Rent vs. Buy

Mohanad AlwadiyaMohanad Alwadiya

Dubai’s population is made up of approximately 85 per cent expats, many of whom enjoy living here because of the lifestyle and business and employment opportunities. From beaches, restaurants and shopping to outdoor activities and even snow skiing, the emirate offers a lot to those who want an enriched lifestyle. Dubai also boasts modern infrastructure and is regarded as one of the safest places in the world for families to live in. Furthermore, it is located advantageously for excursions to Europe, Asia and the African continent.

And as the emirate has grown and matured, the average tenure of expats has also been on the rise. This is due to a number of reasons, principal among which is that employers have recognised that a two-year employee tenure is inefficient and that expats have embraced Dubai as a very good place to live in, when compared to many other places in the world.

With so many expats now considering living in Dubai longer, an increasing number of people are contemplating purchasing a house instead of renting. For many, this is a daunting commitment because of its possible effect on individual and family lifestyles. There are many other issues to consider such as budget, asset type, area, fair value and timing. So, as an expat, why buy your house instead of renting it?

Some may rephrase this question: How do I use my money to increase my wealth instead of the wealth of my landlord?” Buying your home is a positive step towards establishing your financial security by building your equity or net worth. Owning property allows you to change the application of your hard-earned dirhams from covering an expense, which offers you no financial return, to investing in an asset which does. In a way, it’s a forced form of savings, which will reap benefits for you in the future.

Conversely, paying rent actually hinders your ability to build net worth because your payments have no financial gain and you are at the mercy of rental inflation. This is a problem because you are consistently being asked to pay more, while salary increases lag behind, eroding your ability to build wealth. By owning your home, inflation is working in your favour because in all likelihood, your property will increase in value and, if kept for multiple years, it will enjoy an inflation-driven compounding effect on its value. This allows you to build your individual net worth through capital appreciation of your property, something which is very important for your financial future.

The fundamentals of buying real estate in Dubai are no different from those elsewhere in the world. As an expat in a new country, you may be anxious regarding the decision, which is all the more reason to stick to tried-and-true principles.

First of all, you need to be very clear why you are investing in real estate. Plan for the long term as the industry is cyclical yet very rewarding, if you ride out one or two cycles. You also need to ensure that you know what you can afford. If you have the cash, I suggest you pay for it outright. However, don’t be afraid to take out a mortgage as your repayments build equity, not lost forever on rent.

Then, it’s a case of finding the right property. I suggest you contact a reputable real estate brokerage to assist you in doing this, but make sure that you conduct your own research as well.

As always, stick to the basics. Think carefully about location, quality, developer reputation, completion status and quality of infrastructure and building amenities. Property close to the beach with a sea or golf course view, or one that’s part of an iconic development is always good for investment. If you also have access to the Metro, even better. These locations are more likely to provide superior appreciation in capital value as well as ride out cyclical volatility with less distress.

You also need to consider the owners’ association, service charges and facility management, which is important when determining the value of buildings and the long-term value of your investment.

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach and you are well on the way to making a very sound decision.



Source: Mohanad Alwadiya, Special to Property Weekly PW

Mohanad Alwadiya is CEO of Harbor Real Estate and advisory board member and instructor at the Dubai Real Estate Institute, the official training and certification arm of the Dubai Land Department.


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