Assessing the investment potential of real estate in Dubai
Photo Credit: Arabian Business

A competent assessment of real estate investments will help you avoid investing in “dead” assets and find the property most suitable for the investor’s specific goals. So, keeping in mind the cost of villas in Dubai and the UAE, it is vital to pay close attention to other things as well.

Investment Goals of Real Estate in Dubai

Before evaluating a particular real estate’s attractiveness, the investor must decide on the purpose of investments. However, the goal is not necessarily direct earnings.

#1. For Personal Use

Even when a property is purchased for personal use, such an operation can be considered an investment. For example, if the owner of a fast-growing company decides to buy office space in Dubai to avoid paying rent, this is an investment.

#2. Profit from the Resale

In this case, the primary (but not necessarily the only) way to earn money is to resell the property at an increased price. It is possible as an option with the purchase of the off-plan real estate in Dubai and the option with the purchase of finished housing based on a long-term plan.

#3. Making a Profit from Renting Out

This is perhaps the most common goal when investing in real estate. Although it does not exclude the possibility of selling the housing at an increased cost, the main focus here is renting out.

Real estate investment appraisal can give different results depending on the investor’s goals. A simple example: a property under construction is not suitable for making money on renting out because it will stand idle for too long during construction and finishing. But hoping for profit through resale, such a property is better suited than others.

What to Consider When Evaluating an Investment

The easiest way to evaluate real estate investments is to calculate the cost-to-expenditure ratio. In the case of resale, this is relatively easy to do. It is necessary to analyze the prices for similar housings offered for sale and then compare them with the estimated cost of acquiring an asset and bringing it to the desired quality (construction, repair, etc.)

If you rent out a property, you need to compare how much income the property will bring annually and how much it will cost to maintain. 

In both cases, the investor may encounter impossible parameters, e.g., you cannot guarantee that a rented apartment will not be idle for several weeks or months a year, and the search for a buyer for a completed real estate may be delayed. Such errors cannot be discounted either.

The investment potential of the property is determined not only by its own characteristics, such as area, number of rooms, or floors, but also by “external” factors. Great attention must be paid to the location of the property. Two identical housing units will be in different demand if one is located in a large shopping complex in the city center, next to the main highway, surrounded by shops and public transport stops, and the second is located on the city’s outskirts.

Consider also the characteristics of different real estate types in Dubai, e.g., the demand for rental housing varies depending on the apartment type. As a rule, one-room apartments, studios, and communal rooms rent out better than 2- or 3-room apartments. Couples with children usually need the latter, and people prefer to acquire such assets rather than rent them. Villas in Dubai are great options for prominent families.

If you plan to rent out the premises, calculate its payback period. If the calculations say the asset will pay off in more than 20 years, it is better to refuse such an investment. This is a good option if the term turns out to be 10-12 years.

When calculating the cost of maintaining the facility, include absolutely all expenses in them, including taxes, minor repairs, replacement of door locks, sockets, etc. The actual costs can significantly exceed the estimated ones without considering such trifles. Experienced property owners advise you to safely multiply the result by two, which will reflect the actual projected costs.

Real estate agency in Dubai

Ax Capital real estate agent will help you purchase real estate in Dubai. The specialists will analyze the market for you and make your investment journey pleasant.

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