How to analyse the ROI of a property in Abu Dhabi

• What is Return on Investment (ROI)
• Factors to Keep in Mind for ROI
• How to Calculate ROI
• FAQs

The UAE’s capital offers an enticing prospect for investors who seek stable investment opportunities, particularly in the property sector. Several real estate development projects in the capital are worth investing in as they provide promising returns. But how do we analyse the return on investment (ROI) of a property in Abu Dhabi? In this guide, we’ll discuss the various considerations that help effectively assess the profitability potential of a real estate investment in the capital city.

What is Return on Investment ROI?

Ever wondered if buying a property in Abu Dhabi is a good investment? A key factor to consider is the Return on Investment (ROI). It shows how much profit you make on your investment compared to the initial cost. In real estate, it essentially measures how much money you get back from a property relative to your initial capital.

Let’s look at the formula that can help analyse ROI of a property in Abu Dhabi:

ROI = (Annual Rental Income + Appreciation Value) / Total Investment Cost x 100%

In the aforementioned formula, there are three main factors to consider that include:

Annual Rental Income

It comprises the annual income you can get through regular rent. Rental income plays a major role in determining your property’s ROI in Abu Dhabi.

To get a better understanding of your rental income, conduct a Comparative Market Analysis (CMA). It includes comparing your property to similar properties in the locality.

Nearby property analysis will give you valuable insights into how your purchased property stacks up in terms of price, rental income and price appreciation.

Another important factor to consider when analysing ROI is the occupancy rate. A higher occupancy rate translates to more consistent rental income. However, don’t forget to account for seasonal variations.

Some periods may see higher demand and rental rates, while others might experience dips. By understanding these seasonal trends, you can better plan your rental strategy, optimise your income throughout the year and learn how to analyse ROI of a property in Abu Dhabi.

Appreciation Value

This part of the formula includes the increase in the property’s market value over time.

Total Investment Cost

This entails the initial purchase price, renovation costs, agent commissions, closing fees and other charges incurred when purchasing the property.

How to Calculate the ROI of a Property in Abu Dhabi?

Let’s use the aforementioned ROI formula in an example to get a better idea of the ROI for buying a property in Abu Dhabi:

If you buy an apartment in Abu Dhabi for AED 1,000,000. You spend an additional AED 50,000 on renovations and the closing fees come to AED 20,000, bringing your total initial investment cost to AED 1,070,000.

If you rent out the apartment for AED 60,000 per year and after five years, the property value increases to AED 1,200,000, then the ROI would be:

ROI = ((AED 60,000/year x 5 years) + (AED 1,200,000 – AED 1,000,000)) / AED 1,070,000 x 100%

ROI = (AED 300,000 + AED 200,000) / AED 1,070,000 x 100% = 46.73%

In this example, your ROI over five years is 46.73%. So, for every AED 1 you invested, you got back AED 1.46 in rental income and property value appreciation.

Factors to Consider when Analysing ROI for Property in Abu Dhabi

The success of your investment in any Abu Dhabi property hinges on several essential factors. Here’s a breakdown of the most important aspects to consider when evaluating potential ROI for your property:

Location of the Property

One of the first aspects to keep in mind is to look for a property in some of the most popular areas to invest in Abu Dhabi real estate. Prime locations are Al Raha Gardens, Yas Island, Al Reem Island and Saadiyat Island.

These localities offer a luxurious lifestyle with impressive amenities like private pools, access to the beach, sustainable construction and much more. These areas also offer good rental yields for a variety of properties, including apartments, villas, townhouses and penthouses.

Alternatively, areas like Khalifa City, Al Khalidiyah, Al Muroor and Hamdan Street are some of the most popular areas to rent affordable apartments as per the latest Bayut’s Abu Dhabi Rental Market Report 2023.

As these areas offer competitive rents and are in constant demand, investing in them will give you an impressive returns in the long run.

Keep an Eye on the Market Trends

Understanding market trends is vital when determining the ROI of a property in Abu Dhabi. An oversupply of new developments can drive down rental yields and property values. Conversely, high-demand areas near business districts, schools and public transport might offer better ROI on your investment.

Condition of the Property

When determining the ROI for property investment in Abu Dhabi it’s crucial to consider the property type and its condition. Newer properties tend to have a higher price but are brand new and may require minimal or no repairs.

Another benefit is that new developments might offer higher rent than older properties. Renovation and maintenance costs may be higher for old apartments or villas and can negatively impact ROI upfront.

FAQs

Is property in Abu Dhabi a good investment?

Buying a property in Abu Dhabi can be a good investment if it is carefully planned. There is a lot to consider before you decide to buy real estate, make sure to seek professional guidance before the purchase.

What is the ROI in Abu Dhabi real estate?

There are several properties for sale in Abu Dhabi and the ROI varies depending on the area, property type and other factors. As per the Bayut’s Abu Dhabi Sales Market Report 2023, the ROI for areas that offer affordable apartments for sale was:

The report also contains ROIs of affordable villas, luxury homes and apartments in various areas.

This concludes our guide to analysing the return on investment of a property in Abu Dhabi. We’ve discussed the formula for calculation and other factors to consider before investing. Explore some of the most popular areas to buy properties in Abu Dhabi. Or consider investing in off-plan projects in Abu Dhabi for cheaper investment options. Investors can also compare and evaluate ROI for properties in Dubai vs. Abu Dhabi and determine which offer more value for money.