Prospects and Risks of Investment in Real Estate in Dubai: Interview with an Expert

The Dubai real estate market continues to grow rapidly, becoming a desirable region for investment. Danis Latypov, founder of the Etazhi real estate agency in Dubai, talks about prices, demand dynamics and prospects for investing in the Emirate

Demand and prospects of the Dubai real estate market

— Currently, the Dubai market retains significant growth potential due to an increase in population and the attractiveness of the emirate for migrants.

According to DXB Interact, a service for assessing the investment attractiveness of properties, Dubai is the leader in demand for luxury housing. Since the beginning of 2023, it has continuously topped the rankings for real estate sales priced over $10 million.

Investors evaluate and invest in under-construction properties because it allows them to buy property in Dubai at a lower price and make a profit after the construction is completed. By type of property in the city, not only luxury villas and penthouses are in demand, but also studios for expats, the number of which is growing every year.

Political stability and a favorable environment for business development help attract wealthy people to the emirate. Successful businessmen, celebrities, highly qualified specialists who want to purchase luxury housing move here.    

Prospects for price growth 

In the coming years, real estate prices in Dubai will continue to increase by an average of 8% annually. The most promising areas are expected to grow at around 25% per annum over the next three years.

The average price per square foot is $423.64, up 19% from January last year. By real estate segment: the average sale price of a villa is $789.6 thousand (an increase of 12.7% since January 2023). The price for commercial real estate is 326.7 thousand dollars (an increase of 52.3%).

Less growth is expected in areas where there is already high competition among developers caused by a significant increase in supply. These are the areas of Palm Jumeirah (potential investment growth — 6%), Jumeirah Bay (4-5%), Dubai Hills (3%) and Bluewaters Island (3%).

According to our forecasts, the most attractive areas for investment could demonstrate an increase in home values of up to 25% per year over the next three years. These areas include Business Bay, Sobha Hartland, Jumeirah Village Circle and Nad Al.

The most attractive areas of Dubai for real estate investment 

The following high-margin areas should be considered when investing in Dubai real estate.

Downtown is one of the best options for investing in real estate in the emirate, as it is located close to such centers of attraction for the local population and tourists as the Burj Khalifa and the Dubai Mall. This prestigious area offers a variety of residential and commercial properties, giving investors a wide range of choices. The average rental yield in Downtown Dubai is 4.9% and sales yield is around 5.2%. These figures exceed many major world cities, including London and New York.

Dubai Marina is firmly positioned as one of the best areas for investment in Dubai, often referred to as the “new Dubai”. And this is the best choice for those who strive for a luxury lifestyle. Despite the dynamic real estate market, the prices of apartments for sale in Dubai Marina remain stable. The ROI (return on investment) for apartments in Dubai Marina is 5.8%.

Palm Jumeirah is an iconic and affluent area of Dubai, recognized as an architectural marvel. Due to its exceptional status, it is consistently ranked among the top investment areas in the Dubai real estate market. Statistics show that the average return on investment is 5.3%. Beyond its financial appeal, Palm Jumeirah's iconic design also positions it as an upscale tourist attraction, adding extra points.

Business Bay is a project recognized as a haven for investors. Offers a wide range of options including offices, luxury apartments and penthouses. It has received significant recognition in the global market due to its enormous potential, with an average ROI of 6%. Notably, Lonely Planet, a leading travel guide publisher, consistently ranks Business Bay as the fifth most beautiful area to visit in the world.

Dubai Hills is recognized as a pure residential development, which makes it stand out from other real estate properties in Dubai. Its central location provides easy access to renowned areas such as Dubai Marina and Downtown Dubai. Thanks to its well-developed infrastructure and service offering, this complex is a very attractive investment option, offering a solid ROI of around 5.28%.

Preferences of foreign investors

Top Dubai property investors in 2023 included citizens of India, UK, Italy, Russia, France, Canada, UAE, Egypt, Lebanon and China. Increasing demand from investors from countries such as China and India is expected to drive future growth in Dubai's luxury real estate sector in 2024.

The most popular type of real estate among foreigners is one-bedroom apartments, the cost of which ranges from 300 to 400 thousand dollars. This applies to marketable middle-class properties located in popular areas — for example, Emaar Beachchfront and Marina Beach.

Tips for choosing real estate

When choosing a property for investment in Dubai, you should consider the following factors

• Location. A property located in a developed and sought-after area of the city usually has a high cost. The average rental yield of such real estate will also be higher than in less attractive areas.
• Property type. The profitability of different types of properties differs. For example, apartments usually have lower yields than villas.
• Condition of housing and equipment. The quality of finishing, completeness of furniture, appliances and accessories — all this affects the cost of the property. So an empty room with rough walls costs less, but renting it out is also more problematic. You will have to take into account the costs of cosmetic repairs and household amenities.
• Infrastructure of the housing complex. The presence of security, a swimming pool, and a gym increase the price of the property, while simultaneously increasing its liquidity.
• State of the market. It is important to monitor the dynamics of demand, prices, sales volume, and also be aware of tax, migration policies and the business environment in order to determine the optimal time for investment.
• District infrastructure. Properties that are close to schools, hospitals, and shopping centers usually generate more income.
• Development company. When choosing a developer, you should check his reputation and reviews on specialized websites. They are usually easy to find through any search engine.
• Payback period. It is necessary to take into account not only the price of the property, but also its payback and expected income.
• Urgency of sale. It is worth carefully checking all the documentation for the property being purchased, especially if it is being sold with the mark “urgent”.  

