 2026.

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Society House residential project

SeaHaven

SeaHaven is located in the prestigious Dubai Marina area, and comprises three impressive towers, each soaring up to 59 floors. The residential complex offers apartments with 1-3 bedrooms, featuring cozy balconies that provide captivating views of the majestic Persian Gulf. All units come with exquisitely designed interiors, showcasing natural marble and precious wood finishes in soothing neutral tones.

SeaHaven is envisioned as a self-sufficient «city within a city.» Residents can indulge in the panoramic vistas of Dubai while relaxing by the infinity pool on the top floor. After an invigorating workout session with a personal trainer in the fitness room, one can unwind in the soothing ambiance of the spa complex. For an exclusive movie experience, residents can access the private cinema room complemented by an in-house restaurant. A friendly concierge service is on hand to address daily needs, allowing residents to focus on their rest and work.

The developer offers an installment plan throughout the construction period, requiring a down payment of 20%.

The project is slated for delivery in the 4th quarter of 2026.

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SeaHaven residential project

Briefly: Transaction stages

  • Choosing a suitable property;
  • Making a reservation (10-15% of the property cost);
  • Signing the SPA contract with the developer;
  • Registering ownership with the Dubai Land Department.

Documents required for purchasing real estate in Dubai:

  • passport with a valid Visa;
  • document with the address of accommodation (hotel or apartment);
  • receipt of state fee Payment for Land Department registration;
  • Emirates ID (if available).

Conclusion  

Currently, Dubai real estate offers lucrative opportunities, with up to 30% annual returns on resale and up to 8% annual returns on rental businesses. If you seek suitable investment properties, feel free to contact our brokers, who will assist in finding the best deals for you, with love and without commission.

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