If you are thinking about buying property in Dubai for the first time, perhaps as a foreigner, the real estate market can be confusing and even overwhelming. Learning about an entirely new real estate market means researching history, statistics and trends, as well as familiarising yourself with the relevant rules and regulations.
However, never fear: we’re here to help. In this article we will cover all the essential information you need to know about the Dubai real estate market in order to make a smart investment, avoid any potential risks, and benefit from your own stake in the UAE, with its booming economy and great lifestyle offerings.
The History of the Dubai Real Estate Market
The Dubai real estate market has had an incredible transformation in the past 50 years. Dubai in the 1970’s was largely underdeveloped, with low rise, traditional buildings and very little modern infrastructure. The real estate market in Dubai experienced strong and steady growth throughout the 1970’s through to the 1990’s, as developers built affordable homes for the increasing numbers of people coming to live in the city.
The city’s real estate boom really began in 2002 when the Government announced the release of freehold properties, allowing foreign investors to buy property for the first time.This led to a surge in the construction of luxury houses and other typef ofsproperties and large developments in various parts of Dubai and the UAE more generally. This opened up the real estate market to not only foreign buyers, but also local buyers who had previously been precluded from a market which was predominantly controlled by the government and the royal family.
Throughout the 2000’s, developers from all over the world flocked to Dubai to be part of creating a “Manhattan in the Desert”. Investors from many countries, most notably Russia and India, bought large swathes of property, sometimes without proper land registry regulation or legal framework.
The Dubai property market peaked in 2008, with price growth in some area such as Dubai Manna hitting up to 200%. However the start of the global financial crisis in late 2008 had devastating impacts on the Dubai property market, with property values falling by as much as 70% that year.
Despite this, however, property value start to recover a few years later, and the Dubai real estate market starts to grow from around 2011, with the market maturing and seen by many as comparable to other major global property markets by 2013. 2017 and 2018 were modest years in the Dubai real estate market, with many commentators saying the market is “bottoming out” with growth likely again in 2020. Additionally, recent figures show that investors continue to enjoy returns on their investment of a healthy 6% to 7%, so even if property values may not be growing, investment returns remain strong.
Types of Properties in Dubai
In Dubai, it is possible to buy property under either leasehold or freehold arrangements. In 2001, the Dubai government allowed a 99-year leasehold of Dubai real estate to foreign nationals, and the following year, in 2002, issued a freehold property decree for foreigners.
Under leasehold ownership, the buyer of a property takes a lease from a freeholder for the property, usually for a period of 99 years. This arrangement means the leasehold will have the right to occupy the property for the time of the lease, after which ownership reverts back to the freeholder. However, during this time the leaseholder may use, rent or even sell the real estate as they would with any other type of property. The downside (other than the ownership reverting at the end of the lease period) is that the leaseholder technically needs to seek permission from the landowner before carrying out repairs or improvements to the property.
Freehold ownership, on the other hand, means the purchaser takes complete ownership of the property and is the official owner of not just any structures but the land they stand on. In Dubai, this means being registered as the “land owner” at the Dubai Land Department Land Registry. This also means that you own the property until such time as you sell it, and may pass on to an inheritor after your death. In Dubai, there are designated freehold properties which need to be ourchased from government-approved developers or real estate agents.
Trends in Dubai Real Estate
Real estate price trends in Dubai currently show a gradual downward trajectory. Since a 5-year peak in 2014, Dubai property prices have gradually fallen, and are now at their lowest level since 2012. This trend has been seen across the board, affecting both villas/townhouses and apartments, with the drop in sales prices being particularly pronounced for apartments.
Studio apartments are becoming increasing popular in Dubai, and have actually increased in value in some areas over the last 12 months, while most properties have decreased in value over this time. One and two bed apartments also remain a common choice among buyers, with larger apartments being available in some areas but are much less popular. Villas are also a common property type in Dubai, with larger villas performing best in the current market. 5 bedroom villas have seen the lowest price decreases of this property type, and have actually seen price increases of the last 6 months in Downtown Dubai, Dubai Hills Estate, Jumeirah Park and Palm Jumeirah.
