Dubai: How much money should a UAE resident earn to buy a home?

Dubai: For many expats, owning a home is a long-term goal, and a mark of financial stability, to which many assume huge amounts need to be saved/invested for years.

However for UAE residents, it might actually be better – and cheaper – to buy instead of renting. 

Paying Dh6,000 for 20 years in rent sums up to around Dh1.4 million – this is without accounting for inevitable rental increases. In the last year alone, rent rates have increased by 19 to 20 per cent. Even with a projected increase of 5 per cent yearly, someone paying Dh6,000 this year would have paid over Dh2.19 million in total at the end of 20 years.

Add the costs of moving and other hidden costs – it is clear that buying is the smart financial move if planning to stay in the UAE long-term. We look at the feasibility of owning a home in Dubai for someone with an income of Dh15,000 to Dh30,000 - detailed at the bottom of this report.

Owning instead of renting

Indian expat Sharan (43) was fed up of yearly rental increases and moving. “My landlord had increased my rent twice, and my wife and I had already decided that we would stay in Dubai long-term,” Sharan added. This spurred the couple’s decision to buy a flat.

The sales manager is paying nearly Dh7,000 in rent every month for his current two-bedroom home and loves the layout and the size at over 1,500 sq.ft.

With the help of an agent, he secured mortgage for a two-bedroom apartment on a different floor in the same Dubai Marina building. The apartment price was Dh1.2 million plus fees and charges.

Compared to his current rent, Sharan will dish out just Dh900 extra each month on his mortgage including service charges. The flat is already rented out at Dh96,000 a year. Just a month in, Sharan’s new flat pays for itself through rent (plus a little extra in cash) – until he moves in. And when he does, Sharan will be immune to further rental hikes.

Off-plan or ready apartments?

Off-plan sales in the UAE make up a huge chunk of property sales in the country, and the main attraction is the low cost of entry and attractive payment deals. When buying straight from the developers, buyers can also take advantage of further discounts, contribute to design discussions and get high capital appreciation for the property.

But which is better for residents – off-plan or ready?

Milos Antic from Swiss developer DHG Properties said, “In Dubai, the strength of the off-plan sector is evident; sales values in this segment reached an impressive Dh35.71 billion ($9.7 billion) in Q3 2023.”

“With that said, renting or buying depends on any given family’s situation. Regardless of whether they are looking to rent it out for profit or live in it, off-plan properties provide something that ready-made developments do not - a lower cost barrier to entry.”

It is important, however, to note that mortgage for off-plan properties is much harder to get (since banks prefer allowing such loans only for major developers), and is limited to around 50 per cent of the property value.

Even with payment plans of 1 per cent and deferred schemes, this means having either a deep savings account or having a high monthly salary. So, for individuals who don't have that kind of money, ready properties could be more feasible with mortgage.

Making up for 52.8 per cent of the total transactions, Property Finder data showed that ready-property sales witnessed a new record with 16,467 transactions marking the highest performance for a quarter ever recorded, with a year-on-year (YoY) increase of 21.2 per cent and 7.24 per cent spike when compared to Q2 2023. This shows that purchase appetite for ready properties is high in the market, and growing.

Mid-market homes from developers

ZaZEN Properties, a developer focused on affordability and sustainability, hopes to address this. Madhav Dhar at ZaZEN commented, “In 2019, it was reported that just over 77 per cent of adults in the UAE had a net worth of less than $100,000 and approximately 22 per cent of this demographic had a net worth exceeding $100,000.”

“We understand that not everyone can afford the glamorous lifestyle that Dubai is synonymous with,” he added. The company aims to provide high-quality property affordable to the mid-market customers, Dhar added.

With the increasing number of branded residences, opulent mansions and sky-high penthouses being sold in the UAE, it might make it seem almost impossible for mid-income residents to own a home. However, data shows that this is not the case.

Research from real-estate consultant Knight Frank shows that regardless of net worth, mid-market apartments were in demand – with two-bed and three-bed types leading the trend. For investments, one-bedrooms are also high on the list of searches, Knight Frank reports show.

Bayut sales search data also shows that over 35 per cent views on the property website is for one-bedroom apartment, followed by 33.87 per cent for two-bedroom apartments. The average price of a two-bedroom apartment could be anywhere from Dh800,000 to Dh2.2 million - depending on the area, amenities and the developer.

Blue Line impact on prices

Sumit Augustine (35) has a young son and her real-estate dreams are focused on creating income and investment for the family in the future. Augustine’s father, who owned his own business, owns a Palm Jumeirah apartment that he bought for Dh1.2 million in 2008 – when the global market was on a downturn.

His timely purchase then is helping Augustine save now – she is putting aside over 40 per cent of her salary towards a down payment for a studio or one-bedroom. The expat lives with her parents and brother in the family home, that now has doubled in value given its picturesque and trending location.

“I would buy a studio or a one-bedroom apartment, maybe in an upcoming area, with the Dubai Metro Line expansion,” she said.

Augustine wants to buy a ready apartment that she can hopefully convert into a holiday home to make income from the peak tourist season in Dubai.

A spokesperson from Bayut said, “As per reports from the RTA, the prices for land in the areas along this line can go up by up to 25 per cent in line with the increases we have seen in areas like DIP, Al Furjan and Discovery Gardens following the launch of Route 2020.”

How to determine if you can afford a ready home?

Down payment

You need to have at least 20 per cent of your target budget saved – so for a Dh1 million home, you need to have at least Dh200,000 in savings, according to experts. Even with an arrangement to lower the initial down payment, you need to have at least 10 per cent saved to pay Dubai Land Department fees (4 per cent), registration fee, NOC fee, insurance, commissions, bank fees and other fees.

Monthly mortgage and possible income

If you can comfortably pay 30 per cent of your income towards mortgage costs, you can buy a home to live in. If you intend to buy for investment, your apartment should ideally pay for itself if ready, or the total amount spent (rent+mortgage) should not be higher than 40 per cent of your total income.

So to own a home at a Dh15,000 salary, you could pay Dh5,000 a month – after the savings for your first down payment. This would get you a Dh1 million home (after Dh200k in down payment, interest rate of 4.24 per cent fixed profit rate for a 25-year-loan.) This calculation assumes you intend to start living in the apartment.

In another scenario, you could buy a studio as investment for rental income. In this case, for example if you get a Dh400k studio that earns rental income, you would pay just under Dh2,000 a month for 20 years after a down payment of Dh80,000 (20 per cent). Ideally, your rental income should cover the mortgage amount and give you additional income.