Should you rent or buy your home in the UAE?
When it comes to the UAE real estate market, the renting vs owning property debate is one that never gets old. The UAE is known for its thriving real estate market and while the opportunities to invest in the sector are boundless, it’s still a financially significant decision to go ahead and make that deal. So for those of you still on the fence about renting or owning a home in UAE, we bring you all the factors to consider for an informed decision.
FACTORS TO CONSIDER FOR THE RENT OR OWN A HOUSE DECISION IN UAE
Whether you’re interested in renting or buying property in the UAE, there are few factors you need to consider. These will help you gauge the favourability of renting vs owning, given your future plans and present position in mind.
HOW LONG DO YOU PLAN TO STAY IN THE UAE
Before you spend any more time thinking about renting vs owning a home in UAE, review your short-term plans. Are you planning to spend at least the next 5 years in the UAE? With everything that’s involved in buying a property, you have to consider whether you’ll be here long enough to rationaliSe owning an apartment or villa in the UAE.
If you’re planning to stay only for a couple of years or aren’t absolutely sure about your plans yet, renting a property in the UAE might be better suited for you. It allows you more flexibility in terms of moving to a different country and is generally a good option if you like to play it by the ear and desire more freedom. With a short 2-month notice, you can vacate the property and head off to your next adventure.
HOW ARE YOU (REALLY) DOING FINANCIALLY
One of the most important factors to consider for this decision is how much it actually costs to buy a house in Dubai. For those in a relatively stable job with a reliable and steady source of income, the decision to buy property becomes somewhat easier.
If you have the ability to make the down payment (minimum 20% for expats) and can pay off the equated monthly instalments (EMI), then you are in a better position to buy a property in the UAE. It’s important to keep in mind that the down payment can be a huge upfront amount to pay, however you can alway plan and save for a down payment in Dubai to help you out.
On some level, this also comes into play when renting property in the UAE. You take on the liability of a tenancy contract keeping your financial position in mind. But take a moment and think about this: if you are going to be making monthly payments for rent anyway, why not pay towards owning your home? At the end of 5 or 10 or even 25 years, you will be a property owner in the UAE and that has some serious long-term perks.
Even if you for some reason you don’t end up living in the property you’ve bought, you can always put your property up for rent and pocket the monthly income once the mortgage is paid in full. If you’ve taken out a mortgage to pay for your property, you can use the rent to cover your monthly payments. In any case, you will still be the owner of an investment property in the UAE which is a big deal!
Expats interested in making real estate investments in the UAE can gain more insight into the prospect by looking into property ownership for foreigners.
WHAT’S THE MARKET LIKE
It’s good business sense to take a look at the property market before making an investment. The real estate market in the UAE is currently experiencing an unprecedented boom, with a steady stream of demand reported for rental and investment properties particularly in Dubai.
Other emirates like Abu Dhabi and Ras Al Khaimah have been more popular among investors for their off-plan island developments. In addition, the country’s stable economy, safety and infrastructure, ensures there is ample demand for properties despite the increasing rents and prices.
As someone considering renting vs owning property in the UAE, staying up-to-date with current market conditions can guide your decision. So it’s important to time your decision accordingly, keeping property market conditions and price trends in mind.
RENTING VS OWNING PROPERTY IN THE UAE: WHO CONTROLS WHAT?
Another relatively obvious factor that may also influence your decision is the level of control you desire on your property. For instance, owning a property in the UAE gives you greater control over modifications and customisation in your home. In comparison, when you’re renting a property even the most minor changes may require an NOC from your landlord.
Do keep in mind that additional control over property as its owner comes with its costs. Landlords typically pay an annual maintenance fee, service charges and are liable to finance any repairs or modifications. The extent of your financial liability towards the property also depends on whether it’s on a 99-year lease or on a freehold basis. Here’s everything you need to know about choosing between leasehold or freehold property in the UAE.
DO YOUR RESEARCH AND FIND A REALLY GOOD AGENT!
We’re not saying you should spend years trying to make the decision and get trapped in analysis paralysis, but you should definitely do your due diligence and make an informed decision. If you are new to property investments, read as much as you can about it and understand both the existing market conditions and speculated trends for at least the next couple of years.
