Should you rent accommodation or buy a property in Dubai, Abu Dhabi or even Ras Al Khaimah? It’s always the question on everyone’s lips, especially after Dubai was awarded the Expo 2020. But it’s so hard to actually run the calculations, as there are so many variables. We’ve done the hard work here – obviously with some assumptions – to help you weigh up the pros and cons.
On top of the basic costs of renting or buying, there are so many other factors to consider. Can you afford the outlay of buying – the deposit, the fees? Do you qualify for a mortgage? How long do you intend to stay in the country? Will you wipe out your savings? What about ongoing costs like maintenance and service charges? Could you cope with negative equity if the value of your property dropped?
Summary costs: Renting vs buying
In the table below, we have laid out the approximate monthly rent and monthly repayment on a mortgage for four different properties in Dubai and Abu Dhabi.
In this calculation, we have had to make a lot of assumptions: we have assumed a 20-year mortgage with a two-year fixed 2.61 percent rate (the average from our database) for the first two years, then a variable rate of 3.7 percent (taking the current three-month EIBOR of 0.7 percent plus an average bank margin of three percent) for the next 18 years.
Do remember, this is a just an example, for comparison purposes only – what a bank would offer you personally could look very different depending on your salary, age, company etc.
|No. beds||Type||Location||Sq ft||Rent per mth||Monthly repayments to buy + service charges, years 1&2 *||Monthly repayments to buy + service charges, years 3-20 **|
|2||Apartment||Dubai – Greens – Dhafra 3||1,014||15,000||10,079||11,339|
|1||Apartment||Dubai Marina – Waves Towers A||1,000||9,083||8,860||9,950|
|2||Villa||Dubai – Arabian Ranches – Palmera 1||1,889||13,750||13,134||14,973|
|2||Apartment||Abu Dhabi – Al Reef Downtown||1,517||7,083||7,208||8,025|
* The fixed rate of 2.61% for year 1 and 2 was calculated as an average of current market mortgage rate available on Souqalmal.com + service charges per square foot per month
** The variable rate for years 3 to 20 was calculated using the current EIBOR of 0.7% + bank margin of 3% in years 3-20 + service charges per square foot per month
Can you afford to buy?
Can you afford a minimum 25 percent deposit? In our examples for one- and two-bed apartments or villas, that’s already AED 300,000 – 675,000. Fees will add another 10 percent. That’s a lot more than the average person’s one-year rent – for which they often need a personal loan because they don’t have the cash to hand.
Do you qualify for a mortgage? Most banks require a minimum salary of AED 10,000 per month and you will need to fulfill other criteria – your age now and at the end of the loan (65 max for expats), is your employer a listed company with the bank, and more.
If you’re draining your savings to fund a property purchase – have you got enough left over for property repairs if something goes wrong? Or for your emergency fund? What happens if you lose your job?
Of course, one big benefit to buying is that once the deposit and fees are paid, you pay your mortgage on a monthly basis – compared to annual checks for rent, quarterly at best.
Ongoing costs on buying in the UAE
Now factor in all the additional costs every month.
There’s your service charges (in the table above, we already calculated this in your total monthly repayment). These can be very low in a villa – as in the Arabian Ranches example – but around AED 15 per square foot for an apartment because of the cost of servicing huge communal areas (indoor and out), regularly broken elevators and, of course, central air conditioning systems.
Then there’s maintenance costs (whether renting or buying, you can end up bearing the cost of maintenance, but there’s more onus on you if you’re the owner/ landlord), your water and electricity bill (very high if you’re in a villa as you pay your own AC and lawns are expensive to water; not so high if you’re in an apartment, as the AC is rolled into your service charge), critical illness cover and buildings insurance if you have a mortgage, and home contents insurance whether you rent or buy.
How long do you intend to be in the UAE and/ or own the property? Don’t forget to factor in all the costs of selling – especially any early settlement fees. If you rent, you can be out of the property and debt-less in months. If you own, you’re locked into that property until you can sell it (although you can rent it out). [Also read: Hidden costs of buying and selling property]
What if you want to exit the UAE suddenly because of a family crisis at home? What if the price falls and you end up in negative equity? Can you hang on in for several years – as many people have had to since the recession – until it recovers its value?
Carlos bought a property in Jumeirah Park. Although he originally intended to live in it, with the villa having risen 30 percent in value in just one year, he decided it was worth selling on. However, now he is working in Abu Dhabi, he’s looking to move from Dubai and buy again.
