End-user vs. investor: who should buy Dubai property?

The launch of a whole block of apartments at The Greens this week, which are ready to move into, has brought this argument into focus. Similarly many villa buyers are asking the same question about the Arabian Ranches and other similar projects.

It comes down to this: rents have risen by up to 50% this year. Do you carry on paying a higher rent for a couple of years in the hope that property prices are then cheaper, or buy now?

This is an equation that has to be carefully balanced. Say it takes two or maybe three years for new property to be completed that is significantly cheaper to buy or rent. How much will you have paid out in rent by then?

It could be that even when prices are lower - and markets usually run in cycles and the possible oversupply position in Dubai is well documented - that rentals remain stubbornly high. For one thing inflation in the UAE is not going away anytime soon.

The great thing about buying a place on a mortgage is that you fix your payments at a moment in time - unless interest rates rise or fall. This means that you know pretty much where you stand.

Greenspan retiring

How interest rates will move is anyone's guess but the level of debt in the US suggests that they can not go a lot higher. Indeed, once school of thought is that US rates will continue to rise at 0.25% a month until Alan Greenspan retires at the end of the year and then start to fall.

However, the real issue is how much you will have paid out in rent by the time cheaper apartments become available.

On a one-bedroom Greens apartment costing Dhs650,000 you will have paid out Dhs180,000 in rent in three years' time - would that money not be better spent paying down a mortgage, so that in 10 or 15 years' time you have no accommodation cost to pay?

For an investor this calculation also applies too - but because there is no saving on rental costs the argument is that much weaker. So it could be that the end-user and buy-to-let investor have a different agenda.

On the other hand, a rental yield of 9.2% in The Greens example is presently an attractive one, and even if it proved to be the peak yield suggests that the return over time would be at least acceptable.