Exploring Real Estate Investment Opportunities in the UAE
Opportunity # 1 . Properties offering guaranteed rental returns.
The last decade has produced a challenging set of conditions for the UAE’s real estate market. The 2008 financial crash, the significant decline in oil prices, coupled with a steady undercurrent of oversupply, have led to prices dropping by around a third since 2014.
But the UAE has always been quick to adapt to market changes and thanks to a raft of new Government initiatives to support real estate growth and stability, as well as developers becoming increasingly competitive, at current pricing levels, the UAE is offering solid investment opportunities in the real estate sector in some areas of Dubai.
With prices set to continue their downward trajectory into 2020, developers are really going the extra mile to attract buyers to compete with other investment markets. One of these tactics is offering guaranteed rental returns. Whilst not a new concept to the UAE, it is a practice that has become more prevalent as developers find a means to dispose of unsold stock from their inventory.
Which developers are offering these deals and what is the expected return on investment?
DAMAC has undoubtedly been one of the most proactive developers in this regard. In addition to a raft of similarly themed deals in the past, they are currently running a time-limited promotion (#DAMACFALLFEST) which promises guaranteed rental returns of up to 30 percent over three years, with a 2 year payment plan, on hotel units at Radisson DAMAC Hills. They are also offering guaranteed returns of 21 percent over 3 years on residential units at Paramount Tower Hotel & Residences.
Gemini Property Developers were offering 24% guaranteed rental returns for the first three years to investors in the Dhs300 million Gemini Splendor at MBR City. Although this project has now been completely sold, the developers have indicated they have many new projects in the pipeline which will offer similarly attractive incentives. So Gemini are definitely ones to watch.
But how do these guaranteed rental returns compare with the general rental yields being achieved across the UAE?
A recent study* has outlined that Dubai communities such as Meydan and DAMAC Hills are currently offering gross rental yields of 9.3 per cent and 8.9 per cent respectively. Whilst Dubai Silicon Oasis apartments provided the highest gross rental returns in the Emirate at 9.5 per cent in the first half of 2019 compared to 9.2 per cent a year ago.
In Abu Dhabi during H1 2019, Al Reef offered the highest gross rental yields for both apartments and villas/townhouses at 8.5 per cent and 6.7 per cent respectively. Apartments in Al Ghadeer offered returns of 8.3 per cent and Al Raha Beach 7.2 per cent. Villas and townhouses in Al Raha Gardens yielded returns of 5.7 per cent and Golf Gardens 5.5 per cent.
The study further disclosed that apartments in Ajman's Emirates City provided the UAE's best gross rental yields at 11 per cent.
This makes the guaranteed rental returns of up to 30% a very attractive proposition. However, a word of warning before proceeding with any such deals. Do your homework! As tempting as these offers appear, once the initial 1 or 2 year period is complete, many owners may find the tenant has been paying an incredibly low rent, with the developer subsidizing the difference and factoring this into the purchase price of the property. Make sure the numbers add up correctly before you sign any paperwork!
In our next blog, we will cover the opportunities in an emerging sector within the UAE’s real estate market - student housing.
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