Is buying a property in Dubai now cheaper than renting?
The amount of money we spend on rent hardly bears thinking about. Should we start to consider buying?
I’m thinking about buying a home in Dubai. Good idea?
Well, better than it was a year ago. If you’re going to take the plunge, now might be a good time.
Hang on a minute, I keep hearing that the property market is falling...
It is. Depending which part of Dubai you look at, property prices have declined by around eight percent in the last year. They are not as low as they were in 2009, but still down from the peaks seen in 2013. Most experts suggest they will carry on dipping until 2017. All of which means this is a good time to consider investing in property – as the price is relatively low.
Yes I get that. But doesn’t that mean it’s also a better time to rent?
Good point. The thing is rents are falling but not by as much as purchase prices. A report from Core Savills said that villa rents had dropped up to four percent as had high-end apartments in places like DIFC. It’s all about the yield. That’s the key here.
Sorry, can you explain what you mean by that?
Okay. Say you buy an apartment for AED2 million and you can rent it for AED200,000 a year. That means you are getting a 10 percent yield, which is huge. Compare that to the one percent you can currently make in a bank account.
But I want to live there, not rent it out. Why does yield matter?
Because chances are you will leave eventually, then rent it out.
But the price might fall, too?
Yes. But say it fell 10 percent – which is highly unlikely, to be honest – your apartment would still be worth AED1.8 million. But in two years, you would have paid out AED400,000 in rent. So you only lose out if the price fell to AED1.6 million in two years, and for that to happen, prices need to fall by 20 percent. Not likely.
But it’s much safer to rent?
Yes, because you can leave at the end of your lease, and there are no upkeep costs. But if you are staying in Dubai for, say, another three years and are paying, for example, AED150,000 for a place in the Marina, that’s (do the maths) AED450,000 you’ll never see again.
Okay, I’m definitely interested… how easy is it to buy here?
Well, unless you have heaps of cash lying about, you will need a mortgage. That is quite straightforward as most of the big banks will offer you a housing loan, but you may need to put down around 30 percent of the value as a deposit. Pretty much the money you would be spending on rent...