Despite the Dubai real estate market flattening out in recent years, economic growth in Dubai remains strong. The Global Competitiveness Report 2016-2017 ranked the UAE 16th out of 138 economies, and the strongest economy in the region. The IMF (International Monetary Fund) consistently to predicts strong economic grown for the UAE. The strong UAE economy has many positive implications for the Dubai property market: as the economy goes from strength to strength, businesses will continue to operate in the city, and new businesses will open their doors here. This in turn means more expats and foreign workers coming to live in Dubai, all of whom need a place to live, meaning better returns on investments both in terms of rental returns and property values, as demand increases.
In terms of the best areas to invest in Dubai, Dubai Marina remained a strong performer throughout 2018 and this is predicted to continue into 2019. This area’s popularity can be strongly attributed to its mix of high-rise apartments, pavilion villas, as well as quality retail and dining. Other popular areas for Dubai real estate are Downtown Dubai, Jumeirah Village Circle, Jumeirah Lake Towers and Palm Jumeirah. The latter is tipped to become an even hotter investment when the luxury Palm Beach Residences and Raffles projects are completed.
Advantages of Owning Dubai Real Estate for Foreigners
In Dubai, it is not necessary to have residency or citizenship in order to purchase either a leasehold or freehold property. However, owning a freehold property does make it easier to get a visa to stay in Dubai: freehold property owners and their family members are eligible for a renewable residence visa. These visas cost around AED 5000.
Foreigner investors living in Dubai also enjoy substantial tax benefits. Residents can live in Dubai free from real estate, corporate or personal taxes. This can represent significant financial savings, as property will not be subject to taxes. This compares to the US, where the purchase of a property could be subject to up to 40% tax when considering federal, state and city taxes. Many foreign investors have been attracted to Dubai for this reason.
Risks Associated with Dubai Real Estate
As with any kind of investment, when buying into property in Dubai you take the risk that your investment may not pay off. As mentioned above, the market in Dubai has dropped slightly over the past few years, so if you bought a property in 2015 it would now be worth less than you paid for it, representing a negative return on your investment. However, over time property values are likely to go up again, so you should see this as a long-term investment and look at results over a period of decades rather than years or months.
Another risk you run as a foreign investor is not being in the country to personally keep an eye on your investment. This could be in the case that you buy a property to live in and then later end up leaving the country, or perhaps you are a foreigner looking to invest in property in Dubai but without ever having the intention of living there. Whatever the case may be, this doesn’t need to be too much of a risk: you can hire a trustworthy property manager to look after your apartment or villa, and supervise the process of renting it out.
Foreign investors should also be aware that, although not common, scams to dupe would-be buyers with fake Dubai property deals do exist. One scam sees scammers creating bogus real estate listings and then advertising them both within and outside the UAE to attract investment into properties that do not exist. Under UAE Cybercrime Law, violators can be prosecuted for advertising fake investment and be fined up to Dh3,000,000.
In order to protect themselves from scams, investors are urged to only deal with agents who have been authorised under the Real Estate Regulatory Agency (RERA). All transactions should involve official documentation, such asa Memorandum of Understanding (MOU) and No Objection Certificate (NOC). In Dubai, it is standard practice to issue a MOU as soon as a 10% deposit is paid, so investors are encouraged not to pay a deposit without receipt of this document.
What About The Cayman Islands?
The Cayman Islands real estate market has seen steady gains since 2008. Most investment has come from foreign buyers, primarily wealthy US citizens, buying luxury houses. Some sources show that Seven Mile Beach condos have appreciated by up to 80% since 2008.
The Cayman Islands is an extremely safe and reliable investment location due to its stable government and British oversight, this attracts investors.
One major benefit of owning real estate in the Cayman Islands is that there is no annual property tax; there is an initial one-time stamp duty, but after that is paid, there are zero taxes owed to the government.
Useful Sources
Luckily, when you are looking to buy a property in Dubai, there are many great online resources available to support you. Expat forums are a great source of impartial, unbiased advice from people who have personal experience in the market. Visit Dubai also has a lot of general information, including info and advice on the city’s different neighbourhoods. The UK Government even has this site dedicated to UK citizens looking to buy a property in the UAE.