Invest in UAE property to have rent and improve returns

Prices are pretty flat in the UAE at the moment, and you aren’t likely to get much capital appreciation this year. So why buy if your investment isn’t going to go up in value? Because if you take everything into account, even if your property doesn’t appreciate in value 1 fil, it halves your rent.

Here is an example of two units currently listed on the market:

1. A two-bed apartment

2. A three-bed villa

The two properties are in different areas, are both on the market for Dh2 million and currently rent for about Dh150,000 a year. Now, assume the buyer has a 25 per cent deposit of Dh500,000 with Dh1.5m financed at 4 percent over 25 years. So who will buy on those properties, rather than leasing, half the rent?

How you save

Your first saving is when you consider your rent against what your bank repayments would be. It is a simple calculation – the rent on these units is Dh150,000 a year if you are a tenant; if you buy it your finance repayments would only be Dh95,000 a year. That is a saving of Dh55,000 a year, or 37 percent is the difference between being the owner rather than a tenant. The situation gets better.

If you own your own property, then in the first year Dh35,000 of your Dh95,000 finance payment to the bank goes towards paying off the principal of your loan (the other Dh60,000 is interest payments). This is money essentially going into your pocket as it is taken off the amount you owe the bank, so if you sell the unit, even at what you bought it for, you get to keep this amount.

So to recap, if you buy you are now paying Dh95,000 in finance payments to the bank, which is Dh55,000 less than the rent you were paying. Add to that the fact that Dh35,000 of the Dh95,000 payment to the bank is essentially being added to the resale value of your property each year and you have a total saving of Dh90,000 (Dh55,000 plus Dh35,000), compared to a rent of Dh150,000.