To rent or buy in Dubai – which is best for you?
Are you at crossroads when it comes to the question – to rent or buy? While Dubai is an obvious investment haven for many, residents still need to evaluate all of the options to make a smart choice that will work for them. If you’re confused about where to start, we’ve set out a few questions you should ask yourself to help you decide.
Why am I buying a house?
Are you putting money in real estate for residential purposes or for extra income? By identifying your investment purpose, you’ll determine how much you can spend, where you can buy and what type of unit to look for.
For example, if you’re looking to save on rent, your research process will vary – especially if you live with family. Factors such as unit size, location, and accessibility to work or school will come into play. If you’re buying for investment reasons, besides rental returns, you need to account for recurring costs and unexpected problems such as difficult tenants, periods where the property may be empty, evictions and new laws.
Can I afford to buy a house?
Remember; don’t invest money if you can’t afford it in the long run. Do the maths, especially if you’re thinking of getting a mortgage. Avoid the mistake of thinking the rent will always cover your mortgage repayments, by factoring in all expenses such as maintenance, community fees, or periods where your property is not rented out.
One way to determine if you should rent or buy is by calculating the price-to-rent ratio. It shows you the number of years the rent needs to be paid in order to buy the same property. Therefore, if the annual rent for a one bedroom apartment is AED 70,000 and the selling price is AED 600,000, the price/ratio will be 600,000 divided by 70,000, which is 8.57. But what does this actually mean? As suggested by US based real estate marketplace Trulia1, here are the guidelines to help you determine if you should rent or buy:
- If the ratio is between 1 to 15, it’s better to buy than rent, which is applicable to our example above
- If the ratio is between 16 to 20, usually it’s better to rent
- If the ratio is 21 or more, it’s much better to rent than buy
How long do I plan to stay?
If your stay in the UAE is temporary, renting might be better as it gives you more flexibility. A huge investment might not return enough profit in time if you’re leaving a few years down the line. On the other hand, if you plan to reside here a long time with or without family, you should look into investing, as fluctuating rent prices can dry up your bank account. Take advantage of the UAE’s variety of desirable real estate investment opportunities and deals.
Should I be investing in Dubai?
Few options have an investment potential as strong as property in Dubai. Even though 2016 could be termed as a year of fluctuations, there was still a total of AED 259 billion in real estate transactions, which was only just a little short of the AED 267 billion during 20152. Further statistics released by the Dubai Land Department showed that in 2016:
- 60,595 total transactions took place to make up the AED 259 billion
- 41,776 deals were from sales (for AED 103 billion)
- 15,000 deals were mortgage-based transactions (for AED 128 billion)
- 134 new projects were launched with a combined value of AED 100 billion
- 62 projects were completed
- 410,000 leasing contracts were entered into for both residential and commercial properties
Simply put, the figures above lend increased confidence to the real estate market and its potential to grow, even through challenging times. Also, developers have come up with easy payment plans, including post-handover payments, which suit both first-time buyers and investors planning to add to their rental yields.
If you keep these factors in mind, making the decision to rent or buy becomes a little less complicated; and gives you a starting point from which to choose the option that works best for you and your wallet.
Sources: 1 - Wealth Monitor; 2 - Gulf News