Understanding the Cost of Real Estate Investment in UAE

Residential real estate is a common choice for investment. Everyone needs to live somewhere and with the world’s population raising the need for residential property is constant.

Discussions about real estate is as old as humanity itself. Since forever land was the dominant source of personal wealth. The twenty first century offers a great variety of investment tools such as bonds, stocks, entrepreneurship, however real estate remains as one of the strongest wealth building tools due to its tangible aspect. The word itself refers to the property in the form of land or building. There are various different types of real estates:

  1. Residential – new or old constructions for a purpose of residing (i.e. apartments, houses, etc);
  2. Commercial – property owned to produce income (such as offices, shopping malls, etc);
  3. Industrial – includes manufacturing facilities, warehouses etc;
  4. Land – undeveloped property, vacant land, land of purpose for farming, etc;

Residential real estate is a common choice for investment. Everyone needs to live somewhere and with the world’s population raising the need for residential property is constant. However commercial property is remains interesting. For example McDonald’s isn’t just a fast-food chain but also a brilliant $30 billion real estate company.  A big part of its profitability is that it owns the land and buildings at most of its locations – and its franchisees pay McDonald’s rent. But for the purpose of this article I will concentrate on residential property. The main question you have to answer for yourself is if you want to invest or to be a homeowner. I have experienced it first hand while handing over the keys of my home to the tenant. 

Appreciating Asset
Inflation Hedge
Authority over the Use of Land
Can be Financed and Leveraged
Difficult to Transfer Ownership
Not Liquid Asset
Huge Capital Required
Limited Supply
Management & Maintenance Fees
Global Demand
Rapidly Growing
New Areas have Great Potential
Economic Recession
Competition with other Assets
Price Falls due to Less Demand
Price Falls due to Oversupply

Advantages & Disadvantages

Buying real estate for investment purposes has its pluses and minuses. First of all, it is highly localised, hence the most famous saying “location, location, location”. In comparison to stocks & bonds that are widely available for purchase around the globe almost for everyone, real estate has a lot of local regulation attached to it. Depending on the country, it’s regulations, fees, taxes, even culture, your real estate investment can be either highly profitable or highly disappointing. Furthermore, it’s nearly impossible to compare historical data of return of investment for stocks and real estate. The historical data of return of private real estate investment is simply not available and future predictions and comparisons are marely a guess. 

Appreciating Asset
Inflation Hedge
Authority over the Use of Land
Can be Financed and Leveraged
Difficult to Transfer Ownership
Not Liquid Asset
Huge Capital Required
Limited Supply
Management & Maintenance Fees
Global Demand
Rapidly Growing
New Areas have Great Potential
Economic Recession
Competition with other Assets
Price Falls due to Less Demand
Price Falls due to Oversupply

Let’s Talk Numbers

Calculation of Return of Investment

Return on investment (ROI) is an accounting term which shows the percentage of invested money that’s recouped after the deduction of associated costs. It is commonly used to evaluate the performance of various investments. The calculation of the ROI for mortgaged and cash purchases is different.

The cost method calculates ROI by dividing the equity in a property by all costs. Let’s take for example, a property which was bought for AED 1,000,000. After repairs and refurbishment , which costs investors an additional AED 100,000, the property is then valued at 1,200,00, making the investors’ equity position in the property AED 100,000  (1,200,000 – [100,000 + 100,000]).

The cost method requires the dividing of the equity position by all the costs related to the purchase, repairs, and refurbish the property.

ROI, in this instance, is AED 100,000 ÷ 1,100,000 = 0.09, or 9,1%.


But instead of using cash you can take an investment loan, with a 25% down payment. The down payment may differ. For example if you are off-plan property in the United Arab Emirates (UAE)  you may require to put 50% of down payment. As an example we will take numbers of  hypothetical purchases of one bedroom already built apartment in Dubai.

Your out-of-pocket expense on this transaction will be AED 250,000 (AED 1,000,000.00 sales price x 25% down payment), plus AED 100,000 for remodeling and closing costs, for a total of AED 350,000. 

