Dubai property: is 2016 the year to invest Dh1m in the rental market?

Buyer with Dh1million to invest in a Dubai rental property should take advantage of a bottoming market and average yields of just over 7 per cent in 2016, experts advise.

Is now the time to invest in Dubai property? Our experts advise. Pictured, Palm Jumeirah. Sarah Dea / The National
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Is 2016 the best time to invest in Dubai’s property market? I want to invest Dh1 million in a rental property to earn the maximum yield. MH, Dubai

Expert one:

Mario Volpi, property expert and Homefront columnist at The National

To get straight to the point, 2016 will be a great time to invest in Dubai’s property market, but the real question should be when to take the plunge.

Property sales values and transactions have declined over the past 18 months since the government introduced the necessary cooling measures to reverse sales prices from overheating due to the announcement of the successful Expo 2020 bid at the end of 2013.

During the last quarter of this year, there has been talk about the many thousand of property units that were expected to be delivered in 2015 but ultimately were not. There is still speculation as to the total number that will now become available in 2016.

Depending on how high this number is, sales prices could fall further. Therefore, knowing when to purchase a rental investment property will become the major factor. My belief is that we are probably close to prices bottoming out.

This year’s price softening has been welcomed as it has allowed the market to catch its breath and realise that the residential sales market represents good value once again when compared with other global property markets.

Dubai’s rental yields are averaging just over 7 per cent – extremely attractive when compared with cities such as Hong Kong at around 2 to 3 per cent and London at 3 to 4 per cent. In some parts of Dubai, the yield can be as high as 10 per cent net such as on The Palm Jumeirah in the Dukes and Anantara project developments.

The reason for these growing yields is that while we have seen a cooling of sales prices, the rental market has remained broadly robust. The reality is that residents still need somewhere to live; couple this with the increases in population due to job creation, means that renting continues to be the first choice for the majority.

Expert two:

Adam Price, managing director, Middle East at Select Property Dubai

In short, 2016 is a great time to invest in Dubai property. Following the global financial crisis the property market came back in 2012 and peaked in the first quarter of 2014. Prices fell across the board in 2015.

However the Dubai property market continues to mature and stabilise as a result of strategically implemented government regulations, including the increased property registration fees and mortgage caps, so 2016 will be the perfect time to invest.

Gross returns for both small and large apartments in Dubai are delivering between 5.87 per cent and 7.21 per cent yield which is higher than Hong Kong, Singapore and London.

But where to invest? With Dh1 million, I would recommend a studio apartment in a tier 1 location that is going to deliver a strong rental return. These areas would be Downtown Dubai, Dubai Marina, and Burj Khalifa side of Business Bay.

In particular, there is a shortage of studios in and around the Downtown area, so this offers an opportunity to drive high yields.

In addition, I recommend investors buy off plan – which means a lower cash outlay over the build period. The buyer can take advantage as the market recovers without having to pay all the money straight away..

Next Money Clinic:

I recently read about the freezing up of the US$788 million Third Avenue Focused Credit Fund in the US. The mutual fund that was meant to provide small-time investors with easy access to their cash has now been closed and redemptions have been blocked. I have invested, via a platform with a global insurer, into a number of funds around the world. How can I protect myself from something similar happening to my investments? GJ, Dubai

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