Dubai property market: High networth investors have done well diversifying asset mix
Investors can do even better by aiming for a mix of properties and yields from them
With its inherent physicality and tangible nature, real estate offers an attractive investment alternative to the stock market’s unpredictable swings. And to the fluctuating value of other asset classes of higher risk.
Beyond the allure of brick-and-mortar, the stability and steady appreciation of real estate investments continue to earn the trust of seasoned investors and novices alike. That’s because, with Dubai real estate in particular, you can enjoy strong returns when you sell your property, based on the amount of equity accrued from property appreciation. Or earn high rental income if a tenant is secured.
There have been reports that some Dubai landlords have seen rental yields increase more than 50 per cent over the last year, a strong indication of the nature of the market. Dubai’s global appeal has contributed to this; however, its appeal as an attractive real estate investment should not be underestimated.
According to CBRE, in the year through February 2023, average Dubai rents increased 27.7 per cent. This presents an excellent investment opportunity for resident and international investors seeking to diversify portfolios by owning real estate in one of the world’s most lucrative property markets, which is buoyed by the fundamentals of a booming tourism sector and a fast-growing population.
For example, the average gross rental yield of apartments in Palm Jumeirah is currently 5.10 per cent; 5.66 per cent in City Walk; and 6.76 per cent in Dubai Marina, while villas in Dubai Hills Estate generate 5.61 per cent; and townhouses in MBR City 6.21 per cent, offering investors many options to pick their preferred units based on initial capital requirements, the return on investment, location and type of property.
By spreading investments across different types of properties and locations, investors can enjoy numerous benefits, including risk reduction. A strategic investment in property can also produce enhanced returns, through capital appreciation and diverse tenant income streams, thus reducing dependence on a single property’s performance.
An investment mix
An investor with a budget of Dh18 million ($5 million) can look to invest in multiple properties including a beachfront Grand Bleu Tower 2-bedroom apartment for Dh6.7 million with Palm view; a 2-bedroom apartment at The Address Residences Dubai Opera in Downtown for Dh5.3 million; a 2-bedroom apartment in The Residences at District One 1 at MBR City for Dh2.8 million with potential rental returns of Dh250,000 per year; and finally a 2-bedroom apartment at the Executive Residences in Dubai Hills Estate for Dh2.5 million that can generate a potential rental income of Dh220,000 per year. The remaining amount will go towards 4 per cent Land Departments fees and 2 per cent agency commission.
Options beyond Dubai
As market dynamics in Dubai are subject to change over time, a well-diversified asset portfolio provides the flexibility to shift focus and align with prevailing market trends, ensuring resilience during fluctuations. This strategy enables investors to plan for long-term financial goals and leverage different property types for varying investment horizons.
While Dubai’s real estate offers a range of investment opportunities, investors must carefully consider whether to diversify within the city or explore opportunities throughout the UAE. Abu Dhabi has generated significant investor interest since the start of the year, and Ras Al Khaimah has ambitious development plans that could yield high returns.
In addition to the high rental yields, property in Dubai is cheaper per square foot than many other sought-after real estate investment destinations. The absence of many property taxes such as stamp duty, land tax and capital gains tax makes the UAE a very attractive market. In many cases, those investing above a certain amount in UAE property are entitled to a 10-year golden visa.
In a world of volatile markets and uncertain economic landscapes, Dubai and the UAE real estate market offers investors opportunities that not only promise profitability but also offer a shield against financial uncertainties.