1. The Market in the UAE
Expatriates can buy in several areas in the UAE, namely Saadiyat, Reem Island, Raha Beach, Al Reef, Hydra and al Ghadeer, these areas are discussed in more detail in our “Guide to Buying Property in Abu Dhabi”. Visit our entire Guide Library here. Like the rest of the world Abu Dhabi’s housing market peaked in 2008/9 and then went through four years of consolidation finally seeing positive returns again in 2013. Buying property in Abu Dhabi is a fairly simple and quick process, many thousands of transactions have been completed and banks and developers are experienced and secure.
This Guidance is aimed at why become a property investor in Abu Dhabi, so we would strongly advise you email firstname.lastname@example.org for our “Guide to Buying Property in Abu Dhabi” for a better look at the process and legal structures involved.
Investments in some property in Abu Dhabi can get you over 7% returns on your money net (make sure you look at net returns and not gross). There are few bank accounts or funds in the world that will give you that kind of return on your money. There is also the potential to leverage your investment for increased returns even when your property only appreciates in value modestly (see below).
Property has gone through its boom and bust cycles like every other investment but it still remains a very stable asset. Property prices and rents have recovered well since the global slowdown and Abu Dhabi’s significant income from oil and large capital reserves meant that the emirate never went into recession itself. As well as that the UAE government has learnt its lessons from 2008 and is active (by use of loan to value rules and tinkering with registration fees) in reducing the chance of future bubbles.
4. Future Prospects
Property prices and returns in Abu Dhabi are linked to population and supply. At the moment the government has a large infrastructure expansion plan in place (Etihad Rail, The Midfield Terminal, Etihad Airways, the Louvre and Guggenheim etc) called the 2030 Plan, which is bringing people to the UAE by creating jobs. Population is set to increase year on year and according to the Urban Planning Council will hit 2.5 million in 2030 (from 1.5 million now). Set against that there is very little property supply in the pipeline, only another 18,000 units are due to come online in 2015 and 2016 (an increase of just 2.8% per year) according to JLL, and Colliers believes there is a current housing shortfall of over 50,000 units.
5. Rent Payment
Rent in Abu Dhabi is paid up-front for the year, usually in one cheque or two cheques (the second is post-dated). This affords significant security of income and some safeguard against tenant’s absconding (running off).
6. Legal Protections
Read our guide to “The Legal Rights and Obligations of Landlords” for more information but the law in Abu Dhabi is currently (as at January 2015) very Landlord friendly. Rent raises are not capped and there is no difficulty in evicting tenants once their lease term has finished (you just need to give them two months notice).
7. Low Sophistication of Current Landlords
Abu Dhabi is an immature market as far as the rentals market goes and contains a lot of first-time landlords, as a result it suffers from low sophistication of property owners. Nimbler more intelligent landlords can gain higher than average rents by understanding the market and what tenants are looking for. See our “Make the Most of Your Investment Property” for a list of ways you can offer incentives to tenants in return for higher lease returns.
8. Inflation Proof Investment
Inflation in the UAE in 2014 was 4%, this means very roughly that things appreciated in value (and cost) by 4%. Inflation means that if you keep your money in a bank account at 1% interest you’re actually losing 3% per year in real terms, as everything else is going up in price but your money stays almost the same. When you put your money in an asset that also appreciates along with inflation then you at least don’t lose money. Very few banks offer anywhere near 3% or 4% interest, so investing in a physical asset makes sense as its value should appreciate more in line with inflation (though of course it may be more or less depending on supply, demand and other factors).
When you buy a home with 3.2m of your own money and the home appreciates by 4% then you make 4% on your money. If you buy a home worth 3.2m with 800k of your own money (a 25% deposit) and 2.6m of debt and the home appreciates by 4% you get 16% return on your own money. Sounds like a trick? It isn’t.
The asset is worth 3.2m – an increase of 4% is 128k. Now whether you own the house outright or you have borrowed to finance it, that 128k it added to the value of your asset so that when you sell it that extra value comes to you, the bank doesn’t get any of it. Your repayment stays the same and the amount owed to the bank isn’t adjusted. For your outlay of 800k assuming no appreciation of your home in real terms (i.e. an inflation rate of 4% increase) you see a 16% increase on the money you invested. This is leverage.
Warning – When the market goes down leverage works the other way. Your bank doesn’t take any gains when your house appreciates but also won’t take losses when it falls in value.
10. Capital Appreciation
Every real estate professional will tell you now is the perfect time to buy as your investment is about to appreciate in value hugely and make you a millionaire overnight. The truth is the greatest brains on the planet can’t tell you if your property value is going to go up or down so don’t listen to the pundits, don’t trust your gut, and don’t consult the stars. Buy an investment where your rent is going to pay your mortgage with a little left over for you. You’ll be paying off the debt, accumulating equity in the asset and pocketing some change from the rental return. Email email@example.com for a detailed numbers breakdown of why it is good to buy.
Be a good investor – make sure the numbers, not the alignment of the heavens, make sense.
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