Buy-to-let Investment In The United Arab Emirates
A healthy political climate and a strong, growing economy have helped create a booming buy-to-let market in the UAE. Below are some factors to consider when researching buy-to-let investment in the United Arab Emirates.
The term "Buy-to-Let" simply means the purchase of a property through the normal procedure and when completed, the owner seeks to rent it out for a regular income, usually exceeding annual mortgage repayments.
The "Buy-to-Let" Market in the UAE
The United Arab Emirates offer a fertile climate in which to invest in buy-to-let property, mainly due to high demand and short supply of quality international-style accommodation. This is prompted by mega investments in industry that attract major international manufacturers and businesses to the Emirates. Equally, investment is underway in the leisure, culture and tourism sectors, creating a world showcase for state-of-the-art theme parks, commercial centers and museums.
Comparatively low property prices compared with other worldwide locations make the UAE an attractive location in which to buy real estate, and strong rental potential, typically yielding between 6 and 10% depending upon the emirate, means promising buy-to-let investment opportunities for carefully chosen city or holiday locations. The UAE is now well established as a property management and leasing location, with companies following usual international standards and practices.
Purchasing a property to let in the UAE will involve careful consideration as to whether or not the property is ideally located, whether for the tourist or expatriate market. Careful analysis will need to be done on matters such as amenities and accessibility to airports and roads as well as what type of tourist will be visiting. Early investment and the correct formula to suit your market will bring you excellent returns on your buy-to-let property in the UAE.
John decides to purchase an investment property and after joining the IPIN and discussing his requirements with our investment experts, he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.
Our investment advisors suggest property development X which has been vetted by the IPIN (IPIN Global) as a solid investment opportunity and meets with John's deliverable criteria.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3,000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid). Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
- High Season - €2,000 per month
- Low Season - €1,300 per month
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 months during the high period earning €2,000 per month. After this period, he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 months only.
- 3 Months x €2,000
- 6 Months x €1,300
Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.
* In this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.
Short-Term Letting v Long-Term Letting
The final decision to be made by the "Buy-to-Let" investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.
Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.
The “Buy-to-Let" strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximise occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.
This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage.
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