When trying to assess different investments, you have to try to get the best return with the least risks. In this newsletter we make the case that, in the current climate, for many people, ‘ready’ low-cost investment property in Dubai provides the best such balance if you have savings of around £40,000 or more.
In the past, people who did not want to take ANY risks, thought that keeping money in a bank was 100% risk free. Recent bank problems and the current banking crisis in Cyprus, is a reminder that keeping money in banks is NOT 100% safe.
Nevertheless, overall, keeping savings in most world banks is relatively safe – but it is not wise. However, due to the ‘fear’ factor of doing anything else with their money (as there have been problems with all forms of other investments – shares, pensions, even commodities), most people still keep their savings in a bank.
It’s not wise to keep your money in the bank because:-
a. Low savings interest rates (average less than 1% in Europe and America) mean that your money will not grow much at all.
b. High inflation (average 6%+ in Europe and America) means that the buying power of your money reduces – so effectively it becomes less. After 5 years it has 70% of its value now.
NOTE: In some countries local Savings Interest Rates are high because the local currencies are depreciating – This is “false” Interest Rates as your money is still worth less at the end of the Interest Period.
Thus by simply keeping your money in a savings account you are effectively losing money. It will be worth around 70% of the present value – in 5 years. Plus the money is not 100% safe. Thus £40,000 could be worth about £28,000.
What’s The alternative? – Buy a low-cost investment Property
Following the property price crash over the last 5 years, many believe that property prices worldwide are generally low. Dubai is one such location. Such a property investment has now become a very sensible option in Dubai for the reasons below.
The biggest concerns with Dubai property purchases has been the risks associated with off-plan build, rental demand, and price crashes. However now these risks are at their lowest as shown below and there are good reasons to buy a ‘ready’, low-cost investment property in Dubai.
Over a period of 4 to 5 years, with reasonable forecasted returns, your £40,000 investment could more than double to £80,000. If you do have the funds spare, and are willing to invest for 4 to 5 years, then this is one of the best forms of investment for the following reasons:-
a. Property Pricing is LOW
Prices in Dubai have fallen by about 50% to 60% and reached rock bottom in 2012– particularly on the smaller Studio and 1-Bed Properties. Now, ready Studios apartments are just over £50,000 (these same units were over £90,000 in 2008) and it is possible to get a good Ready Studio apartments with around £38,500 of own funds (remaining 25% can be paid by rent). Prices have started to increase again and this entry price point is gradually rising every month.
b. Ready Property – Not Off-plan
Wise buyers are only buying ‘ready’ property in developed freehold areas. No one is buying the higher risk “off-plan” property. Buying ‘Ready’ property eliminates all of the risks of buying off-plan or ‘under construction’ property.
c. Rental Demand is High
Rental demand in certain low cost areas is good due to shortages of ready property. 10% rental yields are typical. Net rental yields of 7% after all costs (inc service charges) are typical in these selected areas. If you can get written rental guarantees, this makes it even less risky. In line with the recent property prices, rents have now also started to go up.
d. Running Costs are Low
Service charges and management fees are low – especially in low cost areas away from the seaside.
e. Future Growth Forecast is High
Growth forecasts are high with expected growth on Studios and 1-bedroom of 10% to 15% per year for the next 5 years due to the forecast shortage in such ‘ready’ properties. In view of the recent increases, this is very realistic and may be exceeded.
f. Buying Process is More Secure
Companies that are experienced and familiar with the Dubai process can make the purchase process relatively risk free and easy by using UK based client accounts for making payments and easy transfer of property deeds to customers.
g. Taxes Possibly – NIL
There are no taxes in Dubai. Depending on your tax and domicile/residency status (you will need to check with your accountant), you may not need to pay tax on foreign income kept in Dubai.
A typical Studio that costs about £49,833 can be purchased for about £38,500 (with rest being paid by rent). This investment of £38,500 grows by over 101% (more than doubles) over the 5 years based on reasonable rental and growth forecasts. Currently this is one of the best forms of investment.