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Ok,

I intend to stay in Dubai for at least 3 more years, maybe more.

If I renew my rental it effectively costs me 7500 per month.

I figure that I can buy something for about 700000 (1 bed in discovery gardens or similar) and finance it over 5 years (in UAE) for about 12000 per month.

Obviously over 5 years this means I spend about 300000 extra on accomodation. But at this point I will have a property to sell and as long as it's worth more than 300000 then I am in profit. If it's maintained it's value (700000) then I am 400000 in profit (not to be sniffed at).

Basically my question is - why are so few people doing this? I have been here 1 year and know very few people who have bought. I am certainly not a finance expert but this seems a no-brainer to me.

What are the potential pit-falls etc.

Has anyone else done this recently and if so how is it working out?

THanks in advance.

I would try posing this question in a few other forums. Expatwoman and expat focus are good.

I've found that on this site, you'll get a few honest responses and the rest are messing. It's not the greatest resource (apart from people like Concorde, etc) if you're looking for that type of thing.

john smith wrote:Ok,

I intend to stay in Dubai for at least 3 more years, maybe more.

If I renew my rental it effectively costs me 7500 per month.

I figure that I can buy something for about 700000 (1 bed in discovery gardens or similar) and finance it over 5 years (in UAE) for about 12000 per month.

Obviously over 5 years this means I spend about 300000 extra on accomodation. But at this point I will have a property to sell and as long as it's worth more than 300000 then I am in profit. If it's maintained it's value (700000) then I am 400000 in profit (not to be sniffed at).

Basically my question is - why are so few people doing this? I have been here 1 year and know very few people who have bought. I am certainly not a finance expert but this seems a no-brainer to me.

What are the potential pit-falls etc.

Has anyone else done this recently and if so how is it working out?

THanks in advance.

Well, that's the "$64,000" question. There are many posts regarding whether and when the "bubble will burst". So there are many people waiting for it to burst and many people who made a bundle of money while others waited...and waited.

Others simply can't afford to buy - prices are very high in my opinion.

There was a recent article (2 days ago) about the 6,500 apartmes at the JBR due to go "on-line" in the summer and their impact on the market (prediction for perhaps a reduction in rental prices). But who knows...

In your example, if you keep renting at an annual increase of 10% then you would have 170K in the bank (add interest to it) at the end of 5 years and can walk away without any loss if the market goes down. You have to consider that "maintenance" fees on an apt will go up from year to year. The municapilty tax will be the same (i think) whether you rent or own. On the other hand the price could double and they you would have lost an opportunity.

What do they say: "no risk, no reward".

Buying a home is the biggest decision/investment most people will make in a lifetime!

Good luck.

Told ya!

See, I knew Concorde would be able to say something interesting.

Meanwhile, it does seem silly to sink huge amounts of money into rent and not get something out of it in the end, but maybe that's a European way of thinking about property.

I hope the bubble does burst mid-year as that means we can get a 3bedroom flat or villa for 100K!

Hey! Even I was impressed Concord. Good on ya. My advice is to buy if you can afford too. Take care of the place and chances are you'll turn a profit. When you rent you line other people's pockets. When you own, you're investing in your own. My 2 cents!

You are entirely right, all the indicators are you should buy if you'll stay that length of time, even if you lose money on the apartment you make up by not having paid rent.

The reasons people don't buy here are based on uncertainty - uncertainty of the "market bubble", the building operators absolute discrimination to change their fees, interest rate being high and pegged to the US+3% (the 3% being for no other reason than to make local banks money as far as I can see), a lack of quality in the build, threat of wars and just a general uncertainty how long they'll stay here - it's such a transient place.

However, I have a stack of analyst reports on this stuff and essentially the concencus is that studios and 1 beds should do OK, the predicted market crash is primarily in a massive oversupply of 2,3 and 4 bed apartments that fill places like Dubai Marina. Small apartments and villas will drop in price in the long run, but not as much. The "burst" could also not be so much of a burst, more a gradual realignment as the amount of delays in builds at the moment mean supply comes on slower than previously announced.

