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Risks of Buying Property in Dubai: What Every Investor Needs to Know

Explore the risks of investing in Dubai's real estate market, from market volatility to legal challenges, and learn how to make informed decisions

Dubai’s real estate is full of amazing opportunities, but there are also risks to buying a property in Dubai. This blog post looks at the key considerations and potential risks of buying real estate to help you navigate Dubai's property market with confidence.

1 - Understanding Market Volatility 

One risk to be aware of when buying a property in Dubai is the potential for market volatility. Like many financial markets, the Dubai real estate market experiences volatility, with periods of growing transaction numbers and prices, and periods of contraction.

For instance, the Dubai real estate market experienced a period of rapid growth between 2012 to 2014, followed by gradually declining prices until 2020. Since 2020, the market has experienced significant growth, with both record transaction numbers and prices hitting all-time highs. 

Volatility in Dubai’s real estate market can be caused by various factors, including global economic events, changes in government policies, and oil price movements. Whilst the outlook for Dubai’s real estate market looks extremely positive, investors should be aware of the risk of volatility when buying a property and ensure that they complete thorough research and are prepared for the potential for price fluctuations. 

2 - Legal Challenges

Whilst the process for buying real estate in Dubai is relatively straightforward, the property laws can be quite different from those in other countries. A failure to follow the correct legal procedures could risk challenges down the line, including fraud or disputes over property ownership.

It is vital that you consult with a registered real estate professional, use a conveyancer where appropriate, and ensure all legal documentation is in order, including the Title Deed and No Objection Certificate (NOC). 

3 - The Potential For Oversupply 

A further risk when buying real estate in Dubai is the potential for oversupply. An excess of new developments within a community could lead to there being too much inventory, which could affect rental yields and make it challenging to sell a property or rent it out. Investors should consider the market demand and supply within their chosen community before committing to an investment there. 

4 - Choosing The Wrong Financing Option

When buying a property with a mortgage, there are endless options to choose from. However, making an uninformed decision could lead to you choosing an option that isn't suitable for your financial circumstances or investment goals.

For example, picking a mortgage with a higher interest rate or inappropriate mortgage term can dramatically increase the total cost of the loan. Plus, some mortgages come with strict conditions regarding early repayment that can limit your flexibility.

To mitigate the risk, it's essential to consult a reputable mortgage broker. An expert can provide you with a comprehensive overview of all financing options and they will tailor their recommendations to your specific situation.

5 - Mitigating The Risk Of Construction Delays

If you’re planning to buy a property within a new development that has yet to be completed, one potential risk is that there are construction delays. When releasing a new development, a real estate developer will set a handover date. This is when they expect the construction to be finished and the keys handed over to the buyer. 

Most of the time, the handover date is broadly correct, however sometimes delays in the construction process mean the property is handed over at a later date. This could delay when you can move into the property, or start generating a return by renting it out. 

Whilst the risk of construction delays cannot be mitigated completely, you can reduce the risk by buying from a reputable developer, closely monitoring the progress of construction and you should always factor in the chance of delays to your financing planning. 

6 - Currency Risk

If you are an international buyer of Dubai real estate, one potential risk to be aware of is currency risk. This is where fluctuations in the exchange rate of the UAE Dirham leads to a decrease in the value of your investment when considered in your local currency. 

The UAE Dirham is pegged to the US Dollar. This makes it a relatively stable currency, reducing the chance of large fluctuations in the value of your investment due to changes in the exchange rate. Plus, if the value of the UAE Dirham increases, this would lead to the value of your investment in your home currency going up, so currency fluctuations aren’t always a negative. But, its important to be aware of currency risk and ensure that it is factored into your financial planning. 

7 - Not Factoring In Additional Costs

When thinking about buying a property in Dubai, its easy to simply look at the purchase price without weighing up all of the additional costs of buying a property. Additional costs, including Dubai Land Department (DLD) fees, mortgage fees, and agent commission should all be considered when weighing up an investment. 

However one of the many benefits of buying a property in Dubai is that the fees associated are relatively much lower than in many global cities. In Dubai, you would typically expect to pay fees of about 6-8% of the purchase price, compared to 12-20% of the price in cities like London, New York and Sydney. 

8 - Ongoing Maintenance and Service Fees

When purchasing a property in Dubai, its important to understand the ongoing costs that you will incur. Maintenance fees and service charges in particular are significant expenses that you will incur. A failure to understand these costs is a risk when buying any property, because they can materially impact your investment returns. 

Mitigating The Risk With A Reputable Broker

Investing in Dubai’s real estate market can be extremely lucrative, but it comes with potential risks. By understanding risks like market volatility, currency risk and the potential for construction delays, investors can be well prepared to make informed investment decisions. 

When navigating the complexities and potential risks of buying a property in Dubai, consulting with an experienced, qualified real estate broker is a vital step to ensuring that you make the correct investment decision.

Written by Joshua Hughes

Published on 7 March 2024

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