Why to Rent or Buy Properties in Dubai?

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When it comes to driving in Dubai, one of the most frequently asked questions is whether it is worth buying a car instead of renting. Even if you are only planning to live and work here for a short-term, Dubai’s real estate market is at its strongest since the credit crisis. Many residents are contemplating whether it is worth taking the leap and redirecting their annual rent towards their own mortgage.

There is no doubting a renewed sense of confidence in Dubai’s property market. In 2013, real estate transactions in the emirate topped Dhs236 billion, up from Dhs154 billion in 2012 according to the Dubai Land Department. With rents rising almost as fast as property prices in the past year, it’s hard not to wonder whether you are throwing money away.

Buying also removes you from being at the mercy of landlords, who may decide to sell or move into their property at any point in time. Many tenants feel very insecure in that respect, although the laws have Strengthened in their favor. People are still concerned about having to move around every year or pay increasing rents to landlords.

With the introduction of the mortgage cap at the end of 2013, it may take some Buyers longer to save for their intial deposits, and they may not be able to react as quickly as they would like in the current market.

Buying suits someone with long-term plans to stay in the region, and to one who wants to invest in their future here. Of course it may not be financially viable for everyone, so it is not always upto personal preference.

Invest and buy something if you can afford to. Think of your long-term versus short-term goals; where you want to be in your personal life and where you see yourself in the next three to five years.

Pros:

  • Owning your own home
  • The amount of your monthly rent being paid currently can be utilized towards the monthly installments of your own property
  • No hassles from landlords, who may request you to move out or increase the rent
  • Capital appreciation of your property

Cons:

  • A long term financial commitment
  • A substantial equity being blocked
  • Loss of job or economic downturn

 

We have used our Loan Calculator to prove and explain how buying a property is better than renting

Example A:-

One Bedroom Apartment in Jumeirah Lake Tower, mid floor and with a Built-up Area of about 814 sft, community view, would normally cost AED 1,000,000 and has an annual rent return of AED 80,000. If you seek a mortgage the working is as follows:-

 

 

Loan Calculator          
               
  1. Fill in your home information:          
               
      Price of Apt / Villa / House   1,000,000.00   (A)
      Available funds from your own pocket   350,000.00   (B)
               
               
  2. Fill in the loan details          
               
      Valuated price by bank   975,000.00    
      Percentage of valuated price for loan   80.00%    
      Interest Rate   4.25%    
      Time (in months)   300.00    
      Start Date   21/1/2014    
               
               
  3. Review your Primary Loan     (check 'Primary Loan' tab for details)    
               
      Total Primary Loan   780,000.00   (C)
      Monthly Payments   4,225.56    
               
      Total Payment over Time   1,267,666.50    
      Interest Paid over Time   487,666.50    
               
               
  4. Fill in any other expenses you expect          
               
    Commission to Real Estate Agency   2% 20,000.00    
    Transfer Fee to Developer   4% 40,000.00    
    Loan Processing Fee by bank   1% 10,000.00    
    Cost of Valuation by bank     2,500.00    
    Mortgage Registration fee     5,000.00    
    Maintainence Fee     11,000.00    
    Other (NOC)     2,500.00    
    Other     0.00    
               
      Other Expenses total:   91,000.00   (D)
               
               
  5. Fill in how much you want/need from a personal loan        
               
      Amount needed for personal loan   39,000.00   (A - B - C + D)
               
      Amount actually taken for personal loan   50,000.00    
      Interest Rate   6.50%    
      Time (in months)   60    
      Start Date   15-Dec-14    
               
               
  6. Review your Personal Loan     (check 'Personal Loan' tab for details)    
               
      Total Personal Loan   50,000.00    
      Monthly Payments   978.31    
               
      Total Payment over Time   58,698.42    
      Interest Paid over Time   8,698.42    
               
               
  7. Review your summary!     (check out 'Other calculations' for more details)    
               
    Money Raised:          
               
      Primary Loan   780,000.00    
      Personal Loan   50,000.00    
      Personal funds   350,000.00    
               
      Total Money Raised   1,180,000.00   (E)
               
               
    Money Needed:          
               
      Price of House   1,000,000.00    
      Other Expenses   91,000.00    
               
      Total Money Needed   1,091,000.00   (F)
               
    Left over (if any)          
               
      Left over (if any)   89,000.00   (E - F)
               
               

 

As demonstrated by the calculations above, it is clearly evident that Purchasing the property in Dubai is a Better Choice rather than renting the property, The breakdown is: Mortgage Installment is AED 4,225 and Personal Loan Installment is AED 978, hence a total outflow of AED 5,203 plus annual maintainence is AED 1,000/month, even with that your total annual outflow is AED 6,203 which annualized is AED 74,436.

