Should you rent-out an apartment or buy your own home?

Dubai is one of the most dynamic cities and fast-growing business-hub. The city of numerous opportunities has been attracting people from all over the world. Many of them are moving continents with the solid plan of giving this city at least few years. Increment in population increases demand for the housing, whether as an investment or rental home. Due to such tendency, Dubai government made the process of settling easier. The city is constantly developing and happy to have international citizens to be involved in the process.

For those who decide to stay in the city for long time, the question arises as whether to rent an apartment or to consider investing in own property. To avoid any confusion let’s compare different options and find the most suitable one, based on your case. We will compare scenarios of renting an apartment with purchasing one. The right information will help you to make the right decision. So let’s have a closer look at the situation.

Pros and Cons of renting an apartment in Dubai.
Dubai has numerous options for those who wish to rent an apartment, together with investment properties. As demand increasing, more available offers appear on the market. Of course, not everyone who came to the country is ready to invest in its own property and pay a hefty amount of money. In this case people opt to another option – renting an apartment for years and even decades.

Pros of renting an apartment in Dubai (short-term and long-tern rent)

• You don’t need a large amount of money to rent an apartment, especially in short-term rent
• You can choose fully furnished or unfurnished apartment, based on your preference
• You can easily relocate from one location to another, and even from one area to another
• Law in Dubai strongly protects tenants. For instance, next year rent (long-term rent) can be increased only based on the Rental Index Calculator data. There is a certain scale of increase of a rental cost for the next year.
• In case of any situation or force majeure, the owner of the apartment (landlord) not allowed to simply ask the tenant out (long-term rent). The owner has to inform the tenant a year in advance that he has to vacate an apartment after 365 days. Such document can be obtained in a Public Notary specialized office and should be send via courier. Failing to do so allow the tenant to extend his rental contract for another year.

Cons of renting an apartment in Dubai (short-term and long-term rent)

• Price of apartments for rent increases every year
• Residents should have a stable job or good income to afford renting an apartment for long-term
• Dependance from stable income
• Not easy to find an apartment that will satisfy all of the requirements
• In majority of cases, and if a tenant wishes to save a bit of a coin, he has to rent out an empty apartment and later furnish it at his own cost. Based on the increase in short-term rents, many property owners started offering long-term apartments fully furnished that makes the life of tenants easier.
• Lessor has the right to increase price of the rental apartment (short-term rent) once the contract with the current tenant finishes. Such situation can be the main reason for the tenant to start looking for a new “home”.

For those who just arrived to UAE and not planning to stay here for long time, it is better to rent out an apartment. But those, who came to the city with the idea of staying here – it will be wiser to consider investing in your own home.

Purchase of a property in Dubai.
Based on the UAE law, residents are allowed to rent property for up to 99 years, or to purchase it in full possession in certain freehold zones. It is important to note, that majority of Dubai areas considered as freehold areas. It is extremely easy to buy a property in Dubai, but does it worth it?

Main advantages of buying a property in Dubai.

1. Profitable investment – project / apartment price increases with time, in some areas of Dubai, which can bring increment on initial investment 2-3 times more, comparing to initial property price.
2. Property owner doesn’t depend on anyone and can furnish / design its apartment based on his taste.
3. In case of renting out an apartment, the owner can gain 6%-17% income (of purchased price), depending on the area and rental strategy.
4. When purchasing a house of AED 750,000 or more ($204,000 or more) investor can apply for a 2 years UAE residency. If the total cost of his property (-ies) is more than AED 2M ($550,000 and more) he is eligible for a 10 years Golden Visa for himself and his family members.
5. Property price per square meter is lower, comparing to real estate in many European and Asia countries.
6. If an investor doesn’t have enough budget he can get a loan from the bank, under quite good conditions.
7. Many developers offer a flexible long-term payment plan to cater to the needs of those investors who don’t have a large sum of money for investment, initially. Such payment plans can be of 3, -5, or even -7 years that allows investors to pay throughout time and invest in more than one property.
8. No one-time or regular taxes on purchased property. There is no tax when buying or renting out a residential property. When it comes to commercial property like office spaces, shops, etc. owner has to pay one-time 5% VAT (Value Added Tax).

Disadvantages when investing in property in Dubai

1. High cost of real estate
2. Resale of the property takes some time, where the owner should be aware of
3. Location-specific
4. It is important to take a good care of the apartment, its maintenance and overall functionality, to keep it in a good condition.

Comparing listed above advantages and disadvantages it is clear that investment in Dubai real estate is a good and profitable choice.

What is a more profitable option – to rent out or to buy a property?
As property purchase has its cons, the same applies to renting out. Let’s see what is more profitable: rent or purchase.

Price of the apartment to buy as to rent out depends on certain factors such as: location, layout of unit, branding, owner’s expectations, year of the building’s construction, etc. In order to compare the two options, it is better to choose as an example a certain type of the property – one-bedroom apartment. On average, 1BR apartment will cost AED 1 ,000,000 in the area like JVC (Jumeirah Village Circle). Yearly rent of such apartment is approximately AED 75,000. Example of expenses projection in case of rentals
-Initial deposit (equal to 1 month of property rental)
-First month rental

Initial expense is AED 14,000, as a result.

For comparison, let’s take 15 years mortgaged apartment. The initial expense will include:

• Initial rental payment
• Dubai Land Department charges
• Registration fees for property over AED 40,000
• Property valuation charges
• Bank service fees

Total expense is approximately AED 375,000.

Based on all presented information, it is clear that renting a property is a better option. Nevertheless, it is always better to take into consideration other current factors. For instance, Dubai rental has increased, recently, making many people reconsider their wish to rent an apartment, rather than purchasing it. More detailed information on this you can find in our article: The future of Dubai real estate market.

Long-term rent expenses:
-Annual fees for the contract registration in Ejari;
-Different rental payments, taking into consideration constantly increasing rent.

Expenses when buying a property:
-Mortgage payments (if applicable);
-Annual service charges / unit maintenance

To summarize, mortgaged property with all overpayments together with service charges will cost around AED 1.6M – 1.7M, while when renting this amount will exceed AED 2.2M. Another advantage towards property purchase is that you as an investor own it and can manage it any way you want. What is more, it can be given to the children, later on, when rented property is always a temporary home.

Whether to rent or buy is solely depends on the person, his capabilities and future plans. You can always go through presented above information and make your decision. In any case, it is always recommended to use the help of an agent / property advisor as they will always save your time and money.