- Despite the recent increase in interest rates, 2023 is projected to remain an attractive market for buyers in Dubai
- The leading real estate brokerage highlights five key factors to consider when deciding whether to buy or rent a property in Dubai
UAE, February 2023: Espace Real Estate, one of the leading real estate brokerages in Dubai, has revealed the top five points to consider when contemplating buying vs renting a home in Dubai, United Arab Emirates (UAE) in 2023.
As rental prices continue to soar across the city and tenants seek out more affordable residences in the Emirate, Espace Real Estate highlights five key points to help determine which avenue is most feasible when buying or renting properties. These include understanding the market, financial positioning, duration of stay, attaining a trustworthy real estate broker, and lifestyle preferences.
John Lyons, Managing Director of Espace Real Estate says, “Dubai’s residential rents and transactions reached a record high in 2022, particularly in some of the core areas across Dubai which saw many moving to neighbourhoods they would’ve never considered a couple of years ago. Average apartment rents increased by 27%, and average villa rents rose over 24% which has led many to think about getting on the property ladder sooner than they might have anticipated. At Espace Real Estate, we aim to equip residents and visitors with accurate market information required to make an important life decision such as buying or renting a home.”
Understanding The Market
Espace Real Estate urges residents to understand the current trends and costs impacting the real estate sector. Demand for rental units has increased due to new residency and visa policies. In addition, property prices and rents fluctuate based on the popularity of the location and proximity to leisure, entertainment, and commercial hubs. Factors such as upfront costs, location, and the duration of the contract period play a vital role in a household’s decision-making process involved in buying or renting a home.
Costs such as a mortgage deposit, mortgage registration fee, Dubai Land Department (DLD) fee, real estate brokerage fee, bank mortgage arrangement fee, and property valuation fee can add up to as much as 31 to 32% of the property value. When choosing to rent, tenants must incorporate a margin for appreciation or depreciation to factor in the possibility of rent hikes, as landlords and property owners could be entitled to increase annual rent by 5 to 20% in a rising market, in accordance with the DLD Rental Index, provided tenants receive a 90-day notice period.
Residents in Dubai looking at renting a property, in the long run, would inadvertently incur higher overhead costs. For example, tenants seeking to rent a three-bedroom villa in The Springs community with an annual rent of AED 180,000 would incur average overhead costs worth AED 919,100, including rent paid over five years, a security deposit, and real estate and DLD fees. In this circumstance, residents are advised to buy rather than rent, which will result in higher cost savings. For example, buying the same three-bedroom villa in The Springs worth AED 2,800,000 over a five-year period would generate approximately AED 273,464 in cost savings*.
Buying or renting properties requires a substantial long-term commitment and is completely dependent on residents’ monetary backing or financial circumstances. Homeownership in Dubai requires a minimum down payment of the principal price of a property. Apartments, villas, or townhouses below the value of AED 5,000,000 requires a 20% down payment or a 30% down payment for properties above the same value. Quick reaction time by residents in placing a down payment to secure units can ensure the principal price on their future homes does not increase, as demand from multiple buyers or renters can drive the price higher. In the current climate, with an increase in international investors and given that rental prices are at an all-time high, financially conscious residents with substantial savings are recommended to invest by purchasing a property for the best return on investment (ROI).
Duration of Stay
One very essential question tenants must ask themselves is the length of time they plan to live in the UAE. From a financial standpoint, tenants residing in the UAE for two years or less are advised to rent rather than buy a property, as it enables them the freedom to live in different communities across the country, and offers the flexibility of limiting liabilities over a short period, empowering greater financial freedom.
Attaining a Trustworthy Real Estate Broker
As residents decide on which avenue they wish to pursue, they need to consider seeking a reliable agent or brokerage that offers high-quality flexible services, including competitive mortgage rates, experience, knowledge of the market, and added value they bring to potential customers. Espace Real Estate consists of over 170 RERA Certified real estate brokers and offers a full suite of world-class property-related services, tailored to fulfil all property needs across residential, sales and leasing, mortgage services, property management, and short-term rentals.
Location is everything, and residents should consider their non-negotiables when buying or renting a home in Dubai. These include either living closer to their children’s school or finding a home closer to their workplace for a shorter commute. Easy access to transportation and commercial hubs in Dubai should also be factored into the decision-making process. For example, properties closer to the Dubai Metro stations or in the proximity of shopping malls such as the Mall of the Emirates are more expensive to rent and buy in comparison to properties in Dubai Investment Park. Furthermore, residents seeking the freedom of living in their forever homes are advised to buy rather than rent, which might otherwise restrict tenants from renovating their homes based on the tenancy contracts.
“2022 was a phenomenal year for Dubai’s real estate sector and it has continued into the start of 2023, showing no signs of slowing down. Despite rising interest rates, the demand continues with a particular focus on the luxury end of the market. At Espace Real Estate, we anticipate property sales to exceed market expectations across the popular communities in Dubai, including Palm Jumeirah, Downtown Dubai, Dubai Marina, Emirates Living, Arabian Ranches, and many more in the apartments and villas segment,” concludes Lyons.
For further information on Espace Real Estate’s world-class services, please visit: https://www.espace.ae/
*Cost of buying vs renting a 3-bedroom villa in The Springs worth AED 2,800,00:
|Cost of buying over 5 years||AED||Cost of renting over 5 years||AED|
|Deposit (20%)||560,000||Deposit (5% one time fee)||9,000|
|Estimated Monthly Payments for 25 years at 4.69%||12,693||Real Estate fee (5% one time fee)||9,000|
|Monthly Installments over 5-year period||761,580||Rent over 5-year period||900,000|
|Interest Paid over 5-year period directly to the Bank||488,116||Ejari fee (AED 220 annually)||1,100|
|Capital paid over 5-year period (money saved)||273,464||Total cost of rent over 5-year period||919,100|