 

So, why would one not purchase a property, save AED 80,000 which is contributed towards your savings, Capital Appreciation even as low as 12% per annum, in a period of 3 years, you would end up appreciating your Equity of AED 350,000 plus the Personal Loan (which is part of your equity) of AED 50,000, hence a total investment of AED 400,000, yields AED 360,000 in capital appreciation upon encashment and the amount of AED 80,000 x 3 years = 240,000, your net returns are 600,000, therefore the return on investment (ROI) is 50% p.a. growth.

 

 

Example B:-

Two Bedroom Apartment in Dubai Marina, High floor and with a Built-up Area of about 1,426 sft, with Un-obstructed & Panoramic Marina view, would normally cost AED 3,000,000 and has an annual rent return of AED 170,000. If you seek a mortgage the calculations izaaaa as follows:-

 

Loan Calculator          
               
  1. Fill in your home information:          
               
      Price of Apt / Villa / House   3,000,000.00   (A)
      Available funds from your own pocket   725,000.00   (B)
               
               
  2. Fill in the loan details          
               
      Valuated price by bank   2,900,000.00    
      Percentage of valuated price for loan   80.00%    
      Interest Rate   4.25%    
      Time (in months)   3000.00    
      Start Date   1-Dec-14    
               
               
  3. Review your Primary Loan     (check 'Primary Loan' tab for details)    
               
      Total Primary Loan   2,320,000.00   (C)
      Monthly Payments   12,568.24    
               
      Total Payment over Time   3,447,897.48    
      Interest Paid over Time   1,127,897.48    
               
               
  4. Fill in any other expenses you expect          
               
    Commission to Real Estate Agency   2% 60,000.00    
    Transfer Fee to Developer   4% 120,000.00    
    Loan Processing Fee by bank   1% 30,000.00    
    Cost of Valuation by bank     2,500.00    
    Mortgage Registration fee     5,000.00    
    Maintainence Fee     22,816.00    
    Other (NOC)     2,500.00    
    Other     0.00    
               
      Other Expenses total:   242,816.00   (D)
               
               
  5. Fill in how much you want/need from a personal loan        
               
      Amount needed for personal loan   197,816.00   (A - B - C + D)
               
      Amount actually taken for personal loan   200,000.00    
      Interest Rate   6.50%    
      Time (in months)   60    
      Start Date   15-Dec-14    
               
               
  6. Review your Personal Loan     (check 'Personal Loan' tab for details)    
               
      Total Personal Loan   200,000.00    
      Monthly Payments   3,913.23    
               
      Total Payment over Time   234,793.77    
      Interest Paid over Time   34,793.77    
               
               
  7. Review your summary!     (check out 'Other calculations' for more details)    
               
    Money Raised:          
               
      Primary Loan   2,320,000.00    
      Personal Loan   200,000.00    
      Personal funds   725,000.00    
               
      Total Money Raised   3,245,000.00   (E)
               
               
    Money Needed:          
               
      Price of House   3,000,000.00    
      Other Expenses   242,816.00    
               
      Total Money Needed   3,242,816.00   (F)
               
    Left over (if any)          
               
      Left over (if any)   2,184.00   (E - F)
               
               

 

Similar to the earlier scenario, even in this case, it is clearly evident that  Purchasing the property in Dubai is a Better Choice than rather paying the rent, that is Mortgage Installment is AED 12,568 and Personal Loan Installment is AED 3,913, hence a total outflow of AED 16,481 plus annual maintainence is AED 1,901/month, even with that your total annual outflow is AED 18,382 which annualized is AED 220,584.

 

So, why would one not purchase a property, save the waste of AED 170,000 which is contributed towards your savings, Capital Appreciation even as low as 12% per annum, in a period of 3 years, you would end up appreciating your Equity of AED 725,000 plus the Personal Loan (which is part of your equity) of AED 200,000, hence a total investment of AED 925,000, yields AED 1,080,000 in capital appreciation upon encashment and the amount of AED 170,000 x 3 years = 510,000, your net returns are 1,590,000, therefore the return on investment (ROI) is 57% p.a. growth

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