UAE real estate offers best returns on investment

Newer and emerging communities offer higher gross rental yields than more established communities.

Despite the drop in property prices and rentals over the last few years, Dubai and Abu Dhabi offer rental yields more than double of what is offered by the world's major established cities such as London, Paris and New York, according to industry analysts.
Moody's Investors Service expects the UAE residential demand will remain supported by attractive average rental yields ranging between 6 and 7 per cent in the past 12 months.
This is quite attractive compared with other major capital cities such as London, Paris, New York or Hong Kong where average rental yields range between 2 and 3 per cent, the global ratings agency said, quoting Global Property Guide data.
"In the next 12-18 months, we expect prices and rental yields to fall, as a large amount of new supply comes into the market and demand remains soft," said Lahlou Meksaoui, assistant vice-president at Moody's.
Real estate consultancy JLL expects Dubai to see a total of 117,000 units to be completed before the end of 2020, representing 22.5 per cent of existing residential stock. This will put an additional pressure on the prices and rentals in the country.
Real estate marketplace Property Finder also said on Tuesday that the UAE real estate continues to provide some of the highest returns in the world despite the downward trend experienced by prices and rents in 2018.
Apartments in Arjman topped the list in Dubai with 12.4 per cent gross returns while International City improved to 10.1 per cent from 9.2 per cent due to healthy demand from those migrating from other emirates during the second-half of 2018.
These are followed by Dubai Silicon Oasis, Jumeirah Village Triangle, Town Square, Al Barsha, Dubai Investment Park, Green Community, Dubai Sports City and Al Quoz, offering rental returns between 8 and 9 per cent. While Downtown Dubai offers the least return at 4.5 per cent followed by Cultural Village, Mirdif, Old town and Al Sufouh. Data revealed that even the bottom-ranked areas of the emirate offer higher returns than average rental returns of 2-3 per cent offered by major Western cities.
For villas and townhouses, Town Square offers 7.2 per cent rental returns - the highest - followed by Mudon, Reem (Mira), The Springs and Jumeirha Village Circle. While villas in Emirates Hills, Palm Jumeirah and MBR City offer the least rental returns between 2.3 per cent to 3.4 per cent per annum.
"Typically, smaller properties produce better rental yields than larger ones. Apartments are better than villas, and studios are better than larger apartments, for example," said Lukman Hajje, chief commercial officer of Property Finder.
"But also consider location. Newer, emerging communities offer higher gross rental yields than more established communities but often have higher vacancy and lower capital growth potential," Lukman added.
In Abu Dhabi, more affordable communities are outperforming the more expensive ones in terms of rental yields.
Moody's Lahlou Meksaoui expects demand for residential units to grow at a slower pace than upcoming supply in the next 12-18 months.
Meksaoui sees property developers will probably continue to attract demand by extending payment terms, such as post-handover payment plans or paying a proportion of costs such as service charges and Dubai Land Department fees. This will create sales opportunities, particularly for first-time buyers and expatriates attracted by better offers and lower prices.
A recent report by Knight Frank has revealed that Dubai is the 18th least expensive city when it comes to prime real estate prices. The consultancy's data revealed that $1 million can buy 143 square metres of prime space as compared to 16sqm in Monaco, 22sqm in Hong Kong, 31sqm in New York and London and 36sqm in Singapore.
"Of the cities that we forecast, we expect that five - Buenos Aires, Dubai, Hong Kong, Mumbai and Shanghai - will see prices fall this year, two - New York and Singapore - will see prices remain static and that the remainder will see prices rise, albeit modestly," said Liam Bailey, Global Head of Research, Knight Frank.
- waheedabbas@khaleejtimes.com