Why middle class families should buy in Dubai

Consider the wealth impact on a middle class executive who works in Dubai for the next 10 years and decides not to buy.

If they are industrious and save hard then after 10 years quite a sizeable sum should have accumulated in a deposit account or mutual fund. But at the same time the same individual will probably have paid out even more in rental payments, a huge outlay of money that can never be recaptured.

Now if this person had chosen to buy a home then mortgage repayments would have been made instead of rent and quite a large part of the debt would have been repaid. Also the chances are that after 10 years, inflation would have eroded the mortgage payment as a percentage of monthly income, and the real value of the debt would be significantly lower in comparison to salary.

Discount to rental cost

Plus after 10 years the cost of paying the mortgage would be significantly lower as a percentage of salary than comparable rents which will have been adjusted upwards for inflation.

Moreover, in developing markets house prices have generally doubled over 10 year periods and sometimes done much better than that and very seldom fallen. So the person who buys is likely to have a substantial capital bonus from house price inflation after a decade of ownership.

Home ownership is not for everybody, however, and needs to be carefully considered and finely calculated.

In particularly, those buying with a mortgage should spend a good deal of time investigating the mortgage market for the best deal for their circumstances. Even a 0.5% different in your cost of finance will make a significant difference over a decade to your total return.

Job security

You should also consider your job security and prospects. Can you quickly find another position at the same salary if your company makes you redundant? Always leave a margin of safety in your calculations. Going for the biggest home may mean that you lose some sleep over the size of the debt. Is it worth it?

Have a think what it would mean if the Dubai market underwent a correction. In real estate the rule in most cities is that you make money in the long run provided that you never have to be a forced seller at the wrong time.

Just do not put yourself in that position and you should be able to turn your current rental payments into a substantial capital sum in a decade or less. Dubai real estate is not expensive to buy while rents certainly are, and that is an opportunity for the financially savvy.

See also:
Dubai property: Average price index
LloydsTSB offers US dollar mortgages on Dubai property
UAE home loan rates