OK so you have bought a place for yourself in Dubai, and now no longer pay rent to a landlord, and have avoided the 37% average rental hike this year. But should you take this a step forward and decide to become a Dubai landlord yourself?
When you decide to become a landlord you are going into business, and are no longer just a homeowner. This is a big difference, and demands a business-like approach, otherwise you are far better off leaving your money in the bank or having a good holiday or buying that Mercedes you always fancied.
With this caveat – and it is a big one, being in business is not for everyone – then buying rental properties in Dubai still stacks up from a business view, provided that you are long and not short term in your outlook.
Take the idea of buying a one-bedroom flat in The Greens to let out, for example. This will cost around Dhs650,000 and the gross rental would be say Dhs60,000 less Dhs10,000 in service charge.
Thus the net yield is 7.7%, enough to cover the mortgage if you need one.
The upside is that rents go higher and so do capital values. If this year's 37% rental increase was repeated then in 2006 you would have Dhs82,000 in rent, and a 12.6% return on the purchase price.
But there is the potential downside. Rents could fall back and the upcoming supply of property in Dubai might send price rises into reverse.
Now buying property is a long-term investment so what you need to be very careful about is that your financing is not so tight that you can not afford to ride out the rough times.
Property moves in cycles so you can not avoid some bad periods over the time you own a place, but you do have to be absolutely certain that you can survive them – and not have to sell up at the worst possible moment – and thus live to enjoy the equally inevitable upside.
It stands to reason then that if you can find a good letting property in the right location, which offers a yield higher than the debt service charge then over the long term you will win. Moreover, as rentals rise over time, you will be able to use the surplus income to pay down your debt ahead of the mortgage completion.
Nothing quite matches a property as a store of value which earns its own keep. However, in more developed property markets this has become too well known, and yields have fallen to very low levels.
This has not yet happened in Dubai, though it might in the future which is another reason to buy now and not wait until house prices are higher and rental yields much lower.