Recently, an anonymous 45 year old financial advisor purchased a two-bedroom apartment in Downtown Dubai. When he appeared at the closing, he brought a cheque for AED 3,569,600 ($970,000) – the full amount of the deal. The realtors were shocked, because there won’t be any mortgage. The financial advisor said that his cash money was sitting with 4% percent interest in a local bank. If he borrows from a lender and commits to a mortgage, he would have to pay a minimum of 5% extra. Even though the home loan interest rates were reduces in the past year, the additional fees UAE lenders charge are quite hefty and that adds to the expenses of a mortgage.
The property investor added that there are other benefits which accompany cash purchasing. He got a “liquidity discount”, because he could close the deal quickly. The original price was AED3,864,000 ($1.05 million) and he paid only AED3,569,600 due to the cash discount. Also, he avoided the fussing and the irritating paperwork which accompanies every mortgage.
The financial advisor estimated that this apartment will net him about AED18,400 ($5,000) rent per month. That means AED220,800 ($60,000) rent income a year, which is 6 percent yield on his investment. Though he still pays maintenance charges every month. These charges include building operating expenses. The investor can deduct his share of those fees if he itemizes. Yet, he still believes that he will have a 5% yield on his investment.
Remember his story, because he did a great deal. Here is some clairvoyance information how the sly financial advisor from Dubai choose the right time and place to buy.
First of all don’t pay too much attention on the mortgage issue, because this will distract you from the bigger question. Of course you can always rent if the property is located in a main city district, where the level of rent prices remains relatively stable.
Our financial advisor aka property investor, expects good appreciation of his property investment. For the time being, 5% return doesn’t seem a bad deal if you can’t get any better for your cash. Dubai’s property prices have been falling about 60% since their peak in 2008. Yet, they are some shy signs of revival. In addition, rents in Dubai are expected to rise and the hope for better returns sweetens the deal.