It will be an understatement if we say COVID-19 has impacted all the industries, not only in the UAE but globally. However, when it comes to investment in the UAE real estate sector, some people are finding it an ideal time to climb up the property ladder and add a property or two to their portfolio. For them, it is a clear opportunity to have an asset on their name that too at reduced rates.
Real estate experts, on the other hand, believe that it is the right time to invest but only if you have set some money aside as an emergency fund. As the pandemic is not over yet, it’s uncertain until when people are going to face financial crunches. Even if you have a stable source of income, it is still advised to have enough balance in your emergency fund so that it can cover expenses for at least half a year. Furthermore, the balance in the emergency fund should not be in a form that is hard to liquidise. Preferable options are cash and bank deposits so that one can withdraw them without any hassle if they face a setback in their business or sudden unemployment.
Partner at Aspire Capital, Ms. Anita Yadav is also of the view that investors must have adequate funds before taking the plunge and investing in a property. She sites lacklustre economic growth and declining job security major reasons for which people need to be prepared to face the crises and have enough contingent funds accessible easily.
Real estate experts also have a set of advice for those interested in buying property in Dubai during this phase. Marmore Mena Intelligence’s Managing Director, Mr. M.R. Raghu is of the view that if you want to loan purchase a residential unit, make sure the monthly installment is not more than one-third of the return you get from your business or your salary, if you are a job holder. Also, your combined liabilities shouldn’t exceed 60% of your monthly income. All the payments you have to make with respect to loans you have taken such as education loan, vehicle loan, etc. fall under the combined liability head. He also believes that the better options, in terms of investments, are real-estate investment trusts as they offer more flexibility.
As per Century Financial’s Director for Investment and Advisory, Mr. Devesh Mamtani, property owners have reduced the rates up to 25%. Their motive is to liquidate their assets so that they can have a cash inflow to deal with the crises this global pandemic has brought with it. This has resulted in the city of gold i.e. Dubai witnessing distress sales.
Reduced rates for properties for sale is not the only reason that favors investment in current times. Developers are offering certain incentives such as free service charges for the initial few years and post-handover payment terms. The Dubai Land Department (DLD) is also doing its bit to encourage investment in the real estate sector. They have reduced booking fees, increased loan-to-value (LTV), and offered fee waivers. Shedding light on LTV, it is increased by 5% by the UAE central bank, however, only for first time home buyers. This means reduced down payment for them. Therefore, for an individual who is looking for a property for sale in Dubai, they have a lot of reasons to finalize it and close the deal.
Mr. Raghu further states that average gross rental yields for properties in Dubai are around 7%. It is calculated before taking maintenance fees, taxes, and other costs into consideration. This figure is still better than some other major cities in the world such as Singapore, London, and Hong Kong. These cities have average rental returns between 3 and 5%. However, Mr. Mamtani is of the view that the reduced price of oil and declining global demand is going to adversely impact the property market. A drop of 1 to 2% can be expected in the average rental yields.
For investors, another major hindrance they can face if they plan to rent out their properties is rent reduction applications by tenants. Due to the issues such as job insecurity, low returns on businesses, etc. caused by COVID-19, the chances of everyone facing financial issues is inevitable. Therefore, they will definitely consider reducing their living costs.
Experts believe that capital appreciation is not something that can be expected in the near future. Particularly, if the pandemic lasts for a long period. A 10% decrease in price, as compared to Q1 2020 has been already recorded. Having said this, expo 2020 (now shifted to 2021) can help to boost the economic conditions. Moreover, timely actions taken by the government also ensure that capital appreciation will come into the picture but not very urgently.
Whether to purchase property in cash or apply for a mortgage is another debate. As per experts, 30 to 50% value of the property can be paid in cash. For the remaining, a floating or fixed interest rate plan can be obtained. Having said that, a mortgage can be preferred in today’s times as the rates are considerably lower.