Rent or buy UAE home? Costs, practicality explained

Many residents have finally bought a house or a flat in the country after years of renting — but the question is, should you?

By Sandeep S. Jadwani

Published: Mon 4 Sep 2023, 4:52 PM

Last updated: Mon 23 Oct 2023, 8:30 AM

In the heart of the UAE's bustling cities, amidst the towering skyscrapers and shimmering lights, lies a story of aspiration, achievement, and, perhaps most significantly, emotion. Real estate, as an asset class, has a unique power – the power to offer not just financial stability, but also a deep sense of mental satisfaction.

To truly appreciate the emotional allure of real estate, one must understand its historical context in the UAE. Over the past few decades, this nation has transformed from a desert landscape into a global economic hub. This transformation is not just about bricks and mortar; it's about dreams realized and the quest for a sense of belonging in a dynamic society.

As the skyline evolved, so did the concept of home ownership. Owning property became more than just an investment; it became a symbol of belonging, a place where one could create lasting memories, and a secure space in a constantly changing world.

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If I were to describe real estate in one word, it would be "emotional". It's a realm where financial logic often tangles with personal desires. Buying a primary property is not merely a financial transaction; it's an emotional choice that transcends numbers and charts.

Imagine the feeling of walking into your own home, the scent of fresh paint, the warmth of sunlight streaming through your windows. These are moments of sheer joy, a feeling of accomplishment that money alone can't buy. However, this emotional investment can sometimes lead us down a treacherous path if not managed wisely.

Here's where my experience as an investment advisor comes alive. It's not just about owning a property; it's about owning it responsibly, ensuring that it brings you not only joy but also financial stability. This journey begins with a single word: budgeting.

The costs of owning property in the UAE

Let's talk about the numbers, the nuts and bolts that make home ownership a bit more complex than it may seem at first glance. You see, the UAE's real estate market is dynamic and competitive, which translates to costs. Lots of them.

High property prices: The UAE has seen property prices soar since 2022, which means you need a substantial sum for the downpayment.
Interest rates: Mortgages here often come with higher interest rates, which can significantly add to the overall cost. The interest rates as of August 2023 have been as high as 7.5 per cent per annum.
Downpayments: You'll need a substantial downpayment, which can sometimes be a daunting figure. (25 per cent of the valuation amount)
Brokerage fees: Up to 2 per cent of the deal value brokerage fee is customary, and it's not a minor expense.
Dubai Land Department (DLD) fee: This fee, usually 4 per cent of the property's value, is a must when transferring ownership.
Annual maintenance: Your property won't maintain itself. Plan for at least an average Dh20 per square foot annually for maintenance in case of apartments and Dh6 for villas.
Ad hoc expenses: Repairs and upgrades can be frequent and occasionally hefty.

The art of balance: Don't stretch too thin

But, here's where my passion for this topic truly shines. The ability to own a property is not just about having the initial money; it's about the ability to afford it. Budgeting is the linchpin.

Maintain a stellar credit score: Your credit score matters. It can determine the interest rate you'll get on your mortgage. Keep it stellar.
Set a realistic budget: Before even glancing at properties, understand what you can truly afford without sacrificing your financial well-being.
Emergency fund: Have one. Unexpected expenses can and will happen. Be ready.
Balance liquidity: Don't tie up every dime in your property. You need some savings readily accessible for life's twists and turns.
Long-term vision: Real estate is a patient game. Think long-term. The true benefits often emerge over years, not months.

As I've walked this path myself, I can attest to the immense satisfaction that responsible home ownership can bring. Yes, it's emotional. Yes, it's a financial commitment. But it's also an investment in your future, your family's future, and a tangible piece of your dreams.

Renting: The practical alternative

Now, let's introduce the alternative perspective – renting. Renting offers a range of practical advantages that can make it a compelling choice for many individuals. Here, we'll elaborate on these benefits:

Flexibility: Renting provides unparalleled flexibility. You can adapt your living situation to changing circumstances without the constraints of selling a property. Whether it's moving to a new city, downsizing, or upgrading, renting allows you to make these transitions more smoothly and cost-effectively.
Liquidity: By choosing to rent, you maintain higher liquidity in your financial portfolio. This liquidity can be essential for seizing investment opportunities, handling unexpected expenses, or simply having cash readily available for life's various financial demands.
Risk mitigation: Homeownership comes with numerous financial risks, such as property market fluctuations, maintenance costs, and unexpected repairs. When you rent, these risks are typically shifted to the property owner, offering you peace of mind and financial stability.
Lower entry costs: Renting often requires lower upfront costs compared to buying a property. You don't need to worry about substantial downpayments, mortgage fees, and property transfer expenses.
Diverse investment options: Rather than tying up your capital in a single property, renting allows you to diversify your investments. You can allocate your resources to various investment vehicles, potentially achieving higher returns and reduced exposure to market volatility.
Freedom to pursue other goals: Renting frees you from the responsibilities of property management, allowing you to focus on other financial goals, such as building passive income streams and securing your future.

Aligning your financial journey with purpose

Now, let's discuss the profound importance of aligning your financial journey with your personal objectives. While home ownership is a significant financial milestone for many, it's not the only path to financial security and fulfilment. What truly matters is ensuring financial freedom and creating passive income streams.

I know of people who own several properties, yet choose to reside in a rented apartment. Why? Because the objective is not merely property ownership, but rather financial independence and flexibility. Let me elaborate on this perspective:

Financial freedom: The ultimate goal is not to accumulate properties for the sake of ownership but to achieve financial freedom. Financial freedom means having the resources and flexibility to pursue your passions, explore opportunities, and enjoy life on your terms.
Passive income: Building passive income streams is a key element of financial success. By owning income-generating properties, you can create a reliable source of passive income. This income can support your lifestyle, provide for your future, and offer you the freedom to explore new ventures or interests.
Flexibility and liquidity: My choice to stay in a rented apartment aligns with my objective of flexibility and liquidity. Renting allows to maintain higher liquidity, ensuring there are resources needed to capitalise on investment opportunities, handle emergencies, or explore new ventures when they arise.
Investing for the future: Instead of locking all the capital into property ownership, its prudent to allocate a portion of the income from property rentals to various investments. This strategy provides a more diversified and potentially higher-yield portfolio, increasing the chances of long-term financial security.

Sandeep S. Jadwani, Head of Investment Advisory, Habib Investment Limited. — Supplied photo

The real value lies in purpose

In conclusion, the value of home ownership is not universal; it's deeply personal. What matters most is aligning your financial journey with your purpose and goals. Whether you choose to rent or buy, it should be a decision rooted in your unique circumstances and aspirations.

As you can see, there is no one-size-fits-all answer to the question of buying vs renting. It depends on your personal preferences, goals, and circumstances. The key is to do your research, weigh your options, and make informed decisions that suit your needs and aspirations.

Remember that the road to financial freedom is multifaceted. It involves strategic planning, sound investments, and a clear understanding of your objectives. So, whether you find fulfilment in property ownership or prefer the flexibility of renting, the key is to ensure that your financial path leads to a secure and purpose-driven future.

Sandeep S. Jadwani - ACSI, CIB (Head of Investment Advisory, Habib Investment Limited – Regulated by DFSA) is qualified, experienced and an award-winning financial adviser. Been in the UAE for over 15 years and guiding individuals to efficiently and effectively manage their finances to achieve their financial goals. He believes financial fitness can ultimately lead to mental fitness and physical fitness.

Sandeep S. Jadwani