Pitfalls to avoid when buying real estate
If you’re interested in buying a property in Dubai, you need to get informed beforehand and make sure you’re familiar with the real estate market. Be alert and informed!
Dubai – a booming real estate market
Dubai represents a real investment opportunity thanks to its booming real estate market.
However, if you choose the wrong property developer, as you would in any country, or if you don’t take all the costs into account when making your calculations, then you could be in for a nasty surprise and regret your investment in this city.
When you decide to make such an investment, you need to be vigilant and well-informed to avoid just this kind of setback.
To make things easier for you, here are a few useful tips on how to avoid the pitfalls when investing in Dubai real estate.
First and foremost, remember that Dubai is a market where you need to invest for the long term.
If you’re aiming for a short-term gain, or thinking of a quick resale of the property you bought off-plan, then this is not the right market for you to invest in.
In fact, it takes between five and ten years to achieve a return on your real estate investment in Dubai.
If you need the funds to finance your children’s school fees or your own retirement, then know that an investment of this type is not for you.
Never buy on a hunch, and take the time to check out the property you’re targeting.
Do your research on the Internet, but also in the field, and don’t hesitate to meet property developers.
If you want to buy a property in a residence that has already been built, go and talk to the residents.
You’ll be able to find out whether they like the residence, whether it’s well maintained, whether its facilities are up to your expectations, and whether there have been any notable incidents or neighborhood problems.
Investigate all opportunities, and if a developer or real estate project catches your eye, don’t hesitate to ask brokers if there are other developments offering comparable advantages in terms of quality of life and price range.
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Check the agency’s reputation and calculate all costs
Before you take the plunge, be sure to check out real estate brokers and developers for yourself. Of course, you should also trust recommendations, but don’t believe everything you’re told. Check the information yourself. Start by making sure the developer you’re targeting is registered with the Real Estate Regulatory Authority (RERA). Since the credit crunch, Dubai has tightened regulations on the real estate market, but like everywhere else, there are always a few smart guys trying to get around the rules.
A common mistake made by foreigners wishing to invest in real estate is not to take into account all the costs involved before deciding to buy. You also need to be clear about your objective: are you buying as an investor or to live in the area? In the latter case, and even in the former, you need to be aware of the costs of maintaining the property, in addition to those incurred by the purchase.
The costs of buying a property in Dubai can represent between 4% and 7% of the listed price. So you can’t afford to dismiss them as insignificant!
Don’t forget to look at the amount of condominium charges if the property is in a residence, but also how much utility bills generally amount to for a similar property. For townhouses, these service charges are generally minimal, but much higher for apartments. If you’re buying off-plan, be sure to check that the estimates provided are similar to those for existing developments. A detail not to be overlooked is that electricity bills in Dubai are quite high, as air conditioning is often necessary and energy-consuming.
Watch your money!
Before investing in Dubai, you need to be sure that you have the necessary funds, and that you’ll never run out later. Indeed, the legal system in the UAE, and therefore in Dubai, considers unpaid debts a crime, and not a civil matter as is the case in our Western countries. Be extremely cautious, therefore, if you take on a commitment for a large sum, and even more so if it involves a mortgage. A peculiarity of the local market is that if you withdraw from an off-plan property purchase, the developer is perfectly entitled to keep a significant percentage of the purchase price of the property as financial compensation. So, if you’ve already paid a deposit for this investment and even milestone payments, then if you change your mind, you could lose a large sum of money without any hope of recovering anything.
Dubai real estate developers are required to have a separate escrow account for each project. Payments made must relate to the completion of the respective real estate project milestones. As this is a legal requirement, it will be easy for you to check with RERA whether your developer is acting within the rules.
If you’ve learned what your service charges are, don’t forget to ask what percentage of these charges is dedicated to the long-term maintenance fund. This information is particularly useful for older programs that require major maintenance work or changes to elevators, air-conditioning systems or paintwork. If this working capital is not sufficiently replenished, owners will have to bear significant costs when such work is carried out. In this way, low service charges are not always a relevant criterion of choice, as such an option may turn out to be a false economy in the future with an insufficient maintenance fund.
Calculate your return on investment and taxes
Any real estate investor will calculate the return on investment before embarking on the purchase of a property. Investing in Dubai is no exception to the rule, and you’ll need to make your own calculations. Make sure that all costs are taken into account in these estimates. If you’re buying to rent out your property and there’s a rent guarantee, make sure you know exactly what rent the tenant will pay. Why should you do this? Because developers sometimes subsidize the rent you’ll receive in the first few years. This increases the property’s yield. However, after this period of “grace”, you may find that the real market rent for your property is much lower. That’s why it’s a good idea to take a look at market rents for a property similar to the one you’re targeting.
Dubai has one undeniable advantage that has made its reputation: “tax-free”. It’s true that there are no income or capital gains taxes for individuals. However, if you don’t move to Dubai to make it your primary residence, you will still be liable for these taxes in your country of residence. So if you want to use the rental income from your property to cover your mortgage payments, you need to check whether it’s possible to declare these costs to reduce your tax liability. So be careful with your calculations and find out before you take the plunge!
Buying real estate is a major investment, and you need to make a well-informed decision, as an error in judgment or calculation can cost you dearly. If you want to invest in Dubai’s real estate market, make sure you know the pitfalls to avoid, check out your partners and, above all, buy the right property at the right price.
