How UK real estate investors lost money in the Dubai market

Anticases and how to avoid them
Part #1
ANTI-Case №1
Area: Jumeirah Village Circle (JVC).
Property Name: DAMAC Ghalia. Developer: DAMAC.
Investment goal : Resale after 3 years with a 70% profit.
Initial Purchase Price for the Client: AED 600,000.
After 3 years post-construction, we purchased this apartment for AED 370,000.

Main Reason for Unsuccessful Investment: Incorrect choice of developer

Despite the project being located in one of Dubai's most investment-attractive areas, Jumeirah Village Circle, choosing the right location is not a guarantee of successful investments. The developer DAMAC is notorious for its low construction quality. The investor failed to do their due diligence on the developer, resulting in unsuccessful investments.

How to Avoid Such Investment Outcomes:
Before making a purchase, it's crucial to thoroughly assess the developer based on the following 5 criteria:

1. Price Statistics - Suitability for the client:
Is the property's cost reasonable, or is it inflated in favor of the agent?

2. Construction Time - Punctuality:
Does the company adhere to set construction timelines? Delays may indicate project management or financial difficulties.

3. Construction Quality - Evaluate the quality of previously built properties:
This includes the quality of materials used, finishing, as well as overall durability and building reliability.

4. Location and Surrounding Infrastructure - Area Placement:
Does the company construct properties in prestigious, sought-after areas or in less popular locations?

Amenities: Is there easy access to schools, shops, transportation hubs, and other infrastructure for comfortable living?

5. Security - Settlement and Eviction Procedures:
How well are they organized, and how secure are they? Security: Are there guarded areas and buildings?
Part #2
ANTI-Case №2
Area: Dubai Sports City.
Property Name: The Spirit Tower.
Developer: The First Group.
Investment goal: Passive rental income of 9% and above.
Price at which the developer sold: AED 1,100,000.
Price at which we purchased for the client: AED 390,000.

Main Reason for Unsuccessful Investment:
Incorrect choice of location. Once a popular area, Dubai Sports City now clearly lags behind in popularity compared to other districts (Dubai Hills, Dubai Creek Harbour, and others). The lack of demand for both rental and purchase has reduced the project's value almost threefold. The agency that sold this property did not realize this and sold a doomed-to-fail asset.

How to Avoid This:
Choose the location for investment wisely. While Dubai is the most profitable real estate market globally, not every property will yield returns for the investor.
Part #3
Assess the area in Dubai based on these 5 criteria:
1. Location:
Consider the proximity of the area to key city points and ease of transportation. Good transport links can significantly enhance an area's attractiveness.

2. Current Property Value:
Analyze if the property's cost in the given area aligns with market standards or if it is inflated.

3. Vacancy Rate and Return on Investment:
Evaluate how quickly properties in different areas are rented out, how long they remain unoccupied, and which areas offer a fast and efficient return on investment.

4. Market Statistics:
Prefer stable areas in terms of property value, those less susceptible to economic crises, like tourist areas, which can guarantee an annual return of 5-7%.

5. Infrastructure:
Areas with developed infrastructure, including public transport accessibility, roads, medical facilities, schools, and shops, hold special appeal. In times of crisis, when the flow of tourists decreases, residential areas equipped with everything necessary for comfortable living become sought after by local residents.
Part #4
2 another tips to make a good investment decision
Take into account Unforeseen Expenses

One mistake that some real estate buyers make is not considering all the expenses before making a purchase.
It is important to include additional expenses in the purchase budget. The standard list of additional expenses includes:

  • Dubai Land Department transfer fee (DLD) - 4% of the property value.
  • Fee for issuing the Title Deed - 500 AED ($136).
  • Fee for insurance during the buying/selling process - 4,200 AED ($1,100).
  • Agent's commission - 2% of the property value for secondary properties.
  • Fee for obtaining a No Objection Certificate (NOC) - 5,000 AED ($1,300).

The list can vary depending on the property and the circumstances of the purchase (such as using a mortgage or not), among other factors.

Additionally, it is important to inquire about the cost of utility services. For example, the electricity bill could be unexpectedly high.

Another expense to consider is the maintenance of the property. The maintenance fee for villas and townhouses is usually small, but for apartments, it can be quite high. Some older complexes may require significant technical maintenance for elevators, air conditioning systems, etc. Therefore, it is necessary to carefully examine what the maintenance fee includes in a specific complex and whether it covers future costs for major repairs.
Part #5
Delve deeper on installment Plans and Mortgages
Developers often offer highly attractive purchase conditions, such as 20/80 or 30/70 payment plans.

However, this is a risky strategy.
A buyer who plans to pay 20% or 30% of the property value as an initial down payment and expects to earn or secure the remaining funds during the construction period or through a mortgage may find themselves in a worse financial situation in 2-3 years or may not obtain a bank loan.

In such cases, the property will need to be sold urgently and most likely at a significant discount. By the way, Dubai's legal system considers debt as a criminal offense rather than an administrative one.
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Kristina Dubanova
Investment real estate advisor