Dubai landlords getting richer

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The phrase ‘there’s gold in them thar hills’ comes from Mark Twain’s 1892 novel, The American Claimant, and referred to the Californian Gold Rush. Twain might not have known, but in that year, Dubai and the other Trucial shaikhdoms signed a treaty with the UK, which had a profound impact on their future under the British era.

About 125 years later, Dubai has firmly established a gold rush of its own – in its villas and apartments, which according to a recent report, achieve higher returns for their owners than other established cities in the world.

In terms of yields, Dubai houses performed better than other leading cities across the globe with consistent seven per cent-plus mark as investors prefer to invest in the emirate due to no tax on returns.

Residential areas in Dubai outperformed established cities in the world. For instance, Jumeirah Beach Residence (5.5 per cent), Downtown (6.4 per cent) and Business Bay (6.6 per cent) offer higher returns on investment than global property hotspots such as London (3.5 per cent), New York (4.5 per cent), Sydney (4.4 per cent) and Hong Kong (2.5 per cent).

According to a recent report by REIDIN, among a basket of six cities (Dubai, Moscow, Sau Paulo, Manila, Shanghai and Hanoi), Dubai is the only city that has consistently provided yields above the seven per cent mark whereas the average of other cities has trended towards 4.5 per cent.


High yield + low price = Win-win

In 2016, Moscow offered 4.5 per cent, Hanoi 5.2 per cent, Sao Paolo 4.8 per cent and Manila offered 5.4 per cent yields, adds the REIDIN report.

With Dubai property prices still undervalued compared to global cities such as Hong Kong, London, New York, Paris, Singapore and Tokyo, investors can reap rich dividends by entering the market at an opportune time.

“Apart from the real estate investment, the cost of mortgage [currently] is lesser than rental returns. Average mortgage rate in the market is around four per cent while average return is around seven per cent, therefore rental return can pay out the mortgage instalments and leave three per cent for the investor,” says Ozan Demir, research and data manager, REIDIN.

Another advantage of investing in Dubai property is that there is neither property tax nor any tax on returns.

“Dubai offers best yields among emerging and established property hotspots globally. Property yields here range between six to eight per cent. Short-term property yields range between nine to 12 per cent while yields for serviced units range between seven to eight per cent,” informs Mahendra Singh, managing director, Aurum Real Estate.

However, there remain other, but less established, markets that offer a higher yield than Dubai. “Moldova offers returns of approximately 13 per cent, Panama around nine per cent and Jordan between eight to 10 per cent,” observes Mario Volpi, chief sales officer, Kensington Exclusive Properties.

Where to invest in Dubai

If yield is your criteria, investors would do well to choose mid-market freehold communities such as International City (10.1 per cent gross return), Discovery Gardens (9.6 per cent), International Media Production Zone (9.43 per cent), Dubai Sports City (8.8 per cent) and Remraam in Dubailand (8.5 per cent).

“Secondary areas offer better rental returns compared to primary areas. In general, small-sized and low-priced units have greater returns,” explains REIDIN’s Demir.

Communities, which offer least yields are Emirates Hills (3.1 per cent), Palm Jumeirah villas (3.9 per cent) and Jumeirah Islands (4.15 per cent).

“International City, Discovery Gardens, Jumeirah Village Circle, Dubai Silicon Oasis, Sports City and International Media Production Zone are a few communities which offer high yields since their purchase prices are lower in comparison to properties in premium locations. The rental vs cost price ratio makes the above areas high yield-generating,” says Aurum Real Estate’s Singh.

However, the reverse logic works for capital appreciation. Premium properties in areas like the Palm Jumeirah, Dubai Marina, Downtown and Business Bay have relatively lower yields but much better room for property appreciation.

“With the Expo now only three years away, the investor will no doubt gain not just from excellent gross rental yields but also capital appreciation which should start to increase later on this year,” concludes Volpi.