Despite the drop in rents across the market, buy-to-let investors in Dubai can achieve higher rental yields compared with other mature property markets such as London, Singapore, Hong Kong and India.
“The average rental yield for properties in Dubai is approximately 7-8 per cent, while the real estate market in India gives a return of 1-3 per cent and Europe provides 2-5 per cent,” says Imrann Nawab, sales manager at SPF Realty.
“Properties in prime locations offer rental returns of about 5-7 per cent. There are areas that even provide 10-12 per cent. For instance, in areas like International City where property prices are low, investors buying studios and one-bedroom apartments can easily achieve a healthy return of 10 per cent on their investment.”
Nawab believes Dubai is continuing to grow its popularity as a property investment haven. “Being a relatively new market compared to that of London and others, many people in the beginning contemplated investing here or not after the [global financial] crash,” he says. “However, since then the market scenario has changed. Now investors are much more confident as Dubai has come up strongly with strict rules and regulations in place, which protect all parties’ interest, ensure timely delivery of projects with fewer delays and secure money of all investors.”
Analysts also say ongoing announcements of new projects help keep Dubai in the radar of global market players. “The city continuously introduces new developments that from its release date become a major hit among tourists and residents, creating a positive effect on the real estate,” says Nawab. Buyers also benefit from the relatively more affordable cost of property in Dubai compared with those in foreign markets, while the city’s tax policy further improves rental returns, shaping Dubai as a smart investment choice.
Nick Wadeson, senior global property consultant at Gulf Sotheby’s International Realty, believes there are plenty of high-yielding properties available in Dubai that are enough to satisfy demand. “There are still units for sale that offer a high yield, suggesting the supply is still greater than demand,” says Wadeson. “The higher-yielding communities have been Discovery Gardens and International City, always offering a higher average yield than most other communities.”
While Wadeson notes that yields have been under pressure in the past few years, particularly after the transfer fee was increased from 2 per cent to 4 per cent, property prices have also stabilised to keep the balance. “I would say the potential yields in Dubai have fallen over the past couple of years,” says Wadeson. “However, to counter that, sale prices have been falling and are now at a level where yields become more attractive. So some investors have been re-entering the market to purchase those properties at a particularly low price.”
He advises investors to have a good look at the sale price of properties, along with additional fees involved such as the transfer fee, agency fees and any finance or admin costs. On the other hand, on the rental side, he says buyers should deduct the maintenance and service charges and any other expenses associated with owning the property to get an accurate net yield and determine if the unit is an good investment.
Wadeson points out that large-scale investors used to purchase chunks of developments at a time. This is no longer happening over the past couple of years due to uncertainty in the market over the direction of prices. However, he says investor activity recently has shown signs of picking up since the market has stabilised to some extent.
“There is a decrease in institutional investors over the past couple of years, due to market factors,” he says. “However, there will always be the vultures circling the distressed sales and buying great deals, whatever the state of the market. If a property is far enough below the market price, there will always be someone willing to buy it. However, this number has been lower in the past two years than in previous years.”
Nawab, meanwhile, points to the growing investor interest towards off-plan property in recent years. He explains this is mainly driven by price as off-plan projects are more competitively priced and offer favourable payment schemes.
Furthermore, some off-plan projects are being offered with post-handover payment plans, which allows investors to rent out the property while still paying the monthly instalments. “For secondary properties, sales have been relatively slower than off-plan,” he says. “However, these too are soon catching up as the market is going under price correction and properties are being offered at reasonable prices.”
Taking cue from this trend, Mario Volpi, chief sales officer of Kensington Exclusive Properties, says the majority of the developers are now offering various schemes to attract buyers. “For instance, guaranteed rental returns are attracting the savvy investor who like the fact that for a given period, they do not have to worry about void periods or non-payment of rent,” he says. “The investors can obviously plan ahead as they already know what income they are achieving with no unpleasant surprises during the term.”
Currently, some projects in the market offer attractive returns ranging from 8-10 per cent. Anantara and Dukes Hotel Apartments on the Palm Jumeirah are offering 10 per cent net over three and five years respectively, while Vincitore apartments near Miracle Garden in Arjaan is offering 8 per cent net over three years. Villas in Cassia in Mohammad Bin Rashid City offer Dh460,000 guaranteed over three years.
“Guaranteed rental returns provide a solid investment with the bonus of possible capital appreciation when compared to what interest can be earned from the bank or even when dealing with stock, shares, etc.,” says Volpi. “Most developers have the financial capability to offer rental return guarantees, so look out for these when a project is launched. If this were not advertised, I would still ask the developer as most would consider alternative means to secure sales that will ultimately sell out a project.
“I would also advise all investors to read the terms and conditions very carefully, to know exactly what one is getting into. For example, what happens at the end of a guaranteed period and what charges will be added, such as maintenance fees.”