The UAE’s investment sector is growing rapidly. At the same time, the range of asset classes is expanding. Thus, one can choose the most suitable option for themselves. There are investment options that are suitable for almost any risk profile: from trading stocks to buying real estate, private pension schemes, funds, and deposit accounts. And this applies not only for Dubai but also for Abu Dhabi, Ras Al Khaimah, and Sharjah. As for real estate investments in Dubai, this asset class is one of the most popular among international investors. Newly-introduced stricter rules for buying and selling real estate, as well as renting, limit speculation in it. As a result, the market has become more stable and affordable. In turn, new laws on freehold ownership and specially created freehold zones allowed foreigners to buy apartments, villas, and land plots in Dubai and Abu Dhabi in 100% ownership, and not in 99-year lease. To further stabilize the real estate market in the country, the government launched a pension visa and introduced long-term residence visas in 2019. In the article, we will give examples of investment programs, briefly review the advantages of investing, and ways to invest in real estate of Dubai.

Why invest in real estate in Dubai?

In recent years, the UAE has taken numerous measures required to restore the national economy, including simplifying the rules for doing business outside of free zones. Twenty percent of restrictions for banks in lending to real estate, as well as increased business activity, were lifted. As mentioned earlier in our articles, Dubai has become the business capital of the UAE, where almost every large company from all over the world has an office there. With the development of enterprises and industries, the investment sectors that have managed to attract a large number of foreign investors to the UAE have increased. Apart from that, the most important reasons that make Dubai the undisputed leader for investment are:

<ol><li>No tax on capital gains and income;</li><li>Possibility of obtaining a residence or investor residence visa with an unlimited right of extension;</li><li>Legal protection of a property and a possibility of long-term investment prospects;</li><li>With a certificate of a tax resident of the UAE, any individual or foreign company will not be subject to double taxation. This option is valid only if this agreement is signed between the UAE and the investor’s country.</li></ol>

Dubai is famous for its exceptional skyscrapers and neighborhoods, unique premium residential real estate, low crime rate, highly developed infrastructure, and many other things. It all makes Dubai an ideal place for both tourists and those who want to work and live here. Moreover, the political situation in the city is quite stable, which ensures that your investments will not suffer due to geopolitical instability and disorders. N.B. Those who has invested over AED 5 million in real estate in the UAE are eligible to not only the simplified visa application process but also to benefits provided by the Central Bank of the UAE. Moreover, they got the best out of affordable housing prices, especially after their reduction. Also, against the background of the pandemic, government fees and the cost of annual rent for commercial real estate have been decreased. Based on the above, it is not a surprise that many residents and novice investors with an average income want to invest in real estate to secure their future.

Investment process

The formalities of investing in real estate in Dubai are quite simple. However, they may differ from those which the investor has already known. It is a good idea to hire a reputable real estate agent and a lawyer to help you navigate the process. They should help with drawing up the terms of the contract for the buyer and seller, signing a Memorandum of Understanding, paying the remuneration and state duties, or transferring the ownership documents. Even before the global crisis against the background of the pandemic, the policy of the UAE authorities was focused on attracting investors to the real estate sector. Despite the affordability of real estate purchase prices, customers are offered 2 mortgages to pay for one residential property at low-interest rates on the first loan. At the same time, the term of payment varies from 50 to 100 years with the right to transfer its repayment to the next generations. It affects the durability and quality of the residential real estate. It is worth mentioning that banks contribute to the stabilization of the real estate market, and the mortgage market for expats in the UAE is competitive. Lower interest rates on loans and stable income from real estate contribute to the growth of demand, even though many buyers use bank loans at long-term rates.

Examples of investment programs

When you plan to invest in real estate in Dubai, you should always take into account the fact that price growth does not always depend on the location. Furthermore, no object can guarantee a consistently high annual ROI from renting. Qualified real estate agents also cannot give a 100% guarantee of high return on investment. Nevertheless, they can help you avoid financial and legal problems when buying a property, save money and increase your investment, reducing the risks to almost zero. You can choose different types of investment programs according to your needs and the amount of investment. Each investment instrument can be divided into 3 main characteristics: security, growth, and income. In this case, it is necessary to understand clearly that the higher the return on investment, the higher the risks, and vice versa. If you are more focused on long-term prospects, then you should choose a property close to the sea with developed infrastructure in the central area. Or you can pay attention to the purchase of real estate near the city center, in proximity to metro stations, and with a developed transport system. Apartments with 1-2 bedrooms usually provide a higher rental yield than townhouses and villas. If we consider the option of resale to quickly increase the investment, then a smaller apartment can be sold much faster and at a better price, compared to a larger property. N.B. Next, we will describe the investment programs in detail. It is worth considering that all these figures are approximate since all calculations are exclusively individual.

