Should you rent or buy property in Dubai?
Dubai is a prime destination for those seeking a cosmopolitan lifestyle. As the city’s real estate market continues to evolve, the age-old question of whether to rent or buy a house in Dubai has become crucial. Many factors, including personal preferences and financial circumstances, influence the decision between renting and buying. So, should you buy or rent property in Dubai? Let’s find out.
THE ALLURE OF DUBAI’S REAL ESTATE MARKET
Dubai’s real estate market has experienced exponential growth in recent years, transforming the emirate into a global hub for residential properties.
The introduction of the Freehold Decree in 2002 marked a significant turning point, as it opened the door for foreigners to buy homes in Dubai’s designated freehold areas.
Since ‘buy or rent in Dubai’ is a commonly asked question, we shall break down the numbers in each choice. So you can better understand whether to rent or buy property in Dubai.
BUY OR RENT PROPERTY IN DUBAI: FACTORS TO CONSIDER
Whether you want to rent or buy property in Dubai, here’s what you need to consider.
- Financial Aspects:
- When deciding whether to rent or buy an apartment in Dubai, carefully consider your personal and financial goals.
- Evaluate your budget, down payment capabilities and the long-term financial implications of each option.
- Factor in upfront costs, monthly expenses and the potential for appreciation or depreciation in property values.
- If you are buying a property with an aim to attain profit in the short to medium term, you must consider the cost of selling a property in Dubai.
- Lifestyle and Preferences:
- Assess your lifestyle, priorities and long-term plans.
- If you value flexibility and are still determining your future in Dubai, renting may be the most suitable.
- Buying a property may be better if you seek long-term housing and stability.
- Market Conditions:
- Stay informed about the current state of the Dubai real estate market, including Dubai Rental Transaction Trends, property prices and Dubai Sales Market Trends.
- Mortgage Eligibility:
- Understand the mortgage requirements and criteria for expats in Dubai.
- Maintenance and Responsibilities:
- Consider the maintenance and responsibilities associated with each option.
- Renting typically transfers the burden of property upkeep to the landlord, while buying a property requires the homeowner to manage maintenance and repairs.
By carefully weighing these factors, you can make an informed decision to buy or rent property in Dubai that aligns with your personal and financial goals. Freehold ownership law in Dubai is one of the biggest factors determining whether you should rent or buy property in Dubai.
- 3 BEDS
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- 3 BATHS
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- 1450 SQFT
- 1 BED
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- 2 BATHS
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- 651 SQFT
- 2 BEDS
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- 2 BATHS
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- 1163 SQFT
- 1 BED
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- 848 SQFT
- 2 BEDS
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- 3 BATHS
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- 1136 SQFT
HOW ARE YOU (REALLY) DOING FINANCIALLY?
Considering the cost of buying a house in Dubai is crucial. If you can make the 20% down payment and afford the monthly installments, then you can purchase a property in Dubai.
Since a property down payment is a huge upfront amount, here’s a guide on how to save for a down payment in Dubai to help you out.
On some level, financial stability comes into play when renting a property in Dubai. But if you are making monthly rent payments anyway, why not pay towards owning your home? At the end of 5, 10, or even 25 years, you will be a property owner in the UAE with long-term perks.
Even if you don’t live in the property, you can rent it out and use the income to cover the mortgage. You’ll still own an investment property in Dubai, which is great!
Expats interested in making real estate investments in Dubai can read more about the new rules for foreigners buying property in the UAE.
RENTING VERSUS BUYING: WEIGHING THE PROS AND CONS
To decide between renting and buying in Dubai, there is no one-size-fits-all solution. Each option has advantages and disadvantages; the choice ultimately depends on your circumstances and priorities.
- Renting may be the more attractive option for those prioritising flexibility and lower upfront costs.
- It allows for easier relocation, eliminates the burden of property maintenance, and protects against market fluctuations.
- The long-term financial implications of renting should be carefully considered, as the cumulative rental payments over time may exceed the cost of owning a property.
