Looking to buy a property and rent it out? Here are factors to consider for first-timers. Image Credit: Shutterstock

Dubai: Are you looking to buy a property and rent it out for the first time? With so many uncertainties over the past couple of years, it can be a daunting prospect. Rest assured that the market is currently one of the best avenues for investors to earn strong returns from their real estate investments in the UAE.

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Since the end of 2020, Dubai has witnessed an unprecedented surge in real estate transactions. Dubai became one of the few global safe havens, causing the demand for real estate from international buyers to skyrocket.

Even domestic demand has been soaring, as residents of the city seek out larger homes, with better facilities that offer a greater sense of privacy and security. Furthermore, the improved regulations for foreign investors and residency schemes also contributed to the surge in real estate investment.

Together these factors allowed for rapid growth resulting in Dh151.07 billion dirhams in real estate transactions in 2021. So, what do you need to know if you are looking to buy to let for the first time in Dubai?

Factor #1: Rising property prices

Let’s start with property prices. Dubai’s prime residential property prices (i.e., Dubai Marina, Palm Jumeriah, Emirates Hills, Meadows, City Walk, Downtown Dubai and DIFC) jumped 17.4 per cent in 2021, the third highest among the world’s top cities.

But they are still undervalued when compared to the city’s global counterparts, and this provides a great opportunity for first-time buyers or indeed all buyers!

Prices of prime real estate in Dubai is among the lowest in the world, data shows
To put this into context, data from December 2021 shows that prime property prices in Dubai average $630 (Dh2,314) per square foot, much lower than Hong Kong ($4,530 or Dh16,639), New York ($2,580 or Dh9476), Geneva ($2,250 or Dh8,264), Tokyo ($2,220 or Dh8,154), Shanghai ($2,200 or Dh8,080), London ($2,090 or Dh7,676), Sydney ($1,990 or Dh7,309) and Seoul ($1,910 or Dh7,015), to name a few.

This makes a premium Dubai apartment or villa, with a matching lifestyle, an affordable alternative. And it also explains why inventory in these prime areas sells fast. Reassuringly, analysts have seen this upward trend for prime residential units continue into 2022.

Prime residential property capital value in Dubai will see another four to six per cent increase in 2022, according to the Savills World Cities Prime Residential Index, which tracks the performance of 30 global cities.

To put some tangible numbers to this forecast, the market received a 5.27 per cent surge in volume in the fourth quarter of 2021 at Dh17.07 billion, which totalled 5,200 apartments and 552 villa transactions in the Dubai prime residential sector.

However, you may be thinking that not everyone can afford to purchase a buy to let (rent out) apartment in these prime areas, given that you need a lot more money upfront, and so is competition among fellow buyers!

The good news is that non-prime areas within Dubai have also seen a surge in sales. These may not be with beachfront or Burj Khalifa views, but newer communities like Jumeirah Village Triangle, Dubai Hills and to an extent even Jumeirah Golf Estates have benefited from investors and end-users looking for newly built, good quality homes to live in or invest in.

Stock Dubai skyline
Newer communities like Jumeirah Village Triangle, Dubai Hills and to an extent even Jumeirah Golf Estates have benefited from investors and end-users looking for newly built, good quality homes to live in or invest in.

Factor #2: Higher rental returns

Dubai rentals have also seen a significant jump. The Savills World Cities Prime Residential Index also documented an increase in rental prices by 41 per cent in high-end villas.

Furthermore, according to a report released by UK-based property broker Savills, high-end areas in Dubai saw rental growth of 25 per cent last year, the highest among 30 cities listed in the index, fuelled by the government measures mentioned above and the return of professionals to the city.

This promising outlook is continuing to attract a steady stream of expats who are moving to the UAE to live and work. As a result, demand for quality rental property in Dubai is high and this sentiment has been reiterated by the numerous new enquiries received for residential projects every day.

Furthermore, there really is a tenant for every landlord; whether a buyer seeking a short-term let while house hunting, or a professional tenant on a long-term contract. For this reason, buy-to-let investors globally are recognising that now is the time to turn ‘landlord’ in Dubai.

Factor #3: Pandemic-induced flexibility

It is also worth noting, especially for a first-time buyer, that the habits of how people live and work have changed. And although this still remains to be seen in its entirety, there are a few things for certain.

Firstly, the way we create spaces is now drastically different from the way it was pre-pandemic. When looking for the perfect property to invest in, remember, design must be much more personal and, in some ways, technical, as people use their homes for work, school, and a lot more.

With this in mind, look for developers that have been very conscious and thoughtful about how to make people’s lives more wholesome in the spaces they live in. It is no longer the trend to just accept four walls and a kitchen. The very best designs allow for efficient spaces to live, work, learn and play within one residence.

Post the pandemic there is a continued trend and acceptance towards more working from home, and as this trend becomes normal practice, a thoughtfully designed home adds a lot of value for your future tenant and thus increases the rentability of your new investment.

Secondly, as the global community has spent much more time at home, one thing has certainly come to mind: A home should be a sanctuary. Even when renting property, tenants no longer just look for a place to live, but a place to call home.

They want greater flexibility within their living space but also more facilities, better connectivity and even an active community in which they choose to reside.

Are there schools nearby, do they have a park, is there a hospital down the road, can they buy groceries nearby, go to a salon or get on the local bus/train easily from their residence? These are all very real considerations now as people choose quality of living over price.

Dubai rentals have also seen a significant jump.

Factor #4: Sustainability-focused projects

Finally, from an operational perspective, it is also advisable for first-time investors to look for projects that are built sustainably.

Such developments use technology, materials and methodologies to optimise the operations of the building and reduce the operating expenses, which owners pay for in the form of service charges.

For example, the annual service charge paid by owners will be lower in a building that uses solar power to supplement energy consumption. This can range anywhere from 15 per cent to 50 per cent depending on the size of the development and the efficiency of the technology and hardware used.

As a first time investor, it is always smart to look out for such projects as they are future proof and help keep your operating expenses to a minimum.

Key takeaways?

To leave you with a couple of more points - it is also worth noting that with the strict laws set by RERA (Real Estate Regulatory Agency), which seek to protect the interests of home buyers and also boost investments in the real estate sector, the place has become a safer place to invest too.

The relationship between a landlord and tenant is carefully regulated to protect the interests of both parties. When looking for the perfect property, RERA accredited property managers are a must as they undertake invaluable services on your behalf, including tenant search and contract renewal.

You don’t even have to be a UAE resident to make your buy-to-let investment work. Furthermore, look for a registered developer who can help you navigate the financing of your future investment. There are many projects with post-handover payment plans that can be used to your advantage.

You can pay anywhere between 20 per cent to 40 per cent and start renting your property immediately, with the balance due over two or three years.

Overall, ready inventory in prime areas is fairly limited, making it a sellers’ market. Newer projects in secondary areas, that tick all the boxes, are now also a strong option for investors looking to get in at a lower capital value.

At the end of the day, one has to understand that they are investing in the city, its leadership and its growth potential. That being said, research from Swiss bank UBS has looked at the data from 25 key global markets of which only Dubai is currently undervalued.