The process of closing a deal for a foreign investor: stages, deadlines, documents

There are two main types of real estate ownership:

• Freehold is a property right that gives the owner the ability to freely dispose of real estate at his own discretion: sell, rent, give or bequeath. In Dubai, Freehold includes 47 areas, including the famous Dubai Marina, Business Bay and others.
• Leasehold is a real estate rental. In the UAE, the lease term is up to 99 years. However, after this period, the tenant does not acquire rights to the property, and it is returned to the owner. The lease can be extended or the rights to the property can be transferred to relatives.

The process of purchasing real estate is as follows:

1. Selecting a property and concluding a contract. The terms of the transaction must be written in Arabic or English and include information about the address of the property, its cost, additional payments and responsibilities of the parties.
2. Execution of a sales agreement (MoU). After agreeing on all terms of the transaction, a sales agreement is concluded. In Dubai this is called "Contract F". The agreement can be found on the Dubai Land Department website.
3. Payment of bail. The buyer pays the seller a deposit, which usually ranges from 5% to 15% of the total transaction price. If the transaction does not take place due to the fault of the seller, the deposit will be returned to the buyer.
4. Obtaining a No Claim Certificate (NOC). To authorize the transfer of ownership, it is necessary to submit an application and pay for a certificate of no claims by the developer against the seller. This practically confirms that the seller has no debt. The cost of a certificate can range from $136 to $1,362 depending on the developer. The application review process may take up to 5 business days. Once all maintenance arrears have been cleared, the developer can provide a NOC, allowing the transfer of ownership to take place.
5. Transfer of ownership through the Dubai Land Department. Once you have received your No Claim Certificate (NOC), you will need to meet the seller at the Dubai Land Department (DLD), where the buyer will be issued a new Title Deed. On this day you will also need to pay the price of the property, provide a receipt and pay an administrative fee.

To register a transaction, you must have the following documents with you:

• original passport of the buyer and seller;
• title deed;
• application for a no-objection certificate;
• a copy of the sales agreement;
• legal identification card (ID);
• address verification;
• Contact Information.

Conditions for issuing mortgages for the purchase of real estate to foreigners

In Dubai, it is possible to buy real estate with a mortgage, but non-residents are often denied access to it. But if you pre-apply for a resident visa, your chances of approval increase significantly.

Conditions for issuing mortgages to foreigners in Dubai:

• The rate for foreigners ranges from 3% to 6.5% per annum.
• The term of the mortgage cannot be less than 5 or more than 25 years.
• The size of the mortgage cannot exceed 80% of the value of the purchased property.
• The buyer must insure his life in an amount ranging from 0.3–0.8% of the size of the requested loan. And also pay for services for obtaining an approved loan (up to 1.5% of the total loan amount).
• The borrower must be an adult. In the UAE, a person is considered such when he or she turns 21 years old.
• The borrower's age should not reach the upper limit. The official limit for issuing mortgages is 65 years for employees and 70 years for entrepreneurs. But most often the bank refuses to people over 55 years old.

Tax and legal aspects of buying real estate in Dubai

Paying taxes when purchasing real estate from a developer includes a commission fee (from 2 to 5%), registration fee (4%) and additional fees ($1,633.62 to $2,722.7).

If the purchase of real estate is carried out with a mortgage, you must pay a fee for its registration. Payment is made in cash at the registration offices of the Dubai Land Department. The amount ranges from 544.5 to 1089 dollars. There is no property tax in Dubai. However, all owners must pay annual maintenance fees.

Opportunities for investors

By investing in real estate in Dubai, you can get a resident visa - this is similar to a residence permit. For investments worth at least 204 thousand dollars, you will be issued a resident visa for a period of two years. When purchasing real estate for $545 thousand or more, you can become the owner of a golden visa for a period of 10 years for free.

It is easier for residents of the Emirates to open a current account, since banks primarily trust such clients, considering them as more reliable.

Investments in real estate in Dubai allow you not only to save your own funds, but also to receive a stable profit from 20% to 160%. The purchasing process is very simple and does not require explanation of the origin of the funds. In addition, developers offer interest-free installments. Money can be transferred from any country, and the transaction can be carried out remotely. All this makes Dubai a promising and reliable place for real estate investment.

Ways to generate rental income 

In Dubai, you can make money on real estate in different ways: rent it out for a short or long term, or resell it after construction is completed. The yield from long-term rentals is 4–10%, from short-term rentals it is 1.5–2 times higher. A frequently used option is to buy at the initial stage, then resell the property after a certain stage of work is completed. The initial cost of a one-bedroom apartment for such projects starts from 350-400 thousand dollars. By the time the facility is commissioned, it can increase to 30%. Medium-term rentals combine a short term with a monthly payment, avoiding the restrictions of long-term contracts.

The rental yield of residential properties in Dubai is influenced by the following factors.

• Location. Property located in a popular area with good infrastructure and proximity to major places of work and entertainment will have a higher rental yield.
• Size and type of property. As a rule, apartments with significant square footage or villas with more rooms and amenities will have a higher rental rate.
• Condition and quality. Residential properties that are in good condition and have a modern design will attract more tenants and earn higher rental rates.

Potential risks when investing in Dubai real estate

When purchasing real estate in one of the most profitable and reliable regions of the world, you need to take into account possible risks:

• Market volatility. Prices and demand for real estate may change, for example, due to the economic or political situation in the region. Investors need to be prepared for fluctuations in the value and yield of their property.
• Taxation. Investors should consider tax obligations in Dubai and other countries in which they reside.
• Sufficient market competition. Oversupply can lead to lower rental income and property resale.
• Property maintenance. It is necessary to take into account the costs of maintaining and managing the property, including maintenance and repair costs.
• Liquidity. In some cases, the ability to sell a property quickly may be limited, so investors should be prepared to make a long-term investment.