Rental income dreams fade; Nakheel outbeats investors

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CORONAVIRUS IMPACT

Not long ago, investing in real estate in Dubai was considered solid and sound as an investment in a gold mine. Forward thinking people and professional investors from all over the world flocked to the emirate with their inherited, hard earned or borrowed cash, with the hopes and plans to become rich. Some who were shrewder and accustomed to risk, managed to take good gains. Others, mainly newcomers with limited assets and borrowing abilities had been sucked into the fiasco of the Dubai real estate market.

Until now, three years after the eruption of the global financial crisis, casualties of the Dubai property market downturn continue to materialize regularly.

Residential property prices have gone down since the peak of 2008 by over 60% in the suburb areas of Dubai. Rental values depreciated even further in percentages.

Investors have successfully lost half and in many cases more than half of the value of their investments. From this point on, they should brace themselves even for more losses, caused by the very same property developers with whom they have invested their assets.

Master developers emerge as the biggest enemies to small time investors. Often they face difficulties to secure lending and fresh investments to complete ongoing projects. Therefore, many are forced to invent new very flexible methods to attract tenants to their already completed units. Tenants now have the upper hand, when it comes to signing the lease agreements as the massive oversupply with units provides them a variety of options.

In the recent news, Nakheel has been promoted for offering two months rent-free apartment deals to tenants at very low rental values. The bonus deals are available in the International City and the Discovery Gardens.

However, while Nakheel offers these lucrative deals, which have been said are “well received”, investors in the both projects are losing any hope for their assets. Not only they already lost 50% of the value of their properties, but now the master developer is offering unbeatable deals, cutting their chances to compete on the rental market.

Nakheel, for example, right now is offering AED 17,100 two-months free deal for a studio apartment in International City. Property owners who have bought the same type of studios when the price was nearly AED 400,000 should better write off their investments, if they follow Nakheel’s practice. The service charge per annum for maintenance of the said studio is AED 4000. After paying it ,the property investor will be left with AED 13,100 rental income, which will cover the value of the initial investment over 30 years long period of time.

Can investors wait so long to recover their money? Are the low-rise buildings in Nakheel’s developments going to survive the desert heat in the next 30 years?

Unfortunately, we have no answers to these questions.

 

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