What Are the Risks of Buying Property in Dubai?

Dubai is one of the world’s most enticing retirement destinations. The warm weather, high standard of living, and low crime rate are just a few of the reasons why it has become a popular retirement location in recent years. Dubai is also a wealthy city with an economy that has grown substantially over the past few decades.

The economic success of the Dubai has prompted many retirees to buy investment properties instead of renting. It is a useful investment strategy which helps retirees achieve some capital gains as their Dubai properties increase in value over time.

However, as always, there are some risks associated with buying a property in a foreign country. In this guide, we’ll share some information about buying property in Dubai and the risks associated with this investment strategy.

An aerial view of Dubai in the morning. Fog covering the base of the buildings and you can see the top of the buildings.

How The United Arab Emirates Views Foreign Investment

The United Arab Emirates (UAE) has become much more welcoming of foreign investment in the past 20 years. The government has launched a variety of programs which are designed to encourage foreigners to invest in the country, start new businesses or buy property.

The government of Dubai has been particularly proactive in targeting retirees, recently launching a global program called Retire In Dubai. It is a collaborative initiative being run by Dubai Tourism in collaboration with the general directorate of residency and foreigners’ affairs.

Retire In Dubai streamlines the process of applying for residence in Dubai and shares information about the investment opportunities that are available for retirees.

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Is It Safe to Buy Property in Dubai?

Purchasing a property is a significant financial decision, so caution is always advised. It really pays to do your research and consult with experienced financial consultants and lawyers before jumping in. 

In general terms, it is very safe to buy property in Dubai. However, just like anywhere in the world, there are con artists who are eager to take money from wealthy retirees. 

The laws are also different in Dubai, with locals often having an advantage over foreigners in court cases. This means that running into a legal issue when purchasing or selling a property could be disastrous. 

To avoid these types of issues, you must always be diligent in your negotiations and legal agreements. Perform background checks on all of the individuals you are dealing with, check the ownership of any property you are going to buy, and hire a good lawyer. Take your time during negotiations and never rush into a purchase.

Benefits Of Buying A Property In Dubai

A picture of a marina in Dubai. Lots of boats docked in the middle of the city. Tall, high rise buildings all around.

Here are a few of the benefits of purchasing a property in Dubai:

  • Excellent Rental Yields
    One of the reasons so many retirees are interested in Dubai property investment is that the rental yields can be quite high. Investors have been known to achieve as much as 12% rental yield from property investments, which is much higher than many American cities. 
  • Reasonably priced real estate
    Although the UAE is a wealthy nation with a high standard of living, it’s still possible to find relatively affordable properties in Dubai, compared to San Francisco, Dallas, Los Angeles and other American cities.
  • Potential for long-term capital growth
    The UAE economy is expected to contract in the short term, it will continue growing towards 2030. This means property prices are likely to increase. That being said, it’s always important to check the current condition of the market with a financial advisor.
  • A safe and stable country
    Dubai is one of the world’s safest cities. That makes it a great location for investing in real estate.

Can a U.S. Citizen Own Property in Dubai?

Yes, since 2002 foreigners have been allowed to buy, sell, and rent property anywhere in Dubai without any special permits or permissions. When this change occurred, there was an immediate influx of Americans seeking to buy property in Dubai.

Is it Possible to Get Financing on a Property in Dubai?

Most Dubai property purchases are conducted using cash. However, the number of properties purchased using finance continues to increase in Dubai each year. It is relatively simple for ex-pat residents and foreign investors to get a loan in Dubai. All you will need is:

  • Proof of income (from a salary, self employment income, of income generating assets)
  • Proof of identity 

If you intend to use finance, seek out pre-approval before you begin inspecting properties. This will help you understand how much you can lend before you put a deposit down on a property.

The UAE banking system is very stable and reliable. It consists of a central bank, local banks, and a number of foreign banks, which is a similar structure to the American banking system. 

Almost all banks offer mortgages and interest rates are reasonable. Because the UAE Dirham is pegged to the US dollar, local interest rates fluctuate in accordance with the interest rate changes made by the US Federal Reserve.

In some cases, you will be able to obtain a loan from an American bank that is operating in Dubai. This makes matters easier if you already have a bank account with that particular bank.

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The Cost of Buying Real Estate in Dubai

The city of Dubai looking from a balcony across the water. Lots of high rises and beach area.

The price of property has fluctuated in the Dubai over the past decade. The current average price for a villa is Dubai is AED 841 /sqft (228 USD) while apartments are AED 1,082 / sqft (294 USD). You will also have to pay the agency, government, and mortgage fees listed below. 

Fees and Closing Costs

It’s important to be aware that there are some additional costs associated with buying a property in Dubai. They include:

Government Fees 

  • Dubai Land Department Fees
    4% of your purchase price plus an admin fee (between AED40 to AED 580)
  • Property Registration Fees
    Properties below 500,000 AED will be charged AED 2,000 + 5% VAT
    Properties above  500,000 AED will be charged AED 4,000 + 5% VAT
  • Dubai Land Department Mortgage Registration Fees
    0.25% of the loan total plus AED 290

Agency Fees 

  • Real Estate Agent Fees
    2% of the purchase price + 5% VAT
  • Conveyance Fee
    Usually between AED 6,000 and AED 10,000

Mortgage Fees 

  • Arrangement fee
    1% of loan amount + 5% VAT
  • Property Valuation Fee
    Usually between AED 2,500 and AED 3,500 + 5% VAT

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6 Risks Associated with Buying in Dubai

Many expat retirees have done very well by buying property in Dubai. However, there are some risks involved which you should be aware of. They include:

1. Real Estate Scams

Although very rare, some retirees have been scammed by unscrupulous conmen posing as real estate agents, sellers, or lenders. Avoid this risk by performing background checks and hiring a good lawyer to manage your purchases.

2. The UAE Economy May Decline In The Future

Like many Middle Eastern nations, the UAE receives a significant proportion of its income from oil production. As oil demand is expected to decrease over the coming decades, the revenue coming into the country may decline, having an impact on the economy. However, the UAE government is aware of this risk and already taking action to promote other sectors within their economy.

3. Picking The Wrong Neighborhood 

Although most parts of Dubai are quite nice, there are some neighborhoods that lack the amenities that investors, prospective home buyers, and renters prefer. If you buy into one of these neighborhoods, you may not obtain the capital gains or rental income you might have expected. 

4. Choosing The Wrong Property Developer

If you decide to build, make sure you perform extensive research on any builders you are considering. There have been many horror stories involving rogue builders who have left buyers with half-finished properties or poorly constructed properties. 

5. Buying In An Area With Lower Rental Yields

One of the best reasons to invest in Dubai property is that you can receive an excellent rental yield. It’s possible to get 7% for a villa and as much as 12% on an apartment. However, this is not true for every part of the city. If you intend on renting your properties, do your research to learn which parts of the city receive the best rental yields.

6. False Advertising

Beware of property developments that claim to provide a raft of amenities and do not deliver. You may invest in an apartment complex that claims to be building a tennis court and pool, only to see the developer change their mind to save money. Read the fine print of the sales contract to learn if the developer is compelled to provide these amenities. 

Key Takeaway

There are many opportunities for retirees interested in investing in property in Dubai. However, there is also some risk involved. The surest way to succeed is to do your research, wait for good investment opportunities, and work with professionals that you trust.

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