Dubai Real Estate Investment: What Every Potential Investor Needs To Know
In recent years, the world has witnessed the rise of Dubai to a top performer on the international property investment scene. Its incredible modern architecture and dazzling skyline, with world renowned developments such as The Burj Khalifa and its man-made Palm Islands, have inspired investors from all over the world to claim their own stake in this incredible city. They have been rewarded with fabulous returns.
There are still many opportunities to invest in property in this city, which continues to develop at an exponential rate. The demand from people all over the world who want to be a part of Dubai, both from an increasing residential population and from ever higher tourist numbers, mean that there is plenty of ongoing development.
The dazzling array of options available for Dubai real estate investment, together with a history of fantastic returns make it a wise choice for any investor. With the World Expo now just four years away, 2016 looks like a great time to purchase in the city: rental yields are currently around 7%, outperforming other popular investment cities such as London and Hong Kong.
Like any investment in any city around the world, however, correct research needs to be made and formalities completed in order to secure the right Dubai property. This is our guide to Dubai Real Estate Investment.
What Makes Property In Dubai So Attractive To So Many?
The Dubai Property market is healthy, and for those living and working in the city, the rising cost of renting a property means that buying a property to occupy is a very wise move. Dubai investors from overseas can benefit from high rental yields and a probable sizeable return on their investment. In addition, Capital gains tax on sold property is not enforced. In addition, income from property is not currently taxed by the Dubai Government, which of course means greater returns. It is wise however to consult an expert in taxation to ensure your own personal liability is met in your home country.
Is It Easy to Buy Property in Dubai?
Yes, it is very straightforward to purchase property in Dubai.
The Freehold Decree, brought about in 2002, gave foreigners the formal, legal right to buy, sell and lease property in Dubai at their discretion. This move put Dubai firmly on the map for international property investment. It has also meant that the process is deliberately straightforward, with no hidden legal formalities to go through.
What Does Every Investor Need To Know?
Dubai property investment is very straightforward, but be aware of the following:
- Although it is not a requirement by law, it is always sensible to obtain legal advice when making a property purchase whether it be in Dubai or elsewhere, to ensure that all legal obligations are met.
- In theory, property laws permit foreigners to own real estate in only certain designated areas of the city. In practice, these areas are wide ranging and far reaching and exclude only a very small total of the city. You should have no trouble finding several areas of the city in which you are interested in buying. If in any doubt over whether you are entitled to buy a certain property, consult The Real Estate Regulatory Authority (RERA) or your lawyer.
- There is often only a very simple, straightforward sales process to go through, which adds to the appeal of Dubai real estate investment. Be aware though that although it may be simple, it will still be legally binding, so you should receive legal advice before signing.
- A Land Registry Fee is currently an obligation of purchase. The fee was introduced fairly recently to stabilise the market by discouraging immediate resale of units and thus a further property bubble. It stands at 4% at present, with half (ie 2% currently) paid by the buyer, the other half by the seller. Those buying off-plan need to settle this within 30 days of purchase, rather than after completion. RERA can be consulted for the most up to date information.
- A maintenance fee is common for many properties to cover upkeep of the building and any shared facilities. It can vary considerably between properties, so ensure you aware of these costs before committing to a purchase.
How Should I Begin The Search For The Right Property?
You may wish to engage the services of a real estate agent, who can be in a great position to inform you of properties just as they come onto the market helping you to be first in the queue, or to introduce you to properties that you may miss out on if you conduct your search alone. Their knowledge can even save you from a potentially weaker investment. Dubai realtors are usually very professional and knowledgeable, and the industry is well regulated.
If you are interested in buying in a new development off plan, there’s usually plenty of information about projects available online. You can then approach real estate developers directly by visiting sales offices and show homes of any potential investments.
Where In Dubai Should I Buy?
Dubai has many, many great neighbourhoods and is known for its city-wide safety and security. There are so many fantastic options.
Each neighbourhood has individual characteristics with its advantages over others. What most have in common are fantastic views of other parts of the city, fantastic shopping facilities and good education and health care providers. Most neighbourhoods also allow good access to other parts of the city. It really is difficult to find a less favourable area.