Short-term

Term: from 1 year, with payback from 0% to 35% per year. Amount: from USD 1 000 000. When choosing this program, the risks are more likely. The profit is unstable and depends on the availability of offers below market value. In this case, the main goal should be liquidity, not high profitability. With this approach, the goal should be to prevent borrowing and panic during any financial emergency. The program includes the purchase of:

<ul><li>residential and commercial real estate at a price below the market price upon urgent sale, shortly after purchase;</li><li>residential and commercial real estate, as well as land plots in undervalued areas and projects;</li><li>residential and commercial real estate, which is built by little-known developers, the price of which can soar during the construction process.</li></ul>

Medium-term

Term: for 5 years or more. Amount: from USD 3 000 000. Annual ROI: from 8% to 9%. Profitability: up to 20% per year. If you choose this investment program, the risks also take place, but minimal, unlike the previous program. They directly depend on the state of the market and the average market prospects for its development. Under this program, you can buy:

<ul><li>residential and commercial real estate for renting out to individuals and small businesses;</li><li>residential and commercial real estate built by a reliable developer for renting out for longer periods and increasing the value of the property after completion of construction;</li><li>real estate or property units under construction for renting out and increasing the value during the construction process or upon completion of the project.</li></ul>

Long-term

Term: for 10 years or more. Amount: from USD 5 000 000. Annual ROI: from 7% to 9%. Profitability: up to 15% per year, rental income up to 15% per year. According to the long-term program, the probability of losses is very unlikely, since all the terms of the lease are known in advance. It includes the purchase of:

<ul><li>commercial real estate: for long-term lease from an exceptionally solvent class AA tenant;</li><li>residential real estate for a labor town, where long-term lease agreements will be concluded with the most reliable companies;</li><li>hotel real estate, where the contract for the management of real estate will be concluded with hotel operators recognized at the world level.</li></ul>

N.B. According to financial experts, diversification is an excellent strategy for investors seeking to reduce the risk associated with their investment portfolio. Usually, the process of diversification involves investing in various market instruments that reduce all sorts of risks.

How to invest?

As an expat, you can invest in real estate with cash. Moreover, in Dubai, you can apply for a mortgage on the house you are going to live in or use as an investment property. However, depending on the circumstances and the property you want to buy, the amount of deposit you need to pay will vary. If you are looking for a property for an investment, you usually are at greater risk, thus the bank will ask for a higher initial deposit.

Purchase of ready and off-plan real estate by mortgage

If you require a mortgage, you need to talk to a mortgage adviser and make sure that your loan application has been pre-approved by your local bank. The minimum deposit for expats is 25% of the cost of housing, and 6-7% for related expenses. If you want to purchase a property worth more than AED 5 million, the maximum loan-to-value ratio will drop to 65%. It means that you will need a 35% deposit. Once the mortgage is pre-approved and the mortgage broker or bank has reviewed the available options with you to determine your maximum eligibility for the loan, you will be able to set your budget. The mortgage repayments usually amount to approximately 25% of your monthly income. However, you need to make sure you take out the right loan amount that suits your needs and ability to pay. N.B. The borrower has the opportunity to pay the mortgage prematurely by paying a 1% commission on the remaining amount for early repayment. If we compare the purchase of ready and off-plan real estate when using a mortgage, then:

<ul><li aria-level="1">Investing in a ready property often provides an additional advantage in the form of a proven rental yield. Such real estate is mainly located in places with developed infrastructure, which immediately allows you to start receiving income from renting out housing, thereby covering part of the mortgage payments.</li><li aria-level="1">As for off-plan real estate, many developers offer convenient payment schemes. According to them, the initial payment is 5-10%. The rest of the sum is divided into payments during the construction period, and post-handover payments. You can apply for a mortgage only to pay the amount that remains after the completion. It can be approximately from 25% to 60% of the total cost. In this case, the mortgage amount may be less. After the handover of the property, you can also start renting it out and cover part of the costs.</li></ul>

Hire-purchase is not suitable for income. Nevertheless, the purchase of housing is more affordable. The hire-purchase upfront cost is approximately 5-8% of the property’s purchase price. The process of applying for this scheme is generally less complicated than applying for a regular mortgage. Lease payments help to accumulate capital as each contribution to the acquisition of an asset is accumulated. Commercial real estate for further rental includes warehouses, office space, small hotels. This type of investment will guarantee stability regardless of market fluctuations and generally bring twice as much profit.

What does the investor get?

<ul><li>The possibility of obtaining a resident or investor visa for 3, 5, or 10 years. It can be extended to family members (wife/husband and minor children) with the right of extension for a similar period;</li><li>The absence of double taxation, the tax on income and capital gains;</li><li>A reliable banking system;</li><li>High profitability of projects;</li><li>The process of buying and selling and renting real estate is reliably protected at the legislative level;</li><li>Living in a country with a stable economy and a national currency;</li><li>Dubai is an international trade hub. There is a high level of education and medicine, as well as the most dynamic implementation of scientific achievements.</li></ul>