On the other hand, buying a property in Dubai can offer stability and the potential for long-term financial benefits.
- Homeownership provides the opportunity to build equity, which can be leveraged for future investments or loans.
- Additionally, the fixed nature of mortgage payments can offer a degree of financial predictability, unlike the annual rental hikes common in the Dubai market.
RENTING VS OWNING PROPERTY IN DUBAI: WHO CONTROLS WHAT?
Owning a property in Dubai gives you greater control over modifications and customisation in your home. In comparison, even the most minor changes may require an NOC from your landlord when renting a property.
Remember that additional control over the property as its owner comes with costs. Landlords typically pay an annual maintenance fee and service charges and are liable to finance any repairs or modifications. The extent of your financial liability towards the property also depends on whether it’s on a 99-year lease or on a freehold basis. Here’s everything you need to know about choosing between leasehold or freehold property in Dubai.
DO YOUR RESEARCH AND FIND A GOOD AGENT!
It would be best to find a real estate agent you are comfortable with, an expert in the area or the property type you are considering and whom you can trust to point you in the right direction. For new buyers, the agent or brokerage firm is often the sole source of information to pilot their first property investment deal. So, ensure you find the perfect agency and agent to work with.
THE MATH OF RENTING VS OWNING DUBAI PROPERTIES
To tell you the truth, buying a property is relatively cheaper than renting in Dubai.
Let’s look at an actual example.
The average price of 1-bedroom apartments for sale in Dubai Marina is AED 1.58M. On the other hand, a 1-bedroom apartment for rent in Dubai Marina is available for AED 110k per annum.
Upfront costs for buying a 1-bedroom apartment in Dubai Marina
What will it cost you to buy a 1-bed Dubai Marina apartment instead of renting it over a period of five years?
Here is how you can calculate the total upfront costs of a 1-bed flat for sale in Dubai Marina costing AED 1,581,000:
Required Payments | Associated Costs in AED |
|---|---|
Required Payments Down Payment (20%) | Associated Costs in AED 316,200 |
Required Payments Dubai Land Department Fee (4% of the property value + 580 AED admin fee) | Associated Costs in AED 63,820 |
Required Payments Real Estate Agent Fee (2% of Property Value + 5% VAT) | Associated Costs in AED 33,201 |
Required Payments Property Valuation fee (varies + 5% VAT) | Associated Costs in AED 2,500 |
Required Payments Mortgage Registration Fee – 0.25% + 290 | Associated Costs in AED 4,242.50 |
Required Payments Property Registration Fee | Associated Costs in AED 4,200 |
Required Payments Loan Establishment Fee (1%)* | Associated Costs in AED 15,810 |
Total upfront costs: AED 439,973.50.
*Disclaimer: Buyers must keep in mind that the loan establishment fee varies from bank to bank
How much will it cost to buy a 1-bed apartment in Dubai Marina over five years?
With the upfront cost sorted, let’s consider how much buyers can expect to pay for a 1-BHK apartment in Dubai Marina over five years.
The costs below are based on the RERA service charges for Marina Diamond 1 in Dubai Marina.
Required Payments | Associated Costs in AED |
|---|---|
Required Payments Mortgage Value (80%) | Associated Costs in AED 1,264,800 |
Required Payments EMI – 25 years tenure at 4.8% | Associated Costs in AED 7,247 |
Required Payments Total EMI over five years | Associated Costs in AED 434,820 |
Required Payments Annual RERA service charge for five years* | Associated Costs in AED 67,490 |
Total cost of buying over five years: AED 502,310
Please note:
- The calculations above are based on a standard fixed mortgage interest rate of 4.8%. This will vary from bank to bank.
- The average covered area of the 1-bed apartment in Dubai Marina used in the calculation is 850 sq. ft.
- RERA Service Charge Index 2024 for Marina Diamond 1 in Dubai Marina is AED 15.88 per sq. ft.
