Dubai is one of the few cities in the world where the population is made up with over 80% being expats. With such a high transient population many choose to rent for the first few years to ensure Dubai is right for them and their families before making the big financial commitment of buying.
With this in mind the demand for good quality villas is exceptionally high which in turn attracts investors. But why buy a villa over an apartment? There are several reasons why a villa makes more sense and gives you a better net return.
First we look at the profile of expats in Dubai. You have your young bachelor’s who are in Dubai mot only to make money but to make the most of the lifestyle and they look at apartments in the Marina and Palm Jumeirah areas. However there is also a large number of expats who are in their mid 30’s and upwards who are with their families. They are normally the higher earners in Dubai. They are here to earn good money but also to give their families the best start in life thanks to Dubai being one of the world’s safest cities, enjoying the perfect climate for an active and outdoors lifestyle and of course a great selection of the best internationally recognized schools.
So why a villa over an apartment?
There are several reasons and not all are based on financial returns.
First the purchase price is more reasonable than apartments in the Marina and Palm. For example you can purchase a 3 bedroom villa in the sought after Springs community for AED 1,600,000 where as a three bedroom apartment in the Marina would be nearer AED 1,900,000. You then need to look at the service charge. For apartments the average charge is AED 18 per sqft where as villas are much lower at an average of AED 2 per sqft. Working this out on an average property of 2,000 sqft gives you a saving AED 32,000 per year. And finally the rental income for the villa you are looking at AED 160,000 and the apartment AED 170,000 so when taking the service charge into account the net return is higher for the villa at just under 10% net return against 7% for the apartment
So the figures make sense but what about your tenant. Most landlords feel more comfortable knowing they have a family with children living in their property as opposed to a young bachelor who might be enjoying the lifestyle of Dubai a bit too much and neglecting the property. As we all know a well presented property not only rents out quicker but also achieves a higher price. As an overseas landlord it is much better to know your property is being looked after and will be handed back to you in great condition when your tenant vacates.
What about future appreciation?
This is very difficult to predict. There are currently two major factors that drive the Dubai property market, supply and demand and finance. Supply and demand is the big one in Dubai especially with a further 55,000 properties to be handed over by 2015. This is of course a worry but only a small number of those are going to be villas with the vast majority to be apartments. So considering the supply and demand this is not a concern for the villa sector and should not affect prices in a negative way, in fact quiet the reverse could be seen as the population increase we could see a shortage which will drive prices up.
The second factor is the mortgage markets and the availability of borrowing. Over the course of 2011 we have seen a gradual shift from all the major banks to the extent where now they are competing with each other and driving down the rates thus making borrowing affordable. When the banks lend in Dubai they take into account who the developer is, this has a big impact on the loan to value “LTV” and the repayment % rate. With over 80% of villas built by the 3 master developers, Emaar, Nakheel and Dubai Properties you are guaranteed the best packages the banks are offering.
So after considering all the factors
· Higher net rental returns
· High end tenants
· Potential future under supply in the market
· More favorable mortgage packages
Yes villas are a sound investment in Dubai
Justin Stevenson
Sales and Leasing director elysian real estate
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