AED 250,000 (downpayment) + AED 100,000 (remodeling + closing) = AED 350,000 (out-of-pocket expense)

The amount you would be financing is AED 750,000 (AED 1,000,000 less your AED 250,000 down payment), and if you would take a 25-year loan at 4.5% your principal and interest come around to AED 4,200  a month. (Calculating principal and interest payments on a mortgage is a tedious task, there are many calculators available online). For the sake of simplicity, let’s say that the maintenance fee and insurance add to additional AED 1,300 a month. That gives me a total payment of AED 5,500.

Assuming that the tenant pays rent every month for 12 months, each month you’ll have a positive cash flow of AED 2,000 (AED 7,500 rent less the AED 5,500 mortgage payment). Multiply AED 2,000 x 12 months and my annual cash flow is AED 24,000.

AED 2,000 (monthly cash flow) × 12 = AED 24,000 (annual cash flow)

Now divide AED 24,000 by AED 350,000 (original cost out of pocket from down payment, closing costs, and fix ups) and we get 6,86%.

AED 24,000 (annual cash flow) ÷ AED 350,000 = 0.0686 or 6,86% ROI

So the ROI from your annual cash flow alone is 6,86%. However when you are paying down the principal it builds equity in the property every month.

If you run an amortization schedule, you’ll see that the first year’s principal pay down for a full 12 months is AED 16,614.78. If you would add that to the AED 24,000 from the cash flow, that’s AED 40,614.78. Now instead of 15.7%, my ROI becomes 19.7%!

AED 40,614.78 (principal paydown + annual cash flow) ÷ AED 350,000 = 0.116 or 11,6% ROI

So you can see that although paying cash will return more income each month, using a mortgage increases the percentage of your return, or in other words, the ROI.

Two Percent Rule

The 2% Rule states that if the monthly rent for a given property is at least 2% of the purchase price, it will generate a postivie cahs flow. It looks like this: monthly rent / purchase price = X. If X is less than 0.02 (the decimal form of 2%) then the property is not a 2% property.

For example:

Monthly Rent for 1 bedroom apartment in Dubai – AED 5,000.00

Approx. Purchase Price of 1 bedroom apartment in Dubai – AED 1,000,000.00

However this rule doesn’t work in markets like Dubai, New York, London, etc, due to high saturation, limited growth areas, or differences in law & legislation, as well as property value appreciation over time. For example New York has a lot of bureaucracy and red tape around building new housing units as well as little physical space to grow. Because of that, it will have much higher entry costs. As a benefit, however, you’re far more likely to see substantial appreciation on your property’s value over the course of its life and you’re far more insulated from real estate market crashes.

Alternative Investment Options

There is more than just two ways to invest in real estate. If you do not want to take out cash or a loan from the bank you can use a real estate platform for investing. Here are three platforms suggested by Alexa Mason listed below:

  • Fundrise – Fundrise is a real estate investment trust (REIT) that allows you to invest in a basket of real properties. As such, you get a little diversification on your real estate investment. Plus, you can get started for just $500. Check out Fundrise here.
  • RealtyMogul – RealtyMogul offers investors a variety of properties to choose from, including residential, mixed-use, commercial and retail. They don’t charge their investors fees, instead placing that burden on the property holders. Investors can start seeing a return just a few weeks after the project is funded.
  • stREITwise – A newer private equity REIT that focuses on cash-flowing real estate investments. One of the better fee structures available. Open to both accredited and non-accredited investors. Check out stREITwise here >>

Investing through stock market in real estate is great option for people that doen’t have time to manage properties and are not quite hands on. Real Estate Investment Trusts (REIT) is a fund that is setup to invest in mortgage instruments, bonds, and stocks in the real estate niche. There are a few different types of REITS; equity, mortgages, and hybrid. An equity REIT invests in properties, a mortgage REIT invests in mortgages, and a hybrid is the mixture of the two. All three typically offer high yields – basically you get paid back from the interest others are paying on their mortgages.

Location, location, location.

