A prevailing hot subject for many people whether they are relocating or not relocating is that if it’s the time to buy or keep renting. Especially, if you are an expatriate, according to a recent study 30% of your salary goes to be spent on renting accommodation. Most expatriates in their first year of assignment, due to uncertainty, opt for renting right away. Particularly, when ex-pats come to a new country they must settle in somewhere before jumping to a grand calculation of buying a home, or at least they need six months of residing before they can apply for a mortgage in most of the countries around the globe.
There are several factors to consider to make a such decision, some of the factors include market volatility, financial options, and of course the length of the stay in the foreign country. Perhaps the biggest factor to date for evaluating buying vs renting a home is the number of years to commit in the place and the job stability. Committing to paying a mortgage for an extensive period of time with some uncertainty is extremely inconvenient. On the other hand, a low level of effort and flexibility are the main advantages of renting a home instead of purchasing for ownership. Owing to these somewhat obstacles of buying a property, rental demand goes notably higher amongst ex-pats and consequently equation produced as if what is used for the total installment of buying to own a house in Dubai becomes almost as same as renting it for a few years.
In case, where one decides to become an owner of a property, first, down payment which is usually 15%- 25% of the total price has to be cash borne for the buyer not to even include other fees such as commissions and administrative fees. If this cost is easily funded by the buyer, in a long term, good thing is that not only will the buyer become a proud owner but also able to rent it out as soon as the contract is issued- therefore able to generate return of investment immediately.
Now this may sound like a YES to buying a property. Many property experts say “If you can afford it, buy it”, unfortunately, this assertion is quite misleading and doesn’t have to be true all the time especially market is not mature yet. Real estate is a great investment when the market goes up steadily every year or every 5 years – equilibrium line to coup up the costs, provided that other aspects are little. Unfortunately, the market doesn’t continually grow and losses happen if the owner has to sell the house during the down time. It is far greater loss than gaining any profit from the money from just saving in the bank.
Another factor is the flexibility matter when assessing buying vs renting an apartment or a villa. A rental contract is usually for one year what has it been witnessed through past years in Dubai is which there is no sign of contract on most of the leases if someone sublease an apartment. This gives a tenant likelihood of flexibility to change the apartment anytime with any reason to move somewhere else, while, the owner would not find it straight forward to change the locality or the place if they don’t like it.
To calculate and discuss about property payment and what’s underlying with it one must have the first installment 20% percent of the desired house value in cash, plus additional 8% for various fees of handling charges. There is a service charge for the property every year as well for some of properties. When we want to break down the actual payment analysis, we assume the period of Return of Investment as 5 years. With the mortgage of 25 years (as average) and mortgage interest rate is 2.7%. (on average). Let’s say yearly rent is AED 96,000 and total cost of the property is AED 1,100,000 and down payment is 20%= AED 220,000 and tenancy plan of 5 years. While calculated the buying fees, note there is an agent fee (AED23,100), land department fee (AED 44,580), registration trustee fee (AED4,200), mortgage valuation fee (AED3,150), mortgage processing fee (AED4,620), mortgage registration fee (AED 2,200) and knowledge fee (AED 290) all included in the total buying cost. To calculate the cost of renting, we add one-time agent fee and Ejari fee on top of the rental fees. When we do the calculation, total buying cost over 5 years is AED 324,420 and total rental cost equals to AED 486,015, which implies it’s 33% cheaper to buy the property than renting when the tenancy is over 5 years or more.
If one wants to buy his own property, he might have to apply for a mortgage unless he wants to pay the whole amount in cash. When it comes to the down payment of purchasing a property the maximum LTV (loan to value ratio) for expats is 75% as per UAE Central Bank Guidelines, if property’s value is under AED 5Mil. and it’s their first mortgage. If the value is higher than AED 5 Mil. LTV could go down to 65%. Then, expats need to pay an interest on the loan amount, also, there is some service charge paid to the management of the building. Not to mention that, there is still small costs for maintaining the property to fix damages if there is any.
There could be a number of other reasons affecting the decision to buy over renting, or vice versa, based on nature and circumstances only the buyer will decide what is better to do. In the Dubai context, the rules and regulations are almost changing every day, Dubai residency policy is shifting to the favor of expats. Many are on the fence while comparing buying vs renting in Dubai, home prices hit the low in 2021, which implies now is very much the time. Nevertheless, uncertainty and lack of information could arise a drawback, therefore, always consult this through with licensed professionals in the field.
If you are looking for a home in Dubai, regardless of where you land on the rent vs buy decision, TEXTURE is happy to give you a professional consultation. Call us at Toll-Free 800-TEXTURE or drop a WhatsApp message at: +971-50-8091186.