Property Weekly: Buy-to-let uptake in Dubai

PWViews and accessibility are key considerations when investing in rental apartments l Shutterstock

With the world’s highest rental yields, Dubai is a key market for investors looking for buy-to-let property. Investors can achieve rental yields of 5-7 per cent in the town house and villa segment and around 6-8 per cent in the apartment segment, according to a report from SPF Realty. In comparison, yields in more mature markets such as India and Europe are in the range of 2-3 per cent and 3-5 per cent respectively.

Kalpesh Sampat, Director and COO of SPF Realty, is seeing significant growth in the demand for rental property when compared with the same period last year. With prices becoming more attractive and rents remaining stable, he says there is stronger interest for rental property. However, he warns that buying property solely for rental returns is a big mistake many investors make.

“We recommend looking at returns in conjunction with price per square foot, as capital appreciation is critical,” says Sampat. “Also, if investors buy an overpriced property due to rental return alone, they could be exposed to significant risk of the property price declining or not appreciating.”

Helen Tatham, Managing Partner at Prime Places Real Estate, says smaller units can fetch the highest rental yields, particularly in areas such as Discovery Gardens, Jumeirah Village Circle (JVC) and Dubai Sports City. “The rental demand in the city remains high partly due to challenges that residents face in purchasing property, qualifying for a mortgage and the 25 per cent deposit and purchase costs.

“In more mature markets, first-time buyers have better access to borrowing. Hence, with the fact that Dubai is a transient environment, real estate investors are benefiting from high rental demand.”

While Dubai is not a mature market, Tatham says it is still comparable to other major markets being one of the top destinations and commercial hubs in the world. “[Dubai] therefore stands out as an attractive place to invest in buy-to-let properties,” says Tatham. “As an added benefit, investors in the UAE are not liable for capital gains or income taxes, which penetrate the earnings achieved in other markets.”

Tatham points out that rental prices were forecast two years ago to fall significantly more than they have done in practice, which has left many areas in Dubai with impressive yield ratios.

“Investors should focus on lower-cost housing, which has a higher tenant saturation rate with fewer voids and lower service charges,” says Tatham. “Prices may remain at this level for the rest of the year and one can never really judge the bottom of the market, but prices are negotiable at present so it is an ideal opportunity for investors to do their calculations as to what return is possible.

“Moreover, rental prices are expected to fall invariably as more supply hits the market over the next two years. If sales prices begin to strengthen towards the World Expo 2020, yields are likely to fall slightly from 2018. Therefore, now is an ideal time to buy as sales are slower and great value deals are achievable.”

Market trend

According to property expert and former Sales Director at Ere Homes, Mark Wellman-Riggs, demand for rental property dropped last year when property prices were still finding their floor. “Mortgage applications and end-user buyers were approximately split 80-20 in favour of the end-user market,” says Wellman-Riggs. “However, towards the end of last year, we saw investors looking for rental income start to do their homework on the market, which would suggest the first quarter of this year will be an investor’s market on finished property.”

Buying an investment property is always about increasing wealth, says Wellman-Riggs, adding that investors should look at return on investment (ROI) and capital appreciation when considering buy-to-let. Moreover, with property prices in Dubai being at a two-year low, it is the perfect time for investors to come into the market, as long as they are in for the long term.

According to Ere Homes, there has been a lot of interest in areas such as Remraam, which has been delivering a gross yield of 7.5-8.5 per cent, IMPZ, which has been performing at 7-8 per cent, and JVC. Wellman-Riggs says these are the top markets at the moment. Elsewhere, buyers could also look at Dubai Sports City and Mudon or off-plan units nearing completion in Mira, Casa, Palma and Sustainable City.

Best practices

Choosing the right community for rental income depends on the type of tenant, i.e. business couple, single occupants or families. Apart from conducting the requisite due diligence, Wellman-Riggs says an experienced agent can help find the right property. “If the development has been handed over for a few years, ensure it is presentable,” says Wellman-Riggs. “A dirty property will immediately put off tenants. Make sure the electricity and AC work to avoid high maintenance bills. Consider the garden as many landlords don’t maintain it, when the property is empty. First appearances count.

“In villa communities, find a location close to shops, pools and parks, whereas in apartments views are important, along with easy access. Some tenants are also put off by high floors, as they do not want to spend half their day in elevators. Consider these when picking a property.”

For owners who intend to rent out their units through an agent, Wellman-Riggs advises to provide all property details to the agent. “As a minimum, you should have a maintenance contract, which allows the tenants to get in touch with the provider directly, so the management company takes the pressure off you,” says Wellman-Riggs.

Tatham says property owners should be clear on the cheque requirements, as this can narrow one’s audience. Owners who are prepared to accept four or more cheques can enjoy a much broader choice of tenants.

Quick tips to attract tenants

- Make the property very attractive, not just presentable.
- Have high-quality pictures available to the agency and online.
- Put 360-degree videos online for tenants to have an immersive visual experience.
- Provide the agent with relevant documentation for the property to be included in a verified listing.
- Conduct an open house on a Saturday, when the majority of residents do their viewings.
By: Kalpesh Sampat

Source: Hina Navin, Special to Property WeeklyPW


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