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In recent decades, the United Arab Emirates (UAE) has become one of the most attractive destinations for investors worldwide. A stable economy, advanced infrastructure, rapid growth, and strategic geographic location make the UAE an ideal place for investment, particularly in real estate. However, before making a final decision on purchasing property in this country, it’s essential to carefully weigh the pros and cons and consider the local legal nuances, including the application of Sharia law.

Advantages of Investing in UAE Real Estate

High Rental Yields

One of the main reasons investors choose the UAE is the high rental yields. Depending on the area and type of property, rental returns can reach 8-10% annually. By comparison, in most European countries, real estate investments rarely generate yields higher than 4-6%. For example, in popular Dubai districts like Dubai Marina or Business Bay, renting out apartments can generate significant income.

No Taxes on Real Estate Income

The UAE attracts investors with its favorable tax policies. There is no personal income tax or capital gains tax on real estate sales in the country, making property investments highly advantageous in terms of minimizing tax liabilities. In contrast, European countries and the U.S. impose taxes on such gains, ranging from 15% to 35%.

Developed Infrastructure and High Standard of Living

The UAE is renowned for its advanced infrastructure, including modern airports, ports, roads, and public transportation systems. The high standard of living, safety, and business opportunities make the country appealing to both short-term renters and long-term residents.

Political Stability and Economic Growth

The UAE’s economy has been steadily growing for many years. The country’s leadership actively seeks foreign investment, creating favorable conditions for doing business. UAE President Sheikh Mohammed bin Rashid Al Maktoum once said, «We are building the future of our country on a solid foundation to ensure stability and prosperity for future generations.» This is backed by real numbers: the UAE’s economic growth in 2022 reached 7.6%.

Disadvantages of Investing in UAE Real Estate

High Entry Costs

Real estate in the UAE, especially in prestigious areas, is significantly more expensive than in many other countries. A substantial capital is required to purchase property. For instance, the average cost of a one-bedroom apartment in Dubai can range from 1.2 to 2 million AED (approximately $327,000 to $545,000). The price of luxury properties in areas like Palm Jumeirah or Downtown Dubai can reach several million dollars.

Dependence on Oil and Tourism

Despite the diversification of its economy, a significant portion of the UAE’s income is still tied to oil and tourism, making the country vulnerable to fluctuations in global markets. For example, the drop in oil prices in 2020 led to a temporary decline in demand for real estate, particularly in the commercial sector.

Sharia Law

One key aspect to consider when investing in the UAE is the application of Sharia law, which may govern property inheritance and other aspects of ownership. For instance, under Sharia law, property may be distributed among relatives in the event of the owner’s death, even if it contradicts the owner’s wishes. Therefore, it is crucial to consult with legal experts before purchasing property to ensure that your interests are adequately protected.

Foreign Ownership of Real Estate in the UAE

Foreign nationals can own property in the UAE in designated areas known as freehold zones. These zones include popular Dubai districts like Dubai Marina, Palm Jumeirah, Business Bay, and Downtown. In these areas, foreigners can acquire property with full ownership rights.

In other areas, where leasehold laws apply, foreigners can only acquire long-term leases (typically up to 99 years), which imposes certain restrictions on property rights and usage.

Taxes and Fees

As mentioned earlier, the UAE does not impose taxes on rental income or capital gains from property sales. However, there are certain fees that investors should consider:

• Registration fee: Upon purchasing property, buyers are required to pay a registration fee of approximately 4% of the property’s value. This fee is usually split between the buyer and the seller.
• Annual service charges: These fees for property maintenance and upkeep can vary depending on the type and location of the property, but they often amount to several thousand dollars annually.

Buying Off-Plan vs. Ready Properties

One of the primary decisions investors face is whether to purchase property off-plan (under construction) or opt for a ready property. Each option has its own benefits and drawbacks.

• Off-plan purchase: In most cases, off-plan properties are cheaper than ready-to-move-in units, making them an attractive option for investors. For example, apartments in a developing project in Business Bay can be acquired at prices 15-20% lower than the market rate for ready properties. However, investors face risks such as construction delays or changes to the project.
• Ready properties: This is a safer option as you can see exactly what you are buying and can start renting out the property or using it for personal purposes immediately. However, these properties are usually more expensive, and finding a good deal can be more challenging.

Example of Income and Expenses

Let’s assume you purchased an apartment for 2 million AED (approximately $545,000) in Dubai Marina. The average annual rent for such apartments is around 120,000 AED ($32,700). This translates to a rental yield of about 6% per year. From this income, you’ll need to deduct maintenance fees (around 20,000 AED annually) and any tax obligations in your home country.

Conclusion

Investing in UAE real estate is an excellent way to diversify your portfolio, generate high returns, and take advantage of a growing market. However, it is important to remember that UAE laws, including Sharia law, come with specific nuances that should not be overlooked. In any case, before purchasing property in the UAE, it is advisable to consult legal and financial experts to minimize potential risks.

If you have any questions about purchasing property in the UAE for personal or investment purposes, DKI will be happy to assist you in finding reliable developers and/or agencies. Feel free to reach out to us at info@dkinvest.org for a consultation.