You also need to find a real estate agent you are comfortable with, who is an expert in the area or the property type you are considering and whom you can trust to point you in the right direction. For new buyers, the agent or brokerage firm is often the sole source of information to pilot their first property investment deal. So make sure you spend some time finding the perfect agency and agent to work with.
To sum it up, it is your hard-earned money that is on the line. So take your time to:
- Familiarise yourself with the market.
- Shortlist options based on affordability and practicality.
- Find a reliable property agent to guide you through the process.
THE MATH OF RENTING VS OWNING UAE PROPERTIES
To tell you the truth, it is actually cheaper to buy a property rather than renting it in the UAE. When you crunch the numbers based on your annual rent within a specific period of time and how much your monthly payments towards a mortgage would come up to – you’ll see that the overall costs actually make it more favourable for UAE residents to buy the property.
Let’s take a real example to demonstrate. As per Bayut’s Dubai Sales Market Report for Q1 2023, the average price of 1-bedroom apartments for sale in Dubai Marina is AED 1.28M.
On the other hand, as per our Dubai Rental Report for Q1 2023, a 1-bedroom apartment for rent in Dubai Marina averages at AED 91k per annum.
Let’s now review the financial repercussions of renting vs owning this type of property in the UAE – what it will cost you to buy this Dubai Marina apartment instead of renting it over a period of five years:
Upfront costs for buying a 1-bedroom apartment in Dubai Marina
Here is how you can calculate the total upfront costs of a 1-bed flat for sale in Dubai Marina costing AED 1,280,000:
Required Payments | Associated Costs in AED |
---|---|
Required Payments Down Payment (20%) | Associated Costs in AED 256,000 |
Required Payments Dubai Land Department Fee (4%) | Associated Costs in AED 51,200 |
Required Payments Real Estate Agent Fee (2%) | Associated Costs in AED 25,600 |
Required Payments Property Valuation fee (varies) | Associated Costs in AED 2,500 |
Required Payments Mortgage Registration Fee – 0.25% + 290 | Associated Costs in AED 3,490 |
Required Payments Property Registration Fee | Associated Costs in AED 2,000 |
Required Payments Loan Establishment Fee (1%)* | Associated Costs in AED 10,240 |
Total upfront costs: AED 351,030
*Disclaimer: Buyers must keep in mind that the loan establishment fee varies from bank to bank
How much will it cost to buy a 1-bed apartment in Dubai Marina over five years?
With the upfront cost sorted, let’s now look at how much buyers can expect to pay for a 1-BHK apartment in Dubai Marina over a five-year period.
The costs below are based on the RERA service charges for Marina Diamond 1 in Dubai Marina.
Required Payments | Associated Costs in AED |
---|---|
Required Payments Mortgage Value (80%) | Associated Costs in AED 1,024,000 |
Required Payments EMI – 25 years tenure at 4.8% | Associated Costs in AED 4,584 |
Required Payments Total EMI over five years | Associated Costs in AED 275,040 |
Required Payments Annual RERA service charge for five years* | Associated Costs in AED 63,878 |
Total cost of buying over five years: AED 338,918
Please note:
- The calculations above are based on a standard fixed mortgage interest rate of 4.8%. This will vary from bank to bank.
- We have taken the average size of a 1-bed apartment in Dubai Marina to be 850 sq. ft.
- RERA Service Charge Index 2023 for Marina Diamond 1 in Dubai Marina is AED 15.03 per sq. ft.
Are you considering paying for a property in cash? A look into the ins and outs of buying a property with cash versus a mortgage can give you a better idea of your options.
How much will it cost to rent a 1-bedroom apartment in Dubai Marina over five years?
As mentioned, the average cost to rent a 1-bed flat in this community is AED 91k. Based on this annual cost, here is how much a tenant can expect to pay in rent in five years:
Required Payments | Associated Costs in AED |
---|---|
Required Payments Annual Rent | Associated Costs in AED 91,000 |
Required Payments Rent over five years | Associated Costs in AED 455,000 |
Required Payments Real Estate Broker Fee (5% one time fee) | Associated Costs in AED 4,550 |
Required Payments Annual Ejari Registration Fee + VAT (AED 226 for five years) | Associated Costs in AED 1,129 |
Total cost of renting over five years: AED 460,679
Keep in mind that at the end of these five years the money gone towards rent is lost forever. However, the EMIs that you put towards your own property is helping you get closer to becoming a home-owner, which is a relatively good income source to secure your future.
