Buying Property in the UAE – things to think about

Buying property in the UAE

For many year now, investors have never known the tips and tricks that they need to know when buying property in the UAE. If you are among those investors thinking of trying their luck in real estate in this great country, then you need the following information before you start buying property:

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Before you buy UAE property

First, you need to know the performance of the UAE’s economy. We all know that the performance of the economy often affects the processes of real estate immensely and you should be paying attention to the expected economic performance of the UAE before you decide to start buying property in the UAE. Make sure that you buy real estate properties in the UAE after conducting your research to ensure that the economic conditions are favorable for you. This will help you make profits if you intend to sell the property at some point in the future.  When you are considering your property keep in mind the term of the investment.  For example if you are intending to keep the property for 20 years then by the time you come to sell there will only be 80 years left on the property lease, keep this in mind before you agree to purchase any property.

The laws, rules and regulation of the country are also important for any individual buying these real estate properties in the UAE. You should never buy a property not only to realize that it goes against the rules and regulations of the country. This can make you lose a lot of money after making your investments. Ultimately, you must always ascertain how any new government policy will affect the existing real estate industry.  The UAE industry has been responsible for more money lost than potentially any other real estate sector in the world, many properties do not get built, normally only 99 year lease terms are available and the economy is linked to a huge number of factors that could quickly result in crashing house prices.  For example if the UAE tax laws were to change, or war breaks out with Iran, or if the global economy goes into a slump or the USD crashes which is responsible for the majority of the UAE oil exports then you could end up holding a white elephant.

You need to define the length of time you will hold the investment, if it is a house purchase for your family to live in that is of course different, but if you are buying for an investment only then do not purchase a property in Dubai if you can not afford to lose 100% of the investment.  Investing in Dubai real estate is volatile, it is effectively a new country for western investors and although it may look all glossy on the outside if it were not for the huge oil wealth in the country or its tax free status then the UAE would be a very different market.

The rate of inflation in the market is also another fundamental factor that you must consider when buying real estate properties in the UAE. This is very important for those people who buy to sell, sometimes referred to as “flipping” property. You should do your research on the internet or ask the financial experts on the expected rates of inflation that may affect your property value after making a purchase in the market. Why say this? High rates of inflation can corrode your property value if you are selling it in the same market. Ultimately, you must ensure that you estimate the rate of inflation if you are thinking about buying real estate in the UAE.

Buying off plan property in the UAE – risky business

Buying property “off plan” or effectively that has not been built yet is also highly risky.  I personally know at least 100 people that lost huge sums of money from investing in off plan property that was never built in the UAE.  If you will be buying off plan then firstly my advice is simply DO NOT, unless you can afford to lose your money.  If you can afford to risk the investment then off plan property does have a capability for high investment returns, just make sure you stage payments to the developer are linked to the construction phases of the property. This way if they are making an investment call for phase three of the investment before they have even laid the foundations you should be able to smell a rat and stop your investment at that point, whilst at the same time reporting the vendor to the UAE real estate authority.

Investing in whacky designs

The new designs also affect the level of activity of real estate in UAE. Most of the new architects are now coming up with some of the best and most innovative designs that have attracted many people looking for these types of investment properties in the market. You have to remember that you will only quickly be able to sell your property when when the product you are selling provides unique real estate. For instance, if you are buying for sale, you need to look for the new designs that are available in the market thus enabling you to get the best value when you sell. Be aware that many of the best designs also come with significant delays and often run over budget causing any off plan investment company to require a call down on capital from you.  If this is the case make sure you only deploy your capital against rock solid assurances that the property will actually be built.  If this is the case keep a close eye on the developer and how they are performing in the market, if you think at any time that the developer is at risk get rid of your investment quickly even if you have to take a loss on the property.

Hidden Charges

Make sure you read the developers contracts before you buy the property, look for hidden charges that will be applied to your property each month.  Some of these charges can be astronomically high and often it is a way for the developers to increase margins on any new build.  How much a month will you be paying for maintenance, car parking and pool charges? Are these charges fixed for a period of time for example for 5 years after you purchase the property? Be very careful here it can be a quagmire of extra charges that cause you to lose money and potentially make the property unsaleable in the future.

Market Forces

Finally, you need to know the market forces that affect the prices of real estate properties. Why are market forces very important in this sector? When buying real estate properties in the UAE, after you need to ensure that the market conditions are favorable for you since this will definitely help you make a profit if you are doing this for business. Property in Dubai crashed in a spectacular way in 2007 and 2008 and the next expected correction in the market is as early as 2015 so ensure you always stay mindful, if you think there is a possibility of a crash leaving you in a negative equity situation then get out of the market as soon as possible.

About John Robberts
John Robberts is a journalist with 12 years experience of living and working in the United Arab Emirates.