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12 April 2024

Where to invest your pot of money in Dubai

By Vicky Kapur

This may seem like a first-world problem to have, but both the real estate market and the stock market in Dubai have been outperforming global benchmarks handsomely.

In effect, for those with a reasonable sum of money to invest – anything between Dh50,000 and a few million Ds – the choice could become a little overwhelming if not downright confusing.

Of course, the choice may veer towards investing in stocks the closer one is to the beginning of that range (Dh50,000) as there won’t be much that you can buy in Dubai with that much down payment. However, as you move up the investment ladder – more cash in your pocket – the choice becomes more difficult.

Now, there is no dearth of property consultancies tracking the surge in house prices in Dubai and indeed the rest of the UAE. And if that wasn’t enough, we keep getting reminded of the same by the unsolicited “best time ever to sell/buy” text messages on our phones by hard-to-pronounce property agencies.

Indeed, some of the more established names like Asteco reckon that average sales prices rose by up to 60 per cent in prime residential developments in Dubai last year.

“Sales prices for apartments and villas rose by 23 per cent in Q4 2013 alone, fuelled by increased confidence and the fact that the new law regulating maximum LTVs [loan-to-values] was not being consistently enforced, although cash buyers still dominated,” John Stevens, managing director, Asteco Property Management, said in a year-end report on the emirate’s real estate market.

Reports suggest that property prices in the UAE’s capital Abu Dhabi too surged as much as 37 per cent in some districts in 2013 – and while that may seem modest compared to Dubai’s growth, it is among the best property returns in the world. The growth in Dubai property prices, of course, was the highest in the world.

But even that growth – of 60 per cent per annum – gets dwarfed by the stock market gains, which topped 107 per cent in 2013 for the Dubai Financial Market General Index.

For the uninitiated, the DFM General Index increased by 107.7 per cent to 3,369.8 points at the end of 2013 compared to 1,622.5 points at the end of 2012. At the sectoral level, the Financial & Investment Services sector increased the most by 169.2 per cent, followed by the Banking and Real Estate & Construction sectors by 120.6, and 108.2 per cent, respectively.

The Abu Dhabi Exchange (ADX) index, on the other hand, rose by more than 63 per cent to reach 4,290.30 points at the end of 2013 compared to 2,630.86 points at the end of 2012.

Those stories – of growth in property and share prices – are not over yet, with the first two months of 2014 witnessing a massive 25 per cent surge in the DFM General Index while the ADX General Index is up by more than 15 per cent in two months.

Simultaneously, property prices are rising at a rapid clip too, and thus the dilemma of where to invest.

Of course, as pointed out above, the decision is a little easier for those with a smaller kitty, as the property market necessarily needs a reasonable investment, even it’s limited to approximately 30 per cent of the property value (25 per cent minimum down payment plus property registration fees plus agent commission, etc.).

For those seeking liquidity along with returns, the decision to invest in stock markets makes sense as shares can be bought and sold virtually instantly, as opposed to property transactions.

However, if you have a reasonable pool of money and don’t need to be highly liquid, the property market offers the added benefit of rental returns – which you may or may not receive from shares (in the form of dividend). Or you could live in the house you invest in while shares offer you no such incentive.

In addition, share prices could, in theory, decline by as much as 10 per cent a day – whereas that’s extremely unlikely to happen in the real estate market.

Most importantly, it’s your individual circumstances, needs and preferences that play a big role in deciding your asset class. Prudent investors and investment advisors always suggest a portfolio approach to investment so that one can hedge a decline in one asset class with an increase or stability in other/s.