Dubai, the most populous emirate within the United Arab Emirates (U.A.E.), is often identified with the many opulent real estate projects found within it. From the iconic sail-shaped Burj Al Arab Hotel to the Burj Khalifa Tower, currently the tallest building in the world, Dubai has no shortage of world-renowned architectural feats. But what does the emirate’s real estate market look like to those not in the skyscraper or luxury hotel business?
Here are five things you should know about before investing in Dubai:
1. It’s Hot (Literally and Figuratively)
Despite having summer temperatures that average around 40℃, Dubai is home to a very active real estate market, with 53,871 transactions valued at USD $59.4 billion occurring in 2014 alone. Recent reports show that year-over-year property appreciation has somewhat cooled throughout the entire U.A.E. That being said, the Global Property Guide shows that Dubai’s all-residential property price index (RPPI) increased by 16.48% (12.98% in real terms) between December 2013 and December 2014.
It is speculated that the slight cool in the housing market is due to measures taken by the government to prevent dangerous inflation. This means that Dubai’s real estate market should stay relatively stable, and therefore valuable, in the long term.
2. A Stable Nation
Located on the southeast corner of the Persian Gulf, Dubai is located at a beautiful intersection between the desert and ocean. It has also emerged as a global business hub, enjoying western-influenced business and regulatory models, a strong financial sector, and a stable government under the United Arab Emirates.
Since achieving independence from Great Britain in 1971, the member emirates of the U.A.E. have worked together to transform their country into an important world power. Now a coalition of seven monarchies, the U.A.E. has largely avoided the tumultuous situations which have gripped other Middle Eastern nations situations over the last four decades. Dubai even saw a dramatic increase in its real estate sector in 2011, when Arab Spring protests brought varying levels of instability to other Middle Eastern countries.
3. A City of Expats
It is estimated that 71% of Dubai’s population are “foreign” to the emirate. Around 3% of immigrants are classified as “western,” with a majority coming from Asian nations such as India, Bangladesh, and Pakistan.
Although Dubai follows Sharia Law, foreigners are legally allowed to practice their religion. Alcohol is also available in licensed hotels and bars. Though relatively liberal by Middle Eastern standards, Dubai has a number of customs which, although they may seem foreign to westerners, should be followed in order to show respect:
- Public displays of affection, such as kissing or holding hands, is forbidden, and has resulted in expats being deported
- When in public, men and woman should always wear clothing that covers everything from their shoulders to knees, it is okay to wear less at the beach or swimming pool
- Women should avoid wearing clothing that is skin-tight, very light-coloured, or transparent
- Illegal drugs of any kind are strictly forbidden, possession can result in extreme consequences
- During Ramadan (the Muslim Holy Month), it is forbidden to drink, eat, or smoke in public during daylight hours
4. A Renter’s Market
Khalid Bin Kalban, the chief of Dubai Investments, was recently quoted as saying “[m]arket forces [in Dubai] are driving developers to leave luxury behind and focus on ‘affordable’ housing.” The statistics certainly support Mr. Kalban’s assertion.
Twenty thousand new residential units are expected to be constructed in Dubai in 2015, meaning there will be plenty of potential rental properties to invest in. Rent yields have remained strong since 2013, despite some fear of an overheated market in mid 2014. Investors in Dubai can now expect a rent yield of 5-7% on residential apartments, with a possibility of a higher yield depending on the area.
There are currently no rental, property, or capital gains taxes in Dubai, making residential rental properties all the more attractive for investors.
The Jebel Ali Free Zone Authority (JAFZA) has been key to foreign investment in Dubai since its creation in 1985. Within this free economic zone, located in western Dubai, foreign entities have been allowed to develop industry with only light taxation from U.A.E. authorities.
Since 2011, only JAFZA-registered offshore companies have been able to purchase real estate in Dubai. Although foreign individuals have been allowed to own property in Dubai since 2002, many investors choose to invest through JAFZA companies in order to avoid local laws, which can interfere with the succession and transfer of properties. Researching which option is best for you is very important if you wish to become a real estate investor in Dubai.
Carson Pfahl, a graduate of political science from UBC, is a Vancouver-based curator and freelance writer who contributes frequently to RESAAS Blog.
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