Types of Real Estate, Districts & Prices

Deciding on you real estate investment might be the most important decision of your life. It is imperative to take this decision considering all possible information. Points for consideration listed below, but not limited to:

  1. 1) Regulations, fees & taxes of the country/location of the purchase;
  2. 2) Country/Location of the property;
  3. 3) Financing form;
  4. 4) The size of the property/land;
  5. 5) Number of bedrooms;
  6. 6) Number of bathrooms;
  7. 7) Kitchen layout;
  8. 8) The age, style and condition of home appliances;
  9. 9) Age of the property;
  10. Purchase price; cost per square meter/feet;
  11. 10) Seller’s incentive to sell;
  12. 11. Maintenance mode;

The world is becoming widely globalised. For example, you do not necessarily work in the same country/city where you were born. You do not necessarily live where you work (remote work). You do not necessarily retire where you live. The complexity is increasing with each generation. But real estate up to this day remains highly sentisive to the location, not to mention the country. The table below shows comparison of the tax differences in each country. For example if you decide to live in UAE and retire in Italy these are the taxes you may like to take in consideration:

Personal Income Tax0%Progressive TaxesStarting with €17,700-33,007- 24,75%, etcWhole income15-21%Progressive Tax€55,960 for a single person (€119,220 for a couple) were then taxed with a rate progressively increasing from 14% to 42%; etc
Corporate Income Tax0%Whole income30%Whole income27,5%Whole income15%
Property Tax0%0,4%, 0,4-1,1%, 0,3-0,9%0,2-1,9%2,6-3,5%
Inheritance/Donations Tax 0%7-32%0-4%7-30%
Capital Gains Tax 0%21-27%20%0-45%
Transfer Tax0%6-11%10%3,5% (Bayern, Sachsen), 4,5% (Bremen, Hamburg, Niedersachsen) 5% (Berlin and all the other lader)
Value Added Tax 5%V.A.T. on Construction/renovation, Transactionsand Rental Income.Construction – 21%Renovation – 21%Transaction – 21%Rental Income – 21%V.A.T. on Construction/renovation and Transactions.Construction – 10%Renovation – 10%Transaction – 10%Rental Income – 0%V.A.T. on Construction/renovation and Rental Income.Construction – 19%Renovation – 19%Transaction – 0%Rental Income – 19% (Commercial Properties)

These tables do not identify fees, which are necessary  to facilitate the transactions. However taxes and regulations are subject to change and you should be aware of it while taking a long term decisions. There are other important factors influencing the price such as quality education, healthcare, employment that will sustain you, quality of life may also include intangibles such as job security, political stability, individual freedom and environmental quality.

Investors Visa UAE

If you would arrive to the conclusion to invest in UAE property market, you could consider Investors Visa. 

In 2019, the UAE implemented a new system for long-term residence visas. The new system enables foreigners to live, work and study in the UAE without the need of a national sponsor and with 100 per cent ownership of their business on the UAE’s mainland. 

Investors in a property in the UAE Conditions granting a visa is subject to the following conditions:

  • The investor must invest in a property of a gross value of not less than AED 5 million.
  • The amount invested in real estate must not be on loan basis.
  • The property must be retained for at least three years.

For comparison purposes we will take an example of the purchase of 1 bed apartment in Dubai, UAE. Lets say you would take a home loan to finance the purchase.

Apartment PriceAED 1,000,000.00Agreed purchase value.
DepositAED 250,000.0025.00%Downpayment (may differ depently on property development stage)
Loan NetAED 750,000.0075.00%Mortgaged amount (Price – Downpayment)
Interest Rate for fixed period of time3.99% Fixed intrest rate(duration and percentage varies, needs to be checked with your bank)
Interest Rate for remaining mortgaged period.4.49% Variable rate depending on EIBOR but can be negotiated later (duration and percentage varies, needs to be checked with your bank)
Application FeeAED 1,000.00 Subject to change.
Processing FeeAED 7,500.001.00%Subject to change. 1% of the mortgaged amount (Loan Net).
Property Valuation FeeAED 3,000.00 Subject to change. Fixed rate.
Property Insurance p/aAED 375.000.05%Subject to change. 0.05% of the mortgaged amount.
Life InsuranceAED 3,000.000.40%Subject to change. 0.4% from the mortgaged amount.
Property Transfer FeeAED 40,000.004.00%4% of the agreed price. 75% of this fee can be added to the mortgaged amount.
DLD Mortgage Reg. FeeAED 2,165.000.25%Mortgage Registration Fee of 0.25% of the loan amount plus AED 290.
DLD Transfer FeeAED 4,000.00 Subject to change. Dubai Land Department transfer fee. plus a knowledge fee of AED 430 for a plot, AED 40 for off plan property and AED 580 for apartments and offices.
Agent FeeAED 20,000.002.00%Subject to change. 2% of the property price.