If you are buying a property to live in yourself, then you need to ensure you have good access to key facilities and workplaces. Once you have narrowed down the list this way, the next step is to spend some time in each neighbourhood to get a feel for the atmosphere of each area.
If you are buying purely for investment, you will need to approach the search in a different way. Although a central location and good facilities are still paramount to ensure your property will be popular with potential tenants, so will be the difference in the amount of likely financial return for each area. There is lots of information available online regarding property prices and rental yields in Dubai. Bayut.com is a good place to start.
What Kind of Property Should I Buy?
Of course, budget plays a large part in deciding what kind of property to buy in Dubai. There are many factors to consider in addition however, such as size, location, or available views.
If you are buying the property for your own occupation you will need to consider the size of the group who will live with you, as well as whether you will or may ever need any live-in domestic help. With this information you can work out how many rooms you require.
If you need to accommodate a large party or require lots of personal space then villa living may appeal. If you are wishing to rent out your property, compare villa rental yields with the possible yields of apartments, which can be in higher demand.
An incredible view of the city may be high on your wish list, and consider whether this warrants you paying the premium for it. If you are buying as a rental investment, you should examine how much additional rental yield city views allow and calculate accordingly.
How Does Buying Off Plan Work In Dubai?
There’s a wealth of opportunity to buy off plan in Dubai. In line with demand, particularly with the 2020 World Expo in sight, there are plenty of ongoing and planned developments in the city, but also plenty of property available for immediate occupation if you prefer.
Buying an existing property is generally quicker, with potentially long waits possible for off plan developments. However, new builds come with fantastic quality guarantees and the chance to ultimately walk into an immaculate property mean that off-plan is an exciting idea for many.
RERA has introduced a new set of regulations to ensure developers meet all commitments to projects and buyers. Buying off-plan in Dubai has never been safer. Before they can open up investments to buyers, RERA now requires developers to pay in full for the land as well as make a down payment of 20 per cent as bank guarantee, or deposit 20 per cent in an escrow account, or complete 20 per cent of the development.
In addition, developers have to guarantee their project will be completed on time and need to put a 10 per cent performance guarantee in place. Any investor should check a sales agreement before signing to be sure what compensation they are entitled to in the unlikely event that a development is not completed on time.
In any event, before handing over your deposit, which can be anywhere between 5 and 15 per cent, be certain to check that the developer is registered with RERA. They should also hold an escrow account. Escrow accounts hold funds securely until all parties have met their obligations, at which time funds are released from the account as agreed. Any deposit for an off plan property should be paid into a RERA approved escrow account.
For any investment, you should also expect to see the Land title deed, Dubai Land Department (DLD) approval documents and be given plenty of time to examine the agreement with the contractor that you will be required to sign.
How Do I Arrange A Property Purchase In Dubai?
The first step is to make an oral offer of purchase to the vendor or developer. Once you are in agreement of the main details of the purchase, you can then move onto the formalities.
If your purchase is off-plan, you will be asked to sign a reservation agreement and to arrange a reservation deposit. Once these are complete, a sales agreement can be drawn up. Alternatively, if you wish to purchase an existing property, it is often expected at this point that you will write out a 10 per cent deposit cheque in the name of the seller, which is then held by the seller’s agent. It is common to pay agency fees at this point too.
Any property purchase should have a formal sales agreement signed by both parties, buyer and either developer or vendor. This is for everybody’s protection. The agreement should list the terms and conditions of sale, details of the payment plan and clearly give details of both the buyer and seller. If you have arranged a mortgage to fund your Dubai real estate investment, bank approval is now required.
For an existing property, the bank will wish to carry out a valuation completed by an external chartered surveyor, before they are happy to lend funds on the property. Finally, to complete the process, deeds must be transferred. This is completed either at the developer’s office or at the DLD offices in Deira should you be purchasing an existing property. Finances must be fully arranged and ready at this point, in order to transfer full payment for the property.
Buyer and seller, along with any necessary bank representatives, complete the final paperwork and financial obligations, including payment of the Land Registry Fee, before ownership is then officially transferred.