With property prices being more affordable we have noticed more residents looking to purchase investment properties in Dubai and I wanted to share some opportunities and tips on the most affordable and low-risk options. I hope the below basic pointers of what to look out for are helpful.
Whether a financed or a cash Buyer the principles remain the same, apart from the obvious, that property brought in cash on the buy to let market are obviously more profitable on a yearly basis. (no interest fees or mortgage repayments to consider).
Things to ask yourself:
What is this investment for? how long are you willing to wait to see potential appreciation in the price of the property, what percentage return are you comfortable with? how much can I actually afford (downpayment for mortgage and fees or what your budget is for a cash purchase? what is your exit?
Once I have been advised of the above, I have the main starting price point. If I am working with a finance Buyer I shall refer the Buyer to a Mortgage Broker who is best equipped to give a verbal pre-approval within hours due to access to multiple banks and special offers.
I will use a property I currently have for sale as an example.
Buyer Brief – First-time buyer, Dubai Resident and in full-time employment, AED170,000 cash saved, Mortgage offer pre-approved on 25 yr loan for a property purchase of gross AED600,000 – mortgage repayments AED2,400 PCM including insurance.
In order to make this a good investment, you will need to find a property with a rental income big enough to cover service charges, mortgage repayments and a small float for any issues that may arise ie. ac cleaning etc..
Rental income required:
AED28,800 to cover the mortgage
AED8,000 (circa to cover service charge on a price in this range)
Total AED36,800
Add at least 2 months worth of mortgage repayments to use in case of void periods
and AED2,000 float for any maintenance issues
Total Required per year: AED43,600 to cover all costs.
Buying Fees:
You need to estimate costs of around 7-8% of the purchase price when buying 100% cash and up to 10% of the purchase price for a finance purchase. This will include 1st-year service charges, agency fees, and the Dubai Land Department fee.
As this example is for a finance buyer I will deduct 10% off the pre-approval to include all purchase price fees leaving: AED540,000
After checking my listings I found the best option for the Buyer would be a studio apartment in Dubai Marina.
Studio One, Dubai Marina,
Studio apartment with partial Marina Views
AED540,000 purchase price
Brand New
Expected rent AED45,000 per year
Why this property?
- Limited land available for future supply in Dubai Marina
- Developed Community
- Close to Tram, Metro, JBR, and SZR.
- Popular with tenants, less risk of void periods
- Fitted Kitchen with appliances
- Brand New
- Good location
- Suitable for Holiday Lets, Long term or end-user (Pied a Terre)
- Free AC for the tenant
Dubai Marina Leasing Market
In the past quarter, it was reported by DEWA (Dubai Electricity and Water Authority) that a surplus of 991 tenants activated DEWA in the area through Ejari, (tenancy registration) with an average contract length of 506 days.
Price
propertymonitor.ae provides me with access to the recent transferred prices for the building, the last studio that sold was on the 31st October for AED595,000, 357 sq ft, AED1,667 per sq ft. This means this property is fairly priced at AED45,000 less than the previous property sold.
Monthly Mortgage Repayments
AED540,000 purchase price = mortgage repayments of AED1,974 PCM on a fixed rate, lowest available for residents. 25yr term with 25% downpayment – it is best to add around AED200 for insurance per month, AED2,200 total mortgage repayment – AED26,400 per year.
If you want to lower the repayment plan to 15 years the total mortgage costs for a year would be AED37,200.
BASIC Financial Overview:
Purchase Price AED540,000
Initial Deposit including fees: AED135,000
Service Charge 1st Year: AED6,480 (includes Chiller)
Transfer, Mortgage and Agents fees: AED48,000 (estimation)
Yearly Mortgage Repayments: AED26,400
1st Year Costs: AED215,880 – minus income AED45,000 = AED170,880
Tip
If AED170,880 is out of range there are a lot of other options where we can make this amount smaller, for example finding a property that is near completion on sale from the Developer who is offering waived 4% land department fees and agency fees which could bring the initial investment down to as low as AED122,880.
NEWS FLASH
If you would like more information on any of the data or information provided in this email or previous emails please do not hesitate to contact me
Previous blogs can be found at www.theagentdubai.com
data from propertymonitor.ae and Just Mortgages compiled by Laura Adams