Attractive yields, zero income tax and a buoyant property market have long made the UAE a compelling destination for investors. But financial specialists caution that a significant portion of those returns is routinely consumed by compounding costs.
The problem, they say, is what investors pay in fees, but also what they do not understand about how they invest.
A structural issue
The most pervasive issue identified by experts is a portfolio construction failure. UAE investors, across income levels, tend to over-allocate to a single asset class – typically property, and often to a single property at that.
"Herd behaviour is common, with individuals allocating a large share of their net worth to a single property, often off‑plan, creating significant concentration and liquidity risk,” said Dr Praveen Gupta, professor and chairman of Manipal Business School at MAHE Dubai and a global investment banker.
"A well‑diversified portfolio that maximises long‑term returns while keeping risk within an investor's tolerance is the foundation of sound investing, yet many UAE investors overlook this principle.”
Lyaysyan Sedova, CFA, senior equity analyst at Capital Markets Research at Freedom Broker, agreed, saying it also extends to geography.
"Many resident portfolios are effectively single‑country and single‑theme, with dominant exposure to UAE property and a narrow set of locally distributed products. This creates high correlation between employment risk, residency risk and investment risk.”
Carol Glynn, an independent financial planner, attributes part of this to poor planning. "Many people invest without knowing what the money is actually for – retirement, relocation, children's education and so on. Investments need a purpose, or they can feel empty and never enough,” she said.
The hidden costs that compound
Against this backdrop of concentrated portfolios, the structural costs of UAE investing take on greater significance. For property investors, Dubai Land Department transfer fees of 4 per cent, agency commissions, valuation charges and mortgage arrangement fees represent a substantial entry cost before yields begin to accrue.
Continuing costs erode returns further. "Service charges – continuing maintenance fees for apartments and communities – can be significant and vary widely,” said Ms Glynn. "Vacancy risk means periods without tenants and no income, while costs such as service charges and mortgage payments continue.”
She also flags illiquidity as a cost in its own right. "If you need access to cash, you may have to sell at a discount.”
Mr Gupta adds that the UAE's summer climate introduces a cost consideration absent in most western property markets. "Harsh summer conditions shorten building lifespans compared with western markets, which should be factored into long‑term return expectations.”
For those invested in equities, ETFs and bonds, there is a different type of friction. "Investors in the UAE should be aware of hidden costs such as transaction charges, custody and inactivity fees, low‑balance fees and FX conversion spreads,” said Mr Gupta.
He also notes a pricing distortion embedded in some platforms. "Some brokers offer zero‑commission trading but widen the bid-offer spread, which can significantly increase costs on larger trades.”
Ms Sedova said a misunderstanding around long-dated savings and insurance-linked investment products is also of concern. These products often embed "upfront commissions, continuing policy charges and meaningful surrender penalties if contributions are interrupted or the contract is exited early”, she said.
The cross-border tax misconception
For expatriate investors – the majority of the UAE's resident population – there is a further, widely held misconception that the country's zero personal income tax rate also means zero taxation elsewhere.
"The UAE does not tax personal portfolio income, but many residents remain within the tax net of their home jurisdictions,” said Ms Sedova. “That can mean foreign withholding taxes on dividends, home‑country tax on capital gains and unfavourable treatment of certain offshore fund structures. This is one of the most misunderstood elements of the UAE proposition: domestic tax friendliness does not automatically translate into a tax‑free outcome at the investor level.”
What should change
Experts consistently tell investors to focus on cost, diversify deliberately and plan for the jurisdiction you will eventually leave.
"In a zero per cent personal‑tax environment, every 50 to 100 basis points of recurring fees, FX spread and other leakage matters,” said Ms Sedova. She recommends "explicit modelling of fees, FX and property transaction costs into internal rate of return” as more impactful than security selection.
Ms Glynn says your behaviour ultimately matters more than the market. “Staying invested and avoiding panic decisions is where long-term, lower-stress returns come from,” she said. "Investing doesn't need to be complicated, but it does need to be intentional.”
Dr Gupta added that limited financial literacy, particularly among lower‑ to middle‑income groups, also leaves investors “vulnerable to high‑cost, low‑return, and illiquid products sold through aggressive marketing”.
"Investors should conduct thorough due diligence on products, payoffs, fees and all associated costs. Informed, disciplined decision‑making rather than yield‑chasing is what ultimately drives sustainable investment success in the UAE.”