Interest rates vary by tenor and are subject to bank policies. As an example EmiratedNBD calculated rate is based on EIBOR + Fixed Margin. So if you have decided to invest in UAE property market and selected an existing property (not off-plan) for a sales price of AED 1,000,000.00, you should consider a downpayment of AED 250,000.00 plus AED 81,040 in fees (total amount upfront AED 331,040.00). The 25 years mortgage with intrest rate of 3.99% would be approximately AED 3,960.00. It is important to note, that not all AED 3,960 will go towards to your mortgage. Only 37% of this amount would go against your principle amount & and balance 63% (approx) would be mark-up (fee for the bank). 

Let’s presume (hypothetically) you are paying the mortgage for 25 years each month (AED 3,960.00). After 25 years you will pay approx. 58% more than the actual mortgage amount (AED 1,186,392.00). It is however beneficial to do partial repayments. Depending on your bank and term & conditions of your contract you can do partial repayments once a year. Some banks allows up to 20% partial repayments without free of charges. You can also do early settlement however it might be subject to additional fee (as example  1% of the remaining mortgage amount). If you decide to add AED 50,000 to your mortgage each year you can reduce your mortgage duration to 9.5 years and reducing the overpay from 58% to 20% (AED 900,828.96).

The numbers mentioned above are hyphothetical and based on various information collected through personal & internet sources. It is subject to various legislation, banks, authorities changes and should not be quoted. 


You can find a lot of testimonies online claiming that they have made a fortune by buying/selling real estate. According to one of the advisors in The OraclesPeter Hernandez, the president of the Western Region at Douglas Elliman, founder and president of Teles Properties said that most millionaires he knows made more money from owning real estate than any other investment. Real estate consistently increases in value over time and outperforms other investments. Its hard to form an opinion without a realistic picture. I quite often refer to JL Collins articles & books and in one of them he describes owning a house as a terrible investment. There are some paraphrased reason why buying real estate is not a wise decision:

  • – The maintenance costs are high and never ending.
  • – It is illiquid. It takes weeks or months of efforts to buy or sell.
  • – High transaction costs.
  • – Complex procedure to buy or sell resulting in additional fees & costs.
  • – Generates low returns. 
  • – Can be mortgaged with charge of the interest on the loans. 
  • – It’s immobile. It is fixed to one geographical spot and if it’s possible we can be sure at any given time only a tiny group of potential buyers for it will exist. 

And many other points that contributes to this list. As any investment decision real estate needs great consideration. It might be one of the options to diversify your portfolio. However unlike stock & bonds investment in real estate requires constant management, attention & time. You either do it yourself or you pay someone to do so. 

  1. Kimberly Amadeo “Real Estate, What It Is and How It Works”  Accessed Oct. 21, 2020.
  2. Corporate Finance Institute. “What Is Real Estate?” Accessed Feb. 24, 2020.
  3. Business.com Editorial Staff “Commercial Real Estate Lessons From McDonald’s” Accessed Oct. 21, 2020.
  4. Anshar Ali Shaw “SWOT Analysis of Real Estate Business”, May 27, 2020.
  5. Alexa Mason “5 Ways To Invest In Real Estate In 2020”, Jul 20, 2020.
  6. Mindy Jensen “Real Estate”, Nov 27, 2019.
  7. ExtraProperty “Calculation of real estate return on investment in Turkey”, Accessed Oct. 22, 2020.
  8. The Investor “Is private debt set to shake-up MENA’s real estate?”,  Accessed Oct 22, 2020.
  9. U.AE “Long-term residence visas in the UAE” Updated Jul 19, 2019.
  10. Waseem Pharoan “The Real Cost of Owning a Property in Dubai” Feb 23, 2017.
  11. Jeremy Kelly “How COVID-19 regulations are changing landlord-tenant dynamics” Oct, 01, 2020.
  12. JL Collins “Why your house is a terrible investment” Accessed Oct 24, 2020.
  13. The Oracles, Contributor “Real estate is still the best investment you can make today, millionaires say—here’s why” Oct 01, 2020.