Evaluation of risks of investment when purchasing real estate in the UAE

Evaluation of risks of investment when purchasing real estate in the UAE

The UAE’s economic success has encouraged many foreign nationals to acquire real estate in Dubai as an investment option and for business purposes. As a result, capital gains from rental revenue are possible.

But there are risks involved with purchasing property in another country, just as there are issues with other forms of investment. We will talk about the specifics of the market and existing risks in this article.

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Approach to foreign investment in the UAE

The United Arab Emirates has become far more hospitable and welcoming to foreign investment during the past 20 years. The government has launched numerous different programmes to motivate foreign investments, start new businesses, or buy properties in the UAE.

The Dubai government appears to be very active regarding investors and citizens who are interested in working and residing in the state. For example, the programme for obtaining long-term visas was expanded in 2021 and 2022. In particular, the changes affected the “Golden visas” programme granted for 5 and 10 years, and the 5-year “Green visas” programme for highly-skilled professionals and the self-employed.

Evaluation of risks of investment when purchasing real estate in the UAE

Is it safe to acquire a residence in Dubai?

Property purchases are major financial decisions so caution is highly recommended. The first step is to consult with experienced financial advisors and lawyers.

Real estate purchases in Dubai are generally safe. However, there are some nuances, as there are anywhere.

The laws in Dubai differ from those we are familiar with, and locals frequently have an advantage over visitors in legal proceedings. This means that facing legal problems when buying or selling real estate could have adverse consequences. To prevent this, you need to be careful when signing legal documents. Don’t buy in a hurry. Firstly, verify the ownership of the property you are planning to purchase, run background checks on those you interact with, and ideally, hire a good lawyer.

Pros of buying property in Dubai

The following are the key advantages of purchasing real estate in Dubai:

Excellent rental yields

One of the reasons why so many foreigners are interested in investing in Dubai real estate is that the rental yields can be as high as 10% and, in some cases, as high as 15% a year. This is dependent on the neighbourhood and the property itself. This is far higher than in many American cities.

Reasonable pricing

The UAE is a rich country with a high standard of living. But when compared to London, New York, Los Angeles, and other major cities in the world, you will still find relatively inexpensive property offers in Dubai.

As of October 2022, the average price of a property in the Dubai market was 1,371 AED (373.2 USD) per 1 m², while in the above-mentioned cities, the cost of 1 m² is 14,000 USD, 15,000 USD, and 9,500 USD, respectively.

Potential for stable and long-term capital growth

Despite the effects of COVID-19, current statistics show that the UAE's GDP in 2021 was 703.4 billion USD, compared to 660.3 billion USD in 2020 and 695.1 billion USD in 2019.

Perhaps, in the short term, the UAE economy may shrink, but it will rise again by 2030, and real estate prices will rise with it.

Safety

Dubai is one of the safest cities in the world. This makes it a great place to invest in real estate.

Evaluation of risks of investment when purchasing real estate in the UAE

5 risks associated with the purchase of real estate in Dubai

Below are the main risks foreign home purchasers may face.

Fraud

While housing fraud is rare in the UAE, the possibility cannot be ruled out. Some buyers of apartments in Dubai have been deceived by fraudsters posing as real estate agents, sellers, or lenders. Hire a good advisor to assist you in double-checking all of the necessary information.

The UAE economy may collapse in the future

The UAE gets a huge portion of its revenue from oil production as do many other Middle Eastern states. The economy of the country may be impacted if the country’s financial inflows decrease as the oil demand is predicted to decline in the future. The UAE government, however, is aware of this risk and is already moving to promote other sectors of its economy.

Selecting a property in the wrong area

Even though the majority of Dubai’s districts are very well-thought-out and successful, there are some areas with no amenities. So if you buy a home in one of these districts, you may not get the capital gains or rental income that you might expect.

Choosing the wrong real estate developer

If you plan on buying apartments in development projects in Dubai, make sure the real estate developer is of good repute. Ideally, they should be a well-known company with extensive experience and a good reputation in the property market.

Acquiring a residence in an area with a lower rental yield

Keep in mind that one of the main advantages of investing in real estate in Dubai is the high potential for rental income. For renting out a villa, you can receive up to 7%, while renting out an apartment can earn you up to 15%. However, this is not the case in all areas. You need to do a market analysis to determine which areas of the city offer the highest rental returns.

Our experts will help you safely, and easily, buy a house in Dubai for rent or personal living, as well as answer all questions regarding the sales-purchasing process for houses and apartments in the UAE.

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