“The rental market in Abu Dhabi is really high. If you only plan to be here one to two years, it doesn’t make a lot of sense to buy and sell because of all the fees. However for a mid-term plan of five years, as I have, it does. Interest rates are now pegged to the EIBOR and the UAE Central Bank is not making drastic changes to the EIBOR.
“There are good fixed rates available for three to five years – ADIB at 3.99 percent, Al Hilal at 3.5 percent for two years, But do check the settlement fees – the Central Bank decreased the buyout charges to one percent from three but many banks are not very transparent about this cost.”
Although renting can come with issues – the uncertainty of whether your rents will go up each year and whether you’ll have to move house every year – you can stay on top of the market trends a lot more easily than you can re-negotiate or move your mortgage.
There is another option – rent the property you live in, buy an investment property. Amanda lives in The Lakes but owns an apartment in Al Reef Downtown, Abu Dhabi. Maya has outgrown her villa in Palmera 1 in the Arabian Ranches so is renting it out and moving to another, larger rented villa in the Ranches.
This gives both Amanda and Maya a bite of the real estate market but suits their needs in terms of location and flexibility.
There’s no ‘one-size-fits-all’ solution and, as adverts often warn, the value of your property can go down as well as up. So do your sums, understand the risks and make a decision that’s based on your needs, not the latest estate agent’s report or friend’s recommendation.
A) Cost to rent per month
|No. beds||Type||Location||Sq ft||Rent per year||Rent per mth|
|2||Apartment||Dubai – Greens – Dhafra 3||1,014||180,000||15,000|
|1||Apartment||Dubai Marina – Waves Towers A||1,000||109,000||9,083|
|2||Villa||Dubai – Arabian Ranches – Palmera 1||1,889||165,000||13,750|
|2||Apartment||Abu Dhabi – Al Reef Downtown||1,517||85,000||7,083|
Sources: Interviewed property owners & propertyfinder.ae
B) Cost to buy – mortgaged amount calculation
|No. beds||Type||Location||Sq ft||Purchase price||Deposit (25%) *||Mortgaged amount|
|2||Apartment||Dubai – Greens – Dhafra 3||1,014||1,850,000||462,500||1,387,500|
|1||Apartment||Dubai Marina – Waves Towers A||1,000||1,600,000||400,000||1,200,000|
|2||Villa||Dubai – Arabian Ranches – Palmera 1||1,889||2,700,000||675,000||2,025,000|
|2||Apartment||Abu Dhabi – Al Reef Downtown||1,517||1,200,000||300,000||900,000|
Sources: Interviewed property owners & propertyfinder.ae
C) Cost to buy – 20-year mortgage per month
|No. beds||Type||Location||Sq ft||Av. mortgage rate (fixed)||Monthly repayments, years 1&2 (fixed) *||Monthly repayments, years 3-20 (variable)|
|2||Apartment||Dubai – Greens – Dhafra 3||1,014||2.61%||8,799||10,059|
|1||Apartment||Dubai Marina – Waves Towers A||1,000||2.61%||7,610||8,700|
|2||Villa||Dubai – Arabian Ranches – Palmera 1||1,889||2.61%||12,842||14,681|
|2||Apartment||Abu Dhabi – Al Reef Downtown||1,517||2.61%||5,708||6,525|
* Equivalent reducing rate is 4.73%. Make sure you know what rate you are being quoted. Souqalmal.com lists both fixed and reducing rates for all mortgages it indexes (normally the reducing rate with the equivalent flat rate).
Sources: Souqalmal.com home loans database (for average mortgage rate)
- 20-year mortgage (this is normal for UAE)
- Average rate of 2.61 percent flat on your mortgage
- Fixed for two years then variable
- Variable rate calculated for 18 years as EIBOR (current three-month EIBOR is 0.7 percent) + av. bank three percent margin [EIBOR, LIBOR: What does it mean?]
D) Cost to buy – service charges calculation
|No. beds||Type||Location||Sq ft||Service charges per sq ft||Service charges per year||Service charges per mth|
|2||Apartment||Dubai – Greens – Dhafra 3||1,014||15||15,362||1,280|
|1||Apartment||Dubai Marina – Waves Towers A||1,000||15 *||15,000||1,250|
|2||Villa||Dubai – Arabian Ranches – Palmera 1||1,889||2||3,500||292|
|2||Apartment||Abu Dhabi – Al Reef Downtown||1,517||12||18,000||1,500|
* Estimated for this property; all others quoted by property owners
Sources: Interviewed property owners