With the constantly increasing rental rates in Dubai, more and more residents are starting to wonder which is the better option – to rent or to buy? Purchasing your home is indeed the biggest and most important financial decision in most people’s lives, so it deserves a thoughtful consideration. But whatever the cost and the risks, buying home in Dubai may be the smarter thing to do right now for end users.
Dubai’s real estate market is expected to remain stable in 2014, but the perspectives seem more promising for the years to come in terms of jobs and financing availability. Riding on the 5% rent cap abolishment and Dubai’s win to host World Expo 2020 news, landlords are firmly pushing rental values higher. During the past six months, rents in some of the most popular neighborhoods jumped by up to 50%. Thousands of people across the city are already struggling to pay their rents and another price jump may force them to relocate or to look for smaller accommodations.
So, is buying home in Dubai a smart move right now? It makes sense when it comes to the financial side of the matter.
The better alternative
Usually, buying your home is the cheaper and better alternative. Renting means you pay for something that will never be yours, while paying the mortgage interests every month takes you closer and closer to ownership. Currently, most banks in Dubai are charging mortgage rates of 5-6 percent annually. And property leases, or rents, prices are on average 8 percent of the value of the house or apartment per annum. A simple calculation shows that it is indeed cheaper to pay the mortgage interest than to pay rent every month. UAE banking sector is the most prosperous in the entire GCC for a reason.
In addition, your property will almost certainly appreciate over time, given the market and economy conditions in Dubai and the good prospects for further development and growth. Don’t forget the inflation! In other words, if you decide to resell your home in 10 years, you will most probably make some profit.
When deciding on the perfect time to buy, there is one major factor to consider – market condition. Are prices rising or are they falling? With the increase of property prices, rents are going up, too, and as it is expected that the market will continue to perform well in the coming 5 to 7 years. So, you should buy as soon as you can or wait a few months until the traditionally slower summer season. Last year, rents increased on average by around 20 percent. Some districts saw extremely rapid hike in rentals, reaching up to 50 percent for Downtown Dubai apartments.
The time is also perfect in terms of mortgage interests and laws and regulations. The government is constantly introducing new and better rules that protect investors’ interests. Mortgages and loans are more accessible than ever before, so financing your purchase should not be a problem if you are employed. Although down payments may be difficult to handle, your costs will reduce over time.
When you are choosing a property to buy and live in or invest and give it away as a rental, there are a few things to consider. The first one is the property’s location – you will need an area of the city, which is expected to develop and grow in the future years. A good example of a promising location is Business Bay, which is in the hearth of city.
Next thing to take into account before buying is evaluating the total cost of the property, whether you can afford it, and whether it is worth buying at all. During the past two years, property prices also increased significantly and now many landlords face difficulties selling their units. Calculate all related costs – bank approval, DLD fees, transfer taxes, real estate brokers’ commission, mortgage processing fee, valuation fee, service charges, housing fees and so on.
Certainly, purchasing a property comes with its downsides and certain level of risk, but it turns out to be the smarter move for some Dubai residents.