Realty investment can help secure your retirement

Investing in property locks in cash for future financial stability / Image Credit: Shutterstock.Investing in property locks in cash for future financial stability / Image Credit: Shutterstock.

Mohammed Ali Al Ayoubi, a 45-year-old health-care consultant, began building his property portfolio in Dubai in 2007. The British expat acquired a mix of ready and off-plan properties with a goal to achieve a combination of rental and appreciation income.

He believes property investment is a good source of income and funds for retirement. “I adopted a property mix strategy to generate an income bracket that can support my living expenses, while taking into consideration future inflation attributes,” says Al Ayoubi.

Earlier, he actively participated in the stock market, where he occasionally made double-digit returns. However, income was temperamental. A father of four kids in their teens, he believes easy access to investment funds was not a good option, and hence he looked at realty assets as an alternative.

“Property investment, despite its volatility in Dubai, is a perfect option to maintain a cash lock discipline for both current and future financial stability,” he says. “Dubai is on an upbeat trend for the next few years at least and I imagine it will remain so for a while. Rental, in my opinion, is a rock-solid foundation for a stable income, which is guaranteed due to the restricted payment rules, making it a safe investment.”

Dubai-based consultant Homi K. Gandhi agrees that real estate can be a great investment option when retiring, provided the property is purchased at the right time and location and funds are borrowed at a reasonable price. Rental yields in Dubai range from 5-8 per cent in the short and medium term, along with capital appreciation of about 2-5 per cent per year over the long term, making it attractive to make real estate purchases, says Gandhi.

“I have been investing in the property market since 2004 with investments in Dubai, London and a few metro cities in India,” he says. “These investments have predominantly been in residential property and changes in exchange rate, coupled with capital appreciation, have provided a very good return thus far. A few months ago, I ventured into commercial real estate in the Business Bay area.”

Gandhi believes there are numerous compelling reasons to invest in Dubai: the economy is growing, the currency is pegged to the dollar, there is no income tax, wealth tax or inheritance tax, and the infrastructure is nothing short of world-class, making it a modern, vibrant city that attracts global attention. Moreover, Gandhi explains real estate investors can use leverage at low interest rates over a long period of up to 25 years and generate rental income that can pay off mortgages plus interest over the long term.

“Property investment is low risk in the long term compared to more sophisticated investment products, offers an opportunity of significant capital gains and is indexed for inflation with rentals and property prices following inflationary trends,” says Gandhi. “If planned correctly one could create significant assets over a 10-20 year period by a combination of effective leverage and rental yields to pay off the loans over the long term. Hence, closer to retirement one could have a real estate portfolio generating significant rental yields with the option to sell some if an urgent need for a sizeable amount comes up.”

Building asset base

Like Al Ayoubi and Gandhi, many savvy investors believe that building a real estate asset base in Dubai is a smart way to secure a comfortable lifestyle, even during retirement. The goal is to retire free of debt, with a good property portfolio to help fund one’s lifestyle.

According a research by insurance firm Zurich International Life, 31 per cent of UAE residents plan to rely on property as their main source of retirement income. However, Peter Cox, Head of International Pensions at Zurich International Life, says that an over-reliance on property as the main source of retirement income can be risky. “Even if the retirement income is derived from a second home, selling a property, particularly during a downturn, can be difficult,” he said in a statement. “This makes property a very illiquid asset. Rents can be volatile, maintenance costs can spiral, while there is a risk of the property lying vacant.”

For those who are inclined to invest in property, Rajiv Ghanekar, Associate Director at Fine and Country Real Estate Brokers, advises to take full advantage of the maximum loan tenor, i.e. 25 years. This means that a 40-year-old investor would be able to pay off the loan at age 65, the stipulated retirement age in the UAE.

“Get a mortgage pre-approval before you get down to house hunting,” advises Ghanekar. “While building a strong rental portfolio, keep practicality as your top priority and leave emotions out of the decision-making process. Ideally, investors should build two property portfolios, one targeting purely resale based on capital appreciation and the other as a rental portfolio.

“Also, invest in real estate education - read books and local publications on the subject and if possible have a mentor. As Robert Kiyosaki [of Rich Dad Poor Dad fame] correctly points out, ‘If you want to go somewhere, it is best to find someone who has already been there’.”

The key to building a successful rental portfolio is the ability to lease it to tenants as fast as possible.

Ghanekar says such property would typically be studios and one- and compact two-bedroom apartments. Location is king as he advises to look for a unit in the heart of the city, preferably closer to business zones and commercial areas such as Dubai Marina, Jumeirah Lakes Towers, The Greens and Downtown Dubai.

Moreover, apartment layout is of prime importance, therefore the investor should see things from a tenant’s point of view. Pick a practical apartment layout, i.e. ensure it is bright enough, look carefully at any location flaws such as the apartment facing a busy road or overlooking a chiller plant, etc. All this ensures that the apartment will quickly go off the market and have a low vacancy rate.


There are properties that offer lucrative yields, which are higher than other conventional investment assets. However, high yields are never guaranteed. Danielle Suchley, Managing Director of Finsbury Associates, an international financial services company, says when looking to build a property portfolio, an investor should take into account periods when a unit is vacant and consider the expenditure that could be incurred for maintaining the property.

“The Dubai property market represents massive opportunity for investors willing to buy into a market that is still very much in its infancy,” says Suchley. “While the potential upside is great, a turbulent ride is to be expected due to the nature of an emerging market. Therefore diversification is important in any portfolio and buyers may consider purchasing in other areas as well to limit exposure in a market downturn.” 


Source: Hina Navin, Special To Property Weekly



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