Are you considering paying for a property in cash? A look into the ins and outs of buying a property with cash vs mortgage can give you a better idea of your options.
How much will it cost to rent a 1-bedroom apartment in Dubai Marina over five years?
As mentioned, the average cost to rent a 1-bed flat in Dubai Marina is AED 110k. Based on this annual cost, here is how much a tenant can expect to pay in rent in five years:
Required Payments | Associated Costs in AED |
|---|---|
Required Payments Annual Rent | Associated Costs in AED 110,000 |
Required Payments Rent over five years | Associated Costs in AED 550,000 |
Required Payments Real Estate Broker Fee (5% one time fee) | Associated Costs in AED 5,500 |
Required Payments Annual Ejari Registration Fee + VAT (AED 226 for five years) | Associated Costs in AED 1,129 |
Total cost of renting over five years: AED 556,629
This calculation is based on the assumption that the rent remains constant throughout the 5-year period. However, this is not how the market works. In reality, tenants can expect anywhere between a 10% to 20% increment in rent on an annual basis. So, what you end up paying might actually be much higher than the calculated figure above.
The important thing is, that at the end of these five years the money gone towards rent is lost forever. On the flip side, the EMIs you put towards your property are helping you get closer to becoming a homeowner – a relatively good income source to secure your future.
Key Costs to Remember
Down Payment
This is the initial payment you make to purchase your property. It is part of the total amount you owe the bank (in case of a mortgage) or developer (when buying off-plan).
According to the UAE Central Bank, the down payment you make against a property in the UAE must be at least 20% of the value for foreign investors and 15% for UAE nationals (first-time buyers). Personal loans cannot be used to finance down payments for property investments in the UAE.
Getting a mortgage can confuse those unfamiliar with the process. Check out our Dubai mortgage guide for everything you need to know.
Mortgage Repayments (EMI)
These are the monthly instalments you pay towards the rest of your property loan amount (excluding down payment).
In the UAE, the loan-to-value (LTV) ratio or mortgage amount is capped at 80% for a property valued less than AED 5M and 70% for real estate valued more than AED 5M.
Your mortgage EMIs will include payment against 80% or 70% of the property value, plus interest.
Upfront Costs for property investment in Dubai
Apart from the down payment, several costs and fees are incurred before you purchase the property. These are significant costs and a potential property investor can expect to pay about 6% – 7% of the property price in upfront costs.
However, as opposed to the down payment, these can be financed through a personal loan. Some upfront costs that you may incur include:
- Real Estate Broker Fee: 2% of property value + 5% VAT
- Dubai Land Department (DLD) Transfer Fee: 4% of property value + administrative charges (AED 580)
- Mortgage Registration Fee: 0.25% of loan value + administrative charges
- Property Registration Fee: From AED 4,000 for properties over AED 500,000 + 5% VAT
- Property Valuation Fee: AED 2,500-AED 3,000 + 5% VAT
- Bank Mortgage Loan Establishment Fee: 1% of loan amount + 5% VAT
Annual Maintenance Charges
This is a recurring charge payable by landlords to DLD as maintenance fees. The annual maintenance charges are based on the RERA Service Charge Index, which gives a specific charge per sq. ft. of the property and varies for different communities in Dubai. Maintenance charges vary across different emirates as well.
FREQUENTLY ASKED QUESTIONS
WHAT IS THE COST OF BUYING A VILLA IN DUBAI?
Villas for sale in Dubai are available in different price ranges based on their size and location. You can buy a villa in Dubai for as low as AED 600k.
DOES DUBAI HAVE RENT-TO-OWN PROPERTIES?
You can find properties on a rent-to-own scheme in the UAE, particularly in Dubai. Some areas that provide rent-to-own property schemes in Dubai include Dubai South, Business Bay and Al Furjan.
We hope this gives you some perspective on whether to buy or rent property in Dubai. If you decide to plunge into property ownership, know more about buying property in Dubai.
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