Sunday, May 10, 2015

With the overall cost of living on the rise, the majority of income earners find the cash purchase of a villa or an apartment a challenge and an even bigger ask for potential homeowners in the lower income bracket.  The most common solution is financing a home just as many financed a car through monthly payments.

With many mortgage interest or banking fees on the high side some cash buyers prefer the payment mode by choice thereby saving on associated lending fees, all of which is leading to the process, purchasing a home with cash, being more common in Dubai particularly with properties purchased for the longer term. 

However, there is a new survey out on the market that states 54% of Emiratis pay by cash or by cheque in the purchase of a new apartment or villa while the percentage of expatriates who choose this route is much lower because, in these cases, access to the full cash amount is not feasible.  Percentages include 27% for Westerners, 37% for Arabs and 39% for Asians who choose the cash or cheque payment mode.

All in all indicators point towards investors demonstrating confidence in the Dubai property sales market with YouGov stating that 3/4s of property buyers are purchasing for their first time, based on a study conducted by the organisation.  And many BetterHomes’ sales agents have experienced a high number of foreign buyers making their first UAE property purchases using the finance route.  The survey also stated that the general trend was for investors in UAE property to be mature buyers (over 50 years old for 8 in 10 of them) and for location to be considered an important decision maker with a greater preference for locations near a beach, a public park, a mosque or a shopping area (stated by 51% of the 308 participants).

Most financial planners will advise that the investor route is only advisable assuming the buyer has ample funds available for emergencies rather than investing all savings on the property purchase; and that it may be wise to consider spending some of the available funds on alternative investments that offer higher returns. 

One financial planner at deVere Acuma said, “There are financial benefits to gain from using leverage to finance the purchase of a property.  A serious investor will know that greater returns are available from leveraging and also owning multiple rented properties helps with diversification. If one unit is empty, the income from the others helps offset the finance cost. If we used London between 2003 and 2013 as an example, the annualised profit from a leveraged property is almost three times that of a property purchased in cash (11 per cent per annum versus 4.1 per cent). There can be tax benefits particularly for expats to leverage including financial planning opportunities to mitigate Inheritance Tax; not so much an issue for an Emirati unless they wish to have a greater choice in succession planning.”

With an improvement in construction quality from developers and more flexibility of payment plans for potential investors, demand for Dubai property investment continues to remain stable.  In addition, government property regulations additionally boost market confidence, particularly the removal of the 5% cap on rental increases which has raised income and ROI making investing a solid alternative to renting.

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