Back to the question, if I was single and was sure I was going to stay, I'd buy.

The market correction is an interesting impending issue. Nobody can really accurately predict the impact of the 6500 apartments at JBR coming online this year... but here's some factors to consider.

Factor #1 - the majority of rental accommodation available today is not freehold, and is owned by locals who in most cases have an interest free mortgage, or zero mortgage on these properties. Thus there is no huge requirement for them to fill these immediately and they can hold out for higher rents.

Factor #2 - JBR has a very large expat ownership (you'll just have to accept I know this for a fact). Unlike the local investment, a lot of these apartments are owned by salary workers and they cannot afford to let the apartments sit idle as they have mortgages with interest to pay and a need for return on investment.

Factor #3 - The reason for the high demand in studio and 1 brs is the high rental price currently demanded for apartments of all shapes and sizes, and the astronomical cost of Villa rent. As the market corrects, and the rents decrease for the larger apartments, you'll find demand shifts towards these as the price equilibrium shifts.

Take this into account - here's some base assumptions you can make.

Assumption #1 - as the expat ownership comes online, expat owners will be happy to rent out their investments for smaller returns than local owners, due mostly to the need to rent out as soon as possible. Therefore they'd be happy with 6 to 10% return - rather than the 30 to 40% ROI that the market is currently skimming at.

Assumption #2 - The increase in supply will force price competitiveness into the market and push down rents. This is basic supply and demand, and whilst Dubai has resisted this due to factor #1 for a long time, Factor #2 and assumption #1 will put pressure on the prices to go down.

Assumption #3 - when the market corrects, you will find the oversupply of larger apartments and the reducing prices will make them more attractive to renters, which in turn will force down the price of the smaller apartments. It might seem like there's an undersupply in the market at the moment, and there is in terms of price not size, but when the correction comes this will turn the tables.

My hairy hombre is correct when he says the market seems to be overpriced in terms of buying, especially when you may be forced into a negative equation sometime soon. If you decided to spend a considerable time here, a negative equation is acceptable, but if you're here for the investment and short term gain... it's not the ideal situation at all.

Lastly, the days of doubling or tripling your investment are over. You will not see this in Dubai again in the forseeable future, and if this is your desire, look to Bahrain or Qatar as potentials.

There was a recent article (2 days ago) about the 6,500 apartmes at the JBR due to go "on-line" in the summer and their impact on the market (prediction for perhaps a reduction in rental prices). But who knows...

Hey Concord,

could you let me know where i can find this article???

thanks

T

Dr.D wrote:Assumption #3 - when the market corrects, you will find the oversupply of larger apartments and the reducing prices will make them more attractive to renters, which in turn will force down the price of the smaller apartments. It might seem like there's an undersupply in the market at the moment, and there is in terms of price not size, but when the correction comes this will turn the tables.
.

Some good points but don't necessarily agree with all of it. The demand is for studio and 1 bed and actually there's a case for saying the high overall price for flats is driven from the bottom up, not the expensive 3-bed/ penthouse ones. Just look at the price differentials going from the bottom upwards, an extra bed costs 20k-30k in Marina in rent, not a huge marginal increase.

With all the talk of oversupply people often fail to mention that Dubai is also growing hugely, between 70k and 100k people a year. The last census puts the general splits as about a third low paid, a third "better off" Asians, 5% Westerners and rest local and GCC. So there's plenty of people with money and different needs coming here. More importantly for this argument, most of those with money are 20-something singles and couples, so small apartments will remain in demand.

I don't dispute there will be a price reduction, however, those holding out for a massive slash in entry level rents will likely wait a very long time, best to team up with friends and bag a bargain of a larger flat.

I bought something. I saved and paid it off in cash. The mortgage rates here are rip-offs. My place has gone up in value and I make 10% rental income. Simple as that. The bubble has been set to burst every year since 2005, according to wannabe "experts" who want to get their company names in the papers. No other country in the world has this many people coming every day.