Rising property prices have people wondering whether to rent or buy
With the return of confidence to the Dubai property market, an increasing number of people are contemplating the purchase of their first home.
For many, making this commitment can be a daunting prospect, and decision making can get clouded given the significance of the decision and its possible effects on individuals and family lifestyles.
For the uninitiated, there are things to consider such as budgeting and finance, asset type, area, fair market value and timings. The added complication of buying into an appreciating and strengthening market causes many to procrastinate over their ‘rent versus buy’ ‘decision.
So, why buy your first home? Some may re-phrase this question by asking “How do I use my money to increase my wealth instead of the wealth of my landlord?”Buying your. first home is an important step towards establishing your financial security by building your equity or net worth.
Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money, but you are at the mercy of rental inflation as well. This is a problem because you are consistently being asked to pay more while your salary increases are lagging behind, effectively eroding your ability to build wealth.
By owning your home, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for multiple years, will enjoy an inflation driven compounding effect on its value.
There are a number of reasons to buy your first home in Dubai and start building your wealth. The market is benefitting from a bow wave of demand as the broader economy stages a strong recovery. Prices have been growing at around 20% YoY or more; and while concerns regarding asset values have resurfaced, it is important to remember that some areas lost around 60% of their values from the highs of 2008. The recovery has been underway for two years now, and the market is still around 22% shy of the highs reached five years ago. This would suggest the market still has some way to go before a broad-based major correction occurs.
Looking forward, the effect of the 2020 Expo on the UAE economy cannot be underrated. For real estate, hosting the World Expo will provide additional impetus for industry growth. Because of the Expo, the predictable surge in appetite for UAE real estate is sure to have a significant effect on property values.
And it is not just Dubai which is recovering. The global economic recovery is definitely gathering steam bolstered, of course, with ever increasing confidence that the long awaited US economic recovery is well underway.
One side effect of the gradual reduction in quantitative easing in the US has been a strengthening of the US dollar and, therefore, the UAE dirham. This is likely to continue as the program is eventually fully unwound.
For expat investors, the opportunity of a nice currency hedge emerges while local investors will benefit when looking to invest abroad with a strengthened dirham.
Finally, systemic risk has been rapidly declining. The continuously increasing levels of governance, oversight and scrutiny of the industry are significantly decreasing risk, whether perceived or real, associated with buying
into the market.
The ongoing development of the industry’s regulatory framework and-implementation of laws and regulations to safeguard buyer rights and interests, the overall industry and the economy at large from rampant and irresponsible speculative, -predatory or unethical practices, reveals a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term.
The free-for-all days of the past are long gone and investor’ not speculator, confidence has been making a big comeback.