Dubai is considered one of the most popular cities in the Middle East, attracting tourists and expats from all over the world. The online real estate portal tells about the local market of residential and commercial real estate and advises where it is better to invest its funds for income generation.
Dubai is the administrative center of the emirate of the same name, the largest city of the UAE, and also the investment capital of the Middle East. The local real estate market, which is growing at the expense of large-scale and ambitious projects, attracts foreign buyers from 149 countries, among which are the citizens of India, Saudi Arabia, Britain and Pakistan.
According to the Dubai Land Department, the volume of foreign investment in local real estate for the first half of 2016 amounted to $ 7.6 billion. Investors are attracted by economic stability, favorable prospects for the Dubai market and, above all, the ability to receive in the local market a stable annual rental income of 5-7%.
The greatest demand for investors buying property in Dubai for renting, use residential facilities, apart-hotels and offices.
Residential real estate: how to win on the increase in value
From 2014 to 2016, residential property prices in Dubai declined by an average of 15%, and in the third quarter of 2016 they accounted for only 73% of the peak value achieved in 2008. According to the Global Property Guide for September 2016, the cost of apartments in Dubai is between $ 4,000 and $ 6,000 / m². The rental rates for the last two years also decreased by 10-15%.
Nevertheless, experts agree that in 2017 the market will begin to recover. In some parts of the city, the decline in prices continues, albeit at a slower pace than before; in other prices have already reached the bottom and began to grow. This means that the best time to enter the market has come, because buying a property at a relatively low price will allow you to benefit from the increase in its value in the future.
The income from investments in residential real estate for rent in Dubai is, as a rule, about 5-7% per year. The rental income of the villas is on average 3-6%, apartments – 6-10% per year.
Renting a studio, you can annually receive an average of 15 thousand dollars, an apartment with one bedroom – about 25 thousand dollars, with two bedrooms – 39 thousand dollars, with three bedrooms – 56 thousand dollars. studios and one-room apartments is higher than in larger apartments, and make up 6.8 – 7.5% against 5%.
According to the company Propertyfinder Group, the largest revenue is brought by apartments in new, developing areas of the city: Sports City (Sports City), Silicon Oasis (Silicon Oasis) and Discovery Gardens (Discovery Gardens). The rental income here reaches 9% a year – this is one of the highest rates in the world. In the Greens and Jumeirah Lakes Towers, the maximum yield varies from 7.5 to 8% per year. Finally, in the most prestigious areas with high prices for real estate, such as Dubai Marina and Palm Jumeirah, the yield is on average 6% per year.
The purchase of apartments of 55 m² in the area of Dubai Marina, taking into account all the additional costs will cost about 326 thousand dollars. The cost of real estate services will be about $ 3.2 thousand per year, while all utilities are paid by the tenant. Income from long-term lease for the year will be about 28.5 thousand dollars, and the percentage of net profitability – about 7.3%.
Leasing a villa is usually less profitable than an apartment. However, there are exceptions: for example, houses in Arabian Ranches and Springs bring up to 6.4% per year and pay off even faster than some apartments. As a rule, the larger and more expensive the villa, the lower the rental income.
Apartment and hotels: demand from tourists and businessmen is growing
Dubai is the fourth most popular tourist destination in the world and one of the top ten locations for shopping and business tourism. In 2016, the city was visited by 15.2 million tourists, and by 2020 this number will grow to 20 million people. Only for the World Expo 2020, which will be held in the city from October 2020 to April 2021, according to preliminary estimates of the authorities, about 17.5 million guests will arrive.
With the increase in the flow of tourists in the Dubai market, aparthotels are becoming increasingly popular, representing an alternative to conventional hotels. Serviced apartments combine the advantages of home comfort and hotel services and are in demand both among businessmen looking for a more comfortable alternative to hotels, and for families with children who need more space than a regular hotel room can offer. Especially in demand such a format of accommodation for tourists from Saudi Arabia, who often travels in large families. Apart-hotels enjoy increasing popularity also because the cost of living in them can be up to 30% cheaper than in hotels of the same level.