With Dubai being one of the top cities to invest in the world, you have a good chance of your investment appreciating over the years, resulting in even better rental yields.
Down Payment
This is the initial payment you make to purchase your property. It is part of the total amount that you owe the bank (in case of a mortgage) or developer (when buying off-plan).
According to UAE Central Bank, the down payment you make against a property in the UAE has to be a minimum of 20% of the value for foreign investors and 15% for UAE nationals (first-time buyers). Personal loans cannot be used to finance down payments for property investments in the UAE.
Getting a mortgage in the UAE can be confusing for those who are not familiar with the process. Check out our guide on types of mortgages in Dubai for everything you need to know.
Mortgage Repayments (EMI)
These are the monthly instalments you pay towards the rest of your property loan amount (excluding down payment). In the UAE, the loan-to-value (LTV) ratio or mortgage amount is capped at 80% for a property valued less than AED 5M and 70% for real estate valued more than AED 5M.
This means that your mortgage EMIs will include payment against 80% or 70% of the property value, plus interest.
Upfront Costs for property investment in the UAE
Apart from the down payment, there are a number of costs and fees incurred before you actually purchase the property. These are significant costs and a potential property investor can expect to pay about 6% – 7% of the property price in upfront costs.
However, as opposed to down payment, these can be financed through a personal loan. Some upfront costs that you may incur include:
- Real Estate Broker Fee: 2% of property value + 5% VAT
- Dubai Land Department (DLD) Transfer Fee: 4% of property value + administrative charges
- Mortgage Registration Fee: 0.25% of loan value + administrative charges
- Property Registration Fee: from AED 2,000 + 5% VAT
- Property Valuation Fee: AED 2,500-AED 3,500
- Bank Mortgage Loan Establishment Fee: 1% of loan amount + 5% VAT
Annual Maintenance Charges
This is a recurring charge payable by landlords to DLD as maintenance fees. The annual maintenance charges are based on the RERA Service Charge Index which gives a specific charge per sq. ft. of the property and varies for different communities in Dubai. Maintenance charges vary across different emirates as well.
It’s easy to see the appeal of buying a home in the UAE.
- With stable rental yields reported across all emirates, this investment will provide an additional stream of income in the future.
- If you plan to occupy the property, it will save you monthly rent which is one of the biggest expenses in the UAE.
RENT OR OWN PROPERTY IN THE UAE: WHAT’S BETTER
The most pivotal factor that will help you decide on the ‘rent vs buy property in the UAE’ question is how long you plan to stay in the country.
If you are one of the many who have come to consider it home, then crunch the numbers, do your due diligence, review market conditions and become a home-owner in the lucrative UAE real estate market.
If, however, you have no idea where you will be next year and want the flexibility to move to another country, then just rent a beautiful home in the UAE till you can be sure of what lies ahead.
FREQUENTLY ASKED QUESTIONS
WHAT IS THE COST OF BUYING A VILLA IN DUBAI?
Villas for sale in Dubai are available in different price ranges, based on their size and location. As per the current listings on Bayut, you can buy a villa in Dubai for as low as AED 528k.
DOES THE UAE HAVE RENT-TO-OWN PROPERTIES AVAILABLE?
Yes, you can find properties on a rent-to-own scheme in the UAE, particularly in Dubai. Some of the areas that provide rent-to-own property schemes in Dubai include Dubai South, Business Bay and Al Furjan.
IS THE ABU DHABI REAL ESTATE MARKET GOOD FOR INVESTORS?
Take a look at our Q1 2023 Abu Dhabi Sales Market Report to find out the latest price trends for affordable and luxury properties in the capital. You can glance over our listings of properties for rent in Abu Dhabi to see the going rate.
We hope this gives you some perspective on what’s involved and the factors you need to consider before deciding your stance on renting vs owning property in the UAE.
In case you decide to take the plunge into property ownership, make sure you are aware of the legal steps of buying property in Dubai if your choice is this emirate.
For more information on the real estate sector in the UAE or Dubai properties for sale, follow us on MyBayut.