Buying the right property at the right time can be a very shrewd long-term investment
Why every long-term expat should buy a property in the UAE
Last week I was sat in the bizarre, treehouse-like Natural restaurant in Phuket, the largest island off the coast of Thailand, having lunch with two millionaire retirees from the UAE media sector.
Both gentlemen had enjoyed successful careers over a couple of decades. One was the senior sales executive in a well-known publishing house; the other ran a niche PR business, largely as a one-man show.
Neither man was an obvious candidate to accumulate a million dollar pot by their retirement date. Fast cars, messing about on boats, and more than a few brunches had taken up quite a slice of their spare cash, though both were sensible enough guys and always saved a little bit for a rainy day.
So how did they do it? What was the magic formula?
It was quite simple really. Each of them decided to buy a villa in The Meadows in the early days of Dubai freehold real estate, instead of continuing to pay rent, and subsequently chose to live on the rental income from the same properties in their retirement.
Indeed, the annual rental on a Thai villa is only one-month of this rental income from Dubai.
Both admit that retiring on the same money in Dubai would be harder; but that is not what they chose to do. For them the tropical paradise of Phuket seemed a better option, with excellent health care options, beaches, safety and a very pleasant way of life.
I’m not sure it would necessarily work for me, but there are certainly far worse places to retire.
The main lesson I took away from this encounter, apart from reminiscing about a very different Dubai, was that any long-term expat in Dubai should strongly consider buying a home early in their stay in the country.
I remember talking to the CEO of Standard Chartered Bank, Ray Ferguson back in the early 2000s about home ownership in the UAE. He was absolutely convinced that any long-term expat with more than a five-year horizon ought to buy a property, simply to save on rent and accumulate equity in their home.
That turned out to be very good advice, not least for Mr Ferguson himself, who was an early buyer on The Palm Jumeirah. But exactly the same logic applies today.
If you are living in the UAE as an expat, the chances are you are paying a huge amount of money each year in rent. It’s most likely by far your biggest expense, and you are just flushing that money down the drain.
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Put a 25 per cent deposit down and take out a mortgage instead, and your monthly repayments will be around the same, or slightly less. But when you want to finally leave Dubai you can either sell your property and collect any accumulated equity, or you can let it out and receive the income minus the mortgage payment.
It’s a fact that mortgage companies are always keen to lend to those earning a decent income with solid companies, and that they can't take those mortgages away from you if you cease to have that job, as long as you keep up the mortgage payments.
To achieve the best long-term results from this sort of savings plan - and that’s what it is, a savings plan with an initial 75 per cent top-up from the bank - then you clearly need to buy property when prices are at a low in their cycle.
What then are you waiting for with the Dubai property down cycle now over three years old, and due for a turnaround with oil prices now north of $70 per barrel for the first time in three years? Dubai apartments and villas may never be this cheap again.
Many people are nervous about buying a property. It can seem very daunting to the uninitiated. But personally I used to feel much greater pain writing a very large check for my landlord.
Also you have nothing to fear but fear itself, or almost. One colleague recently told me she just can’t face the hassle of dealing with Dubai estate agents and the Dubai Land Department.
Dubai estate agents can be their own worst enemy, with incessant cold calls to anybody unfortunate enough to be on the lists of owners or potential buyers. Do they really think that I am likely to decide to sell my home as the result of a casual phone call that always seems to catch me in the shower?
However, there are ways to deal with estate agents. Do your research and decide where you want to buy first. Then find out who the main agents are for your chosen district and go to see the top real estate agency. Or, if you want to bypass agents altogether you could buy direct from a reputable developer.
Be wary about off-plan buying, as not a single developer in Dubai pays late delivery fees. But when a project is under construction it should be possible to take a reasonable guess on when it will actually be ready, as opposed to when it is supposed to be ready.
As for the Dubai Land Department, in my experience this is arguably the most efficient and best organised part of the (generally extremely efficient) Dubai Government.
The other thing to appreciate about owning a home is that, aside from annoying maintenance issues, owning a home is not really any more hassle than renting one, which is your only alternative.
So after a couple of decades writing about property and investments in Dubai, my very strong advice is to buy a home as your first priority if you plan on staying in the emirate for a while. It’s a great way to painlessly accumulate wealth here. It's worth remembering as well, of course, that the UAE also has no capital gains tax nor tax on rental income.
Your alternative is to chance your savings in what are currently very over-valued global financial markets, or possibly trust your money to a financial adviser whose ongoing fees will affect the long-term performance of your savings, assuming that he or she is actually honest.
Peter Cooper has been writing about Gulf personal finance for 22 years