Buy, don’t rent!

We are all aware of the huge number of new jobs, estimated at around 277,000 that the Expo is expected to create. Therefore, it is fair to assume that there is going to be a steady stream of expats looking for places to live.

So, if you have recently landed in Dubai with a view to making it your home, you are the latest in a long line of expats who have come to the Emirate with a view to setting up an improved lifestyle for themselves and, where applicable, their families.

Dubai has a lot of attractions in addition to the lure of promising business and lucrative employment opportunities … beaches, restaurants, shopping, outdoor activities … even snow skiing! Dubai boasts a modern infrastructure and is regarded by many as one of the safest places for families to live in the world.  In addition, being located advantageously for excursions to Europe, Asia and the African continent, it’s not hard to see why expats are intrigued as to what Dubai has to offer.

And as the Emirate has grown and matured, the average tenure of expats living in the emirate has been on the increase. This is due to a number of reasons however principal among them is the recognition by employers that 3 year employee tenures are inefficient and the recognition by expats that Dubai, when compared to many other places in the world, is actually a very good place to live.

With so many expats now considering living in Dubai for longer, an increasing number are contemplating purchasing a home instead of renting. For many, making this commitment can be a daunting prospect. There are many considerations such as budgeting and finance, asset type, area, fair values and timings to mention just a few.  The added complication of living in a relatively new country and buying into an appreciating and strengthening market causes many to procrastinate over their Rent versus Buy decision.

So, as an expat, why buy your home instead of renting it? 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 home is a positive step towards establishing your financial security by building your equity or “net worth”. Owning property allows you to change the application of your hard earned dirhams from covering an expense which offers you no financial return to investing in an asset which does. In a way, it’s a forced form of saving which will reap benefits for you in the future.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money for no financial gain, 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. This allows you to build your individual net worth through capital appreciation of your property, something which is very important for your financial future.

The fundamentals of buying Real Estate in Dubai are no different from those elsewhere in the world. As an expat in a new country, you may be even more anxious regarding the decision to buy which is all the more reason to stick to some tried and true principles.

First of all, you need to be very clear as to why you are investing in Real Estate. Whether it’s to provide the family with a home, generate a steady stream of income or build equity for the future, make sure you are very clear about what your expectations are and quantify them wherever possible. Plan for the long term as the industry is cyclical yet very rewarding if you ride out one or two cycles.

You also need to ensure that you know what you can afford. If you have the cash to pay for the property that you really want, I suggest you pay for it outright however don’t be afraid to take out a mortgage and make the purchase as at least your repayments are building equity, not being lost forever on rent.

Then it’s time to contact a reputable Real Estate Brokerage to assist you in finding the right property. As always, stick to the basics. Think carefully about location, quality of the building, developer reputation, completion status and quality of infrastructure and building amenities. Properties which are close to the beach (especially with a sea view), a golf course view or part of an iconic development such as Downtown is a good place to start. If you can also have close access to the metro, even better. These locations are more likely to provide a superior appreciation in capital value as well as riding out cyclical volatility with less distress.

If buying an apartment, you need to consider the effectivity of the Owners Association, service charges and the quality of maintenance services.  Facility management is becoming increasingly more important to determining the value of buildings and it will have an effect on the long term value of your investment.

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach and you are well on the way to making a very sound decision.