Rent or buy – you decide
It usually happens 12 months to two years after expats arrive in Dubai – with extra money in their accounts they begin to consider whether to take the plunge into property ownership or to continue renting.
On the one hand the rent cap – first introduced in January 2006 – means tenants are protected from huge increases and so renting can often be an attractive proposition. However, government legislation brought in in 2002 allows expatriates to buy in many prime locations across the emirate and a further ruling in 2006 allowed real estate to be actually registered in the owner’s name.
With the mortgage market becoming ever more competitive, owners cannot only enjoy monthly repayments that are sometimes less than rent costs, but they can also look forward to a healthy equity growth should they invest wisely. “The property market is still relatively new in Dubai but there is no doubt it is booming,” says Craig Holding, a financial consultant with Acuma Wealth Management in Dubai. “In general, I would say always ask yourself: Can you afford it? Make the calculations and see for yourself from your own perspective how much money you have and how much you presently pay in rent. Do not stretch yourself to the absolute limit. If you come here with a massive deposit, this is a good time to buy, but only if you can actually afford the repayments.”
Holding says there are no guarantees when you invest in property – despite what some marketing gurus would suggest. “If you are going to invest everything you have into a property, I would say it is not a safe financial bet. However, if you have other assets then do buy, but don’t put everything into it. I would recommend putting a minimum of 20 per cent down. If you can’t do that then ask yourself if this is the right move for you.”
In terms of renting, Holding says it is definitely the best option for people looking to stay in the country for a short time. “We are just starting to see rents decrease as more properties come online; renting leaves the tenant flexible to move when they want. Some people do make a lot of money from property but don’t do it for a quick capital gain. In my opinion buying property should be for the long term – five to 10 years.”
For those wanting to lease a property, the authorities in Dubai have made big strides in the past 18 months to help protect tenants from unscrupulous landlords. The rent committee, run by Dubai Municipality, is established to stop landlords exceeding the annual rent rise cap – currently at seven per cent – and there are penalties for owners who try to avoid this.
However, when new properties come onto the market they are not covered by the rent committee and the cap – reviewed at the end of every year – is not fixed at any figure.
Caitlin Hughes, a property consultant with Ocean View Real Estate based on Sheikh Zayed Road, is convinced now is the time to buy. “The market is stronger now than it has ever been,” she says. “The problem with renting is that prices are increasing rapidly and the cap can change at any time leaving tenants paying more per month to rent than they would if they had bought. Dubai is no longer seen as such a transient place, people are staying for longer and putting down roots; they want to make money, yes, but they also want an affordable home for longer.”
A historical look at the rent prices in Dubai reveals just how much the figures have rocketed. At present a one-bedroom apartment in Dubai Marina generally costs Dh10,000 to rent a month. A mortgage on the same property would, after a 10 per cent deposit, be around the Dh7,500 mark over a 25-year period. This, Hughes says, provides a great illustration as to why buying is best. “In just one year a property could make a decent capital gain,” she adds.
But some stress the need for caution.
“Dubai is still a young market and nobody can yet predict whether demand will match supply,” says a Better Homes spokesperson. “When there is more property available to rent, landlords won’t be able to charge over the odds. At the moment they can. Also, financing is still very new here, which makes it difficult for people who need a mortgage to buy. Many people come here and don’t know how long they are going to stay so renting is ideal for them. They get allowances in their pay and it means, should they want to leave, they can very easily.”
The truth is with the sheer amount of property coming onto the market – both to lease and buy – there is no scientific way to predict exactly which way prices will go. This is recognised by property consultant Hughes, but she is very confident the ownership sector has a very healthy future. “It is part of the Dubai vision and these developments would not be under construction if the demand was not there,” she says.
“I personally cannot see how the bubble can burst. There will always be people from the Middle East, Europe and the rest of the world wanting to come to Dubai – the weather is good, there is no tax, the job opportunities are here and investors can get a lot more for their money.”
Finding a home
- Ensure your agent is registered at the Land Department
- Identify what property you want and visit the area
- Set a realistic budget and speak to a financial advisor
- Don’t forget the extra fees for the advisor
- Have cash ready to pay a deposit and any hidden charges
- Have a realistic timeline Completion can take 45 days
- Read the documents thoroughly before signing anything
- Get a written document confirming the occupation date
- Ensure your agent is registered at the Land Department
- Get to know the area you want to live in
- Find out how much rent you need to pay in advance
- Check your finances and speak to the bank about loans
- Look at the rent cap and think about future costs
- Make sure the electricity and water are switched on
- Read the contract; make sure you have a moving-in date
- Find all hidden costs, eg a contract cancellation fee
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