_Why long-term expats should invest in a property in Dubai?
Dubai, the UAE’s most populous Emirate has developed at a rate which arguably is unmatched by any other global city. With its offer of world-class education,
Yet despite all the benefits, historically, with residency linked to employment visas, there has always been a term limit on the length of stay. As a result, many Expats have chosen not to invest in residential property, choosing instead to rent – sometimes for a few, sometimes for many, many years. Given the relatively low costs of ownership and transactions costs in Dubai, this can prove to be an overtly unwise decision, yet an understandable one given the uncertainty relating to long-term residency options. Another contributing factor to the decision has been due to market conditions of the last two years or so. The influx of supply in certain areas over this time has caused prices to decrease which in turn has dented confidence in the market.
Now with the introduction of five-year renewable retirement visas – for properties over AED 2m - and the proposed issuance of 10-year visas for selected professionals alongside a more conservative delivery of supply forecast after 2019/2020, this should induce a new residential market cycle. Which makes this an opportune time to take a revisit the rent versus buy decision.
Unexpectedly the decision to buy more than adds up financially in most cases. Using median apartment price (AED 1.4m) and median apartment rental (AED 98,000) data across the city, Knight Frank has found that the savings attained from buying as opposed to renting can be significant over the medium to long-term.
Using the assumption that apartment sale prices and rental costs remain the same as the purchase/ initial rental date, we have found that a buyer who purchases, occupies and then sells the property after a five year period will be over AED 187,000 better off compared to renting. Over a three year period, the decision remains balanced towards the buyer rather than the renter with an overall benefit of over AED 51,000.
However, if the plan is to only stay for two years or less then renting would be a better financial decision as buying over this time period would mean you are over AED 51,000 worse off compared to renting.
The shorter the time period, the less time you have to benefit from the lower monthly outgoings and to recover the initial costs of purchasing such as registration and agents fees.
Of course, the buyer does not need to sell the property after a set period. It can be a long-term investment given there is plentiful demand from tenants combined with a rental yield which is very favourable compared to the other financial centres, meaning the long-term payoff can still be substantial.
Overall, whilst buying, in the long run, can in most cases be the best financial decision, it is likely to be one of if not the largest financial spend by many residents over their lifetime and therefore should be a considered one.