Strength of the market - UAE real estate review
Dubai has a 20-year track record of strong economic growth, infrastructure development and political stability. In the recent years, the city has been a continuous attraction for foreign investors. The fundamental attributes – geographic, economic and socio-political – provide the drivers for real estate demand.
A pro-active government continues to offer economic catalysts (i.e. free zones) to corporations to stimulate enterprise, investment and trade as well as continued diversification of economic sectors towards transport & logistics, manufacturing, tourism, healthcare ,media production, construction and finance, Once regarded as the business hub of the Middle East, Dubai is now known as the international business, and re-export centre.
With the increasing number of businesses and multinational companies starting operations in Dubai, the inward migration of professionals and their families is also mounting. The tax-free salary in Dubai is one major attraction for professionals from the world over to relocate to this city. Additionally, it is the wealth of job opportunities and leisure activities that attract foreigners to Dubai.
Dubai is politically stable and has a forward-looking, responsive Government with a progressive, pro-business attitude and a highly developed commitment to the private sector. The business friendly regulations and highly favorable tax and customs framework have played a key role in attracting business investment from all over the world in practically every sphere of economic activity.
Moreover, consistently strong economic indicators and a relatively low cost work environment have contributed to Dubai’s rapid development and prosperity. Dubai enjoys truly global connectivity. Its ultra modern airport handles 13.5 million passengers to over 140 destinations annually and its deepwater port has one of the largest throughputs in the world making Dubai, now, the third largest re-export centre in the world serving a massive regional market. Dubai is a modern, safe, multicultural city with state-of-the-art medical, education, entertainment, shopping and sports facilities, and an overabundance of amenities that make for a very high quality of life, Dubai is a city of choice for the modern professional and an ideal location for multinationals to establish a regional presence.
Significant regulatory and structural changes throughout the emirates offer more than sufficient justification for today’s real estate valuations. The strong fundamental economic environment, the induction of freehold rights, population growth, rapidly growing tourism and hospitality markets and substantial consumer and mortgage loan expansion all support a continuous rise in real estate prices. Without adjusting for the 0% income tax regime in the UAE, which significantly impacts the affordability of real estate, real estate prices per square meter relative to per capita GDP throughout the world prove that the UAE is currently at the low end of the range for real estate prices in countries of similar income levels.
The implied trend value for UAE residential real estate is roughly US $7,200/ sq.m. or 2,500AED/SF average throughout the emirates. When the freehold buying facility was introduced in Dubai, only a few companies were offering mortgage facilities to investors. But now 5 years later, many nationalized banks in Dubai and abroad are offering mortgage facilities to investors worldwide to help them buy property in Dubai. The facilities and offers vary from bank to bank and among borrowers.
Presently, the price of property in Dubai is relatively lower than that of other developed countries. If compared with the price of properties in any well developed city of the UK, we can see that the property prices in Dubai are around four times less. A 4-bedroom, 4-bathroom villa in Dubai can be purchased for the same amount as a one-bedroom apartment in the UK. In considering the yield from rent, again Dubai earns more marks than the UK. In the UK, we cannot expect more than 5% of the price from rent while in Dubai, without a doubt, one can achieve 7 to 9.5 % rental yields according to the present market trends. One reason for such a favorable market comes from the fact that there is no income tax or capital gains tax applicable on property sales or rentals in Dubai. Another factor favorable to increasing values in Dubai, relative to mature markets such as the UK, inflation in building costs, has just begun and so the chances for increasing prices is greater. This is mainly because the property boom has just shot up in Dubai and it will definitely last for the next five years.
Though that is not the case for other countries like the UK where the boom has already reached a mature stage and we cannot expect lasting hikes to prices. Considering all these factors, we reach a conclusion that investing in properties in Dubai, at this growing stage of the market, is a wiser decision than investing in the same sector in other countries of the world.