Serviced apartments, like ordinary residential real estate, are acquired in the property and the owner can at any time sell them. In addition, the owner of such real estate has the right to free-of-charge vacation in the apartments every year – as a rule, within two weeks. All care for maintenance, finding tenants and maintaining order in the apartments is undertaken by a professional management company.
The average annual income from renting serviced apartments is about 8-10%. The income from short-term rental of apartments in coastal complexes, where foreigners often stay, can reach 0.4% per week.
The cost of one-bedroom apartments starts from 200 thousand dollars, the prices for three-bedroom furnished apartments in an elite residential complex in the city center are about 800 thousand.
For 220-270 thousand dollars you can buy a one-bedroom apartment in the Discovery Gardens and, renting them for 24-26 thousand a year, to receive income of about 9-10% (less maintenance costs, amounting to about 30 -35 dollars / m² per year).
It is best to purchase real estate from a reliable developer who offers serviced apartments in new and under construction hotels in the Downtown area of Dubai. Objects from leading developers, if necessary, are easier to sell, and at the stage of market growth they become more expensive and more expensive than housing from little-known companies.
Offices: Class A premises in the central areas are always priced
The main trend characterizing the Dubai office real estate market is duality, the gap between first-class and other objects. Thus, the cost of renting Class B offices in the first half of 2016 here decreased by 5% compared to the previous year, while rental of Class A offices for the same period went up by 3%.
In some areas of the city with relatively old housing stock, the level of vacant space is high. For example, in the World Trade Center it reaches 20%. At the same time, rental rates in such locations stand still or decline: for example, in the Garhoud area, located near the airport, only in the II quarter of 2016 they fell by 18%, in Deira – by 5%. To the less promising areas are also Jumeirah Lake Towers and Business Bay (Business Bay). The offer of office space here exceeds demand.
In the free economic zones: Dubai Internet City, Media City, Knowledge Village, Dubai International Financial Center and Dubai Design District, the opposite is observed situation. Class A offices located here are in great demand from large international corporations. Offices in the buildings of Media City and Internet City are reserved by tenants at the construction stage. The volume of vacant space in the Central Business District decreased from November 2015 to November 2016 by 7%, reaching the level of 15%, and in the heart of the International Financial Center, only 5% of vacant offices remained.
Rental rates in the office real estate market in Dubai fell from 2008 to 2016 by 50-76%, depending on the market segment. The rates for class B offices fell most, elite real estate suffered less. As of the end of 2016, office rent in the city costs from 175 to 700 dollars / m² depending on the characteristics of the building and its location.
The most expensive is the rent in the new buildings of the International Financial Center. Prices here are constantly growing, and in early 2017, reach 1076 dollars / m². However, this is a record indicator – the cost of renting offices in popular locations is on average 450-500 dollars / m².
The annual profitability of office space rent is, as a rule, from 5.5 to 8.5%. Commercial real estate is more profitable to lease than residential, because the cost of maintaining the object is paid by the tenant and the rental period is usually longer than for housing.
Due to the economic downturn in the market in recent years, the demand for office space in Dubai has slowed, companies are slow to expand. Small offices are in great demand. According to data for the first three quarters of 2016, less than 12% of tenants selected areas over 950 m², while a year earlier this figure was 30%. Thus, in an index tower in the Dubai International Financial Center, offices with small areas (from 50 m² to 300 m²) were divided into four floors, and most of these premises immediately found tenants. The same strategy worked in the center of “Burj Daman” (Burj Daman).
According to analysts, during the first half of 2017 on the office market in Dubai as a whole, one should not expect growth, but individual locations that do not obey the general trend will develop. Also, investors should pay attention to the reputation of the developer, the development of infrastructure, the transport accessibility of the area and the availability of parking spaces in the business center.