Buying Property In Dubai - How Much Should You Save?

Dubai’s property market is experiencing significant growth, making it an attractive option for buyers, but careful financial assessment and consideration of associated costs are crucial before making a purchase.

Mike Coady, Chief Executive Officer at Skybound Wealth Management– the award-winning financial advisory firm with offices in Dubai, Geneva Miami and London spoke to Arabianbusiness.com recently to discuss the state of play in the real estate market and key considerations for investors looking at buying property in Dubai.

With its recent removal from the FATF Grey List, tax-free incentives, and the promise of substantial returns on property investments, Dubai has been attracting property investors from around the world.

In the first quarter of 2024, Dubai shattered records with over 34,000 transactions recorded by the Dubai Land Department (DLD), a 20 percent increase compared to the same period in 2023, cementing Q1 2024 as the most active quarter on record for the emirate’s property sector.

Yet, the question persists – Should you buy property in Dubai?

The short answer from experts is normally yes. But, it’s important to build your savings first.

Are You Financially Ready To Buy A Property In Dubai?

The minimum deposit for buying property is controlled by the UAE Central Bank and depends on the borrower’s “status” as well as the property’s value. Typically, a larger down payment provides a wider range of lenders to choose from and often grants access to favourable interest rates. It also results in lower monthly repayment amounts.

Depending on when you are planning to purchase a property in Dubai will influence your investment strategy.  

Skybound Wealth Management's Mike Coady says:

“If you foresee a property purchase in the near term, retain savings in a high interest savings account where you have the benefit of a return over and above inflation plus instant access.  

If you have a time horizon of many years, then consider alternative assets such as equities and ETFs for potentially superior returns.  

If you are saving towards a deposit, ensure you set a goal and calculate the savings required each month to build up the deposit required.

A good financial adviser can help you with this and take into account, currency, growth rates, inflation and the changes in property prices over that time.”

Coady recommends evaluating the stability of your long-term income and assessing the possibility of future expenses stating it’s best to ‘review the broader perspective in terms of long-term financial planning, including retirement, upcoming education costs, and significant life events.’

Also adding: “Property ownership should always be integrated into your overall strategy, aligning with other aspects of financial planning. Naturally, considering your potential time horizon in the UAE is a crucial factor to consider.”

What Are The Advantages Of Buying Property In Dubai?

There are many financial advantages to owning property in Dubai, according to Coady, some of which include “potential capital appreciation, rental yields that are higher than many other global markets, and the absence of property taxes. The UAE’s strategic location and its growing economy also enhances the investment appeal significantly.”

He added that since property taxes are not imposed, there is notable “financial benefit.”

However, he said that it is important to be mindful of service charges applicable to community developments.

“If you sell the property in the future as a resident of a country that has local income and/or gains taxes you will likely pay the tax on the full increase since you purchased the property.”

Property buyers must, however, assess current finances before making the decision, as Coady explains:

“Ensure you have enough for the down payment, closing costs, and an emergency fund without jeopardising your financial stability,”

He adds: “Credit scores can be improved through regular bill and loan payments, reduction of outstanding short term debt debts, avoiding new debt commitments, and checking credit report for errors. Maintaining a long history of responsible credit use will improve your score.”

Lifestyle considerations also play “a huge part” in the success of a property purchase

“When looking to buy you need to first identify if you are purchasing to live in or as a rental. This would then impact the type of property you purchase such as an apartment in the city or a villa in the outskirts. Local amenities will also help the value of the property over the long term. Does it have a good school nearby, shopping and amenities within the community area? Easy transportation and time to work are all important points to consider,” Coady said.

Budgeting Costs For Buying Dubai property

According to Coady, home buyers must aim to save at least 25 percent of the property value for a down payment.

“For ongoing mortgage payments, a common rule is the 28/36 rule, where no more than 28 percent of your gross monthly income should go towards housing expenses and no more than 36 percent towards total debt servicing. It is also important to set aside funds for annual maintenance, possible repairs, community service fees, and insurance. A rule of thumb is to budget 1 to 2 percent of your property’s value each year for maintenance and unexpected repairs.”

Challenges Of Owning Property In Dubai

Other challenges include maintenance costs and external maintenance of communal areas which could detract from the property’s value.

According to Coady, risks include property value fluctuations, changes in rental yields, and potential tenant vacancies if you’re an investor.

“Minimise these by choosing properties in desirable and up and coming locations, understanding market trends, and setting aside financial buffers for unexpected downturns. Market timing also plays an important part as buyers can benefit from anticipating and understanding market cycles. You should also take into consideration broader economic factors such as interest rates, economic growth, etc. which can affect property values and again, using these windows would make an ideal time for purchasing,” he said.

Regarding Alternatives To Buying Property In Dubai, Coady Said:

“Alternatives include investing in real estate in another country, real estate investment trusts (REITs), stock market funds and ETFs, or starting a business. Each has its own risk profile and time horizon, so choose based on your financial goals and risk tolerance.

Talk To Skybound Wealth Management

The foundations of which a strong investment portfolio is built upon should be diverse and balanced. And property is just one of many asset classes to consider. If you are considering buying property in Dubai, Skybound Wealth Management's panel of experts are on hand to ensure you make the most of every opportunity.