If you are planning to stay long in the UAE, now is the perfect time to invest in buying a property for the future.
We know, it’s a bold statement to make in the title of this article, but hear us out. Are you honestly telling us that with Dubai Expo 2020 on the horizon and the exciting new community developments nearing completion you aren’t the least bit curious about buying a property right now? Thought so.
It’s impossible to ignore the enticing buzz around the housing market at the moment; off-plan sales are taking up a large volume of residential sales, new government initiatives have been introduced to ease purchasing headaches and house prices are becoming more affordable in key areas.
While renting was often considered the ‘safe option’ for expats, this mentality is starting to shift, as they look to find and secure the right investment for the long-term instead. Naturally, buying a home to call their own is an attractive prospect in this sense, but the gap between thinking about purchasing and actually following through is where many prospective buyers tend to drop off. We get it – there’s fear in the unknown, but the buoyant mood surrounding the housing market combined with the low property prices and flexible finance options all stack up in favor of making a move.
For those who have yet to make up their minds, here’s our take on why you should consider buying over renting…
PROPERTY BUYING 101: Why Buy Now
Let’s consider a few different scenarios to give some context. Given the extremely high proportion of expats in the UAE, many people’s decision to consider buying hinges around one key question: ‘How long do I think I will stay here? Now, if you decide that 10 years seems like a reasonable period of time, there are two ways to look at your living options while you reside in this tax-free, sunshine-drenched haven that we all call home.
For the purpose of this example, both the renter and the buyer have the same amount in their account, to begin with.
Scenario A: The Renter You continue to rent for the next 10 years at 6K AED per month, whilst being a good little saver and putting 4K AED away into your savings account that offers a 1% per annum rate. You have a 350K AED in savings already, but you like the fact that it is available whenever you need it. You haven’t quite got around to setting up a pension but you don’t worry about that as approximately 64% of expats haven’t either.
Scenario B: The Buyer You decide to take the plunge and you purchase a property for 1 Million AED on a 10-year mortgage with 3.5% interest. You pay a 25% deposit of 250K AED and you spend a further 80K AED on all the associated fees required to purchase a home. Your mortgage costs just under 7.5K AED per month and you decide to put 2.5K AED into savings with the same 1% interest rate as in Scenario A.
Both of these scenarios are purely hypothetical in terms of figures, but you’ll notice we have made the monthly outlay for both situations the same. So, with this in mind, what will be the state of affairs after 10 years?
Scenario A: The Renter After 10 Years… You had 350K AED in your account and you saved a further 4K AED per month for 120 months. You now have a savings balance of 830K AED, before you add in the total interest accumulated on this sum, leaving you with approx. 891K AED overall. Of course, this assumes that you rigidly stuck to your savings and didn’t dip into it when there was the odd unforeseen expense – an extortionate brunch for example.
Scenario B: The Buyer After 10 Years… You had 20K AED left in your account after purchasing your property and you diligently paid in 2K AED per month into your savings meaning your account balance after 10 years would be 320K AED. The total interest accumulated on the sum would be 338K AED. During this period you have also paid off your mortgage and that 1 Million AED property is now 100% yours.
OK, so if you take things at face value, you have a higher stockpile of cash saved if you continued to rent plus you got the freedom of living in your own place that whole time. However, if you choose to buy a property, you may have less money in savings, but you also now own a 1 Million AED asset whether you choose to sell or rent it out down the line. Either way, you are better off when you look at things over a longer period.
Even if you are looking to leave the UAE before your mortgage is paid off, buying well now can ensure a good rental yield in the future, putting you in the somewhat luxurious position of letting someone else pay off your capital. Throw into the mix that you have invested in one of the most visited countries in the world and you could consider your property a decent nest egg for the future.
We’re not here to knock the rental community down. After all, you have to do what makes the most sense for you, but it’s worth taking a closer look at how your biggest monthly outlay is going to line someone else’s pockets. 10 years down the line it may have offered you comfort, but financial security? Not so much. In the end, it comes down to whether you are ready financially and emotionally to make such a commitment, but as you weigh up the pros and cons, ultimately you need to ask: Why rent if you can buy?