The big question facing many in the country is this: should you rent or buy property in the UAE? With the current market conditions swaying in favour of buyers, it’s still a financially significant decision to go ahead and just do it. Property prices are at a low and for those looking to own a home in the UAE, now is the time. But many are still on the fence, either due to uncertainty about living in the country long-term or perhaps due to a lack of information about what’s involved.
In any case, buying property in the UAE is definitely as rewarding as investments go, and we’re here to help you figure out whether you should take the plunge and buy your house or continue to rent in this fast-developing country.
Let’s start off with a few factors you’ll need to consider. These will help you gauge the favourability of one over the other, keeping 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 whether you should rent or buy your home in the 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 rationalize 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 need the freedom. With a short 3-month notice, you can vacate the property and head off to your next adventure.
How Are You (Really) Doing Financially?
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 know that you will be able to make the down payment (minimum 25% for expats) and can pay off the mortgage in monthly repayments, then you are in a better position to invest in property in the UAE. However, the down payment itself can be a huge amount to pay upfront. Here are some tips on how to 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 have to move back to your home country or don’t end up living in the property you’ve bought (either due to space or the need for a change of scenery), you can always put your property up for rent and pocket the monthly income if you’ve paid for your investment 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!
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 in favour of buyers, with strong ROI reported across the emirates. Based on over 94,000 listings on Bayut, our annual 2017 real estate reports for Dubai, Abu Dhabi, Sharjah and the Northern Emirates all point towards a stable ROI on property investment despite falling rents and prices.
As someone considering whether you should buy or rent a property, staying up-to-date with current market conditions can guide your decision. Since prices have fallen, the property market in the UAE is ripe for investments. This may not necessarily be the case for too long. Time your decision accordingly, keeping property market conditions and price trends in mind.
How Much Control Do You Need?
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 customization of your home. In comparison, when you’re renting a property even the most minor changes may require a NOC from your landlord to get the necessary permissions to do so.
Do keep in mind that additional control over a property as its owner comes with its own 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.
Research & A Really Good Agent!
We’re not saying you should spend years trying to make the decision (and get trapped in analysis paralysis) since the UAE property market is fluctuating and may not remain a buyers’ market for too long. 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 current market conditions as well as forecasts and expected trends over the next couple of years.
It also helps to find a real estate agent you are comfortable with, who is an expert in the area or property you are considering and whom you can trust to point you in the right direction. For first-time buyers, the agent or brokerage firm is often the sole information resource to pilot their first property investment deal. So make sure you spend some time finding the perfect agency and agent to work with. Skeptical about how an agent can help you decide? Check out some benefits of having a good real estate agent in the UAE.
At the end of the day, it is your hard-earned money that is on the line. Spend some time familiarizing yourself with the market, shortlist options based on affordability and practicality, and find a reliable property agent to guide you through the process. This is a huge financial commitment, and potential home-buyers must make sure they clearly understand the terms and costs associated with the decision. And that brings us to…
The Math Of It All
Seasoned investors and experts already know this but let us tell you what we know about the UAE property market. It is actually cheaper to buy your house 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 their home.
Let’s take a real example to demonstrate. An 832 sq. ft. one-bedroom apartment for sale in Dubai Marina is priced at AED 1.4M. Annual rent for a one-bedroom apartment in Dubai Marina is AED 100k.
Here’s is a quick comparison of both scenarios, with calculations of what it will cost you to buy this Dubai Marina apartment instead of renting it over a period of five years:
The calculations above are based on a standard mortgage interest rate of 3.24%; this will vary from bank to bank.
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 having your investment appreciate over the years resulting in even better rental yields.
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 25% of the value for foreign investors, and 20% for UAE nationals. 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 85%. This means that your mortgage EMIs will include payment against 85% of the property value plus interest.
Apart from the down payment, there are a number of costs and fees that are incurred before you actually purchase the property. It is important to note, that these are significant, 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:
- 2% Real Estate Broker Fee
- 4% Dubai Land Department (DLD) Transfer Fee
- 25% Mortgage Registration Fee
- AED 4,000 Property Registration Fee
- AED 2,500-AED 3,000 Property Valuation Fee
- Up to 1% Bank Mortgage Loan Establishment Fee
Annual Maintenance Charges
This is a recurring charge payable by landlords to DLD as maintenance fees. This is based on the RERA Service Charge Index which gives a specific charge per sq. ft. of the property and varies between different communities in Dubai. Maintenance charges vary across different emirates.
It’s easy to see the appeal of buying a home in the UAE. With stable rental yields reported across all emirates, this is an investment that will provide you with an additional income stream in the future. Or, if you plan to occupy the property, it will save you monthly rent which is one of the biggest expenses in the UAE.
To Sum Up…
The most pivotal factor that will help you make the final decision 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.
We hope this was helpful in giving you some perspective on what’s involved and the factors you need to consider before deciding whether to rent or buy property in the UAE.
If you are currently looking to rent or buy property in the UAE, call us at 800-(BAYUT). We’ll be happy to help you find your next home in the UAE, regardless of where you land on the ‘rent or buy’ decision.