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Considering A Dubai Investment Property?

Hi, Sunil here to take a look at Dubai investment property…

This is the season to invest in Dubai (so do they say); there is no getting around that fact.

Everywhere you look around in Dubai you are bound to see some form of development taking place.

With the government firmly backing the ‘development drive’ and with investors pouring their money into such projects, you can probably see why a Dubai investment property sounds like such a good idea.

As much as I personally like to logically reason from my personal experiences in the US real estate market, the fact remains the fact.

And the fact is that there is no better place in the world for a higher return on your investment dollars.

Maybe I am just still mad that I missed my chance to cash in when the margins were the largest!

Anyway, with the government opening up the possibility for foreigners to own Dubai investment property, they have kind of opened up the floodgates (since 2006).

For some time now, expats had been prohibited from owning any property in Dubai.

All that has changed now and certain areas (called freehold zones) of Dubai are now up for grabs.

Investing in a property is never simple, no matter which continent you are in.

Dubai is no exception as there are myriad laws and things that you need to be aware of before you jump the gun to own a part of a resort. With the recent changes Expats can now own land in certain government designated areas of Dubai making the process of investing in them a whole lot safer.

Earlier on, we had to depend on the goodwill of the developer to help facilitate the process of buying property. Even then, we did not get any title deed, except for a bill of sale as issued by the developer.

Before acquiring a Dubai investment property, you must do some ground work. The first thing that you need to do is to determine what kind of an investment you are looking to for – commercial or residential? Are you looking for short-term profit margins or long term ones?

Generally, residential investments tend to give steady profits over long terms where as commercial properties tend to give huge profits over a short term but they are more risk prone. The reason why commercial properties are a bit risk prone is that the development of such properties can come to a screeching halt at any time on account of shortage of labor, lack of funds or even strikes. Quite a contrast to the US market if you ask me.

Take for example the Burj Dubai tower, the development had been recently halted on account of a strike and now it is scheduled to open nine months past its due date in September 2008. Given all that, it makes sense to analyze the profitability of the investment property in Dubai before actually investing in it.

You need to be clear about what you plan to invest in, in a residential property or a commercial one. Keep in mind that only certain areas are open to expats to purchase property in and for the rest, you will have to wing it as an interested participant rather than as a property owner.

Property rates are increasing by as much as 25% per annum and this is more or less on account of the rapid growth in population of expats. So any property you plan to invest in should provide you with a good yield within a year or two. But keep in mind that there can be a downside to this as well, for as more properties get built, the supply may start exceeding the demand at a certain point and the property markets are bound to get affected.

According to Morgan Stanley, the supply would have exceeded the demand sometime by 2010 (now Morgan Stanley is NOT God and they have been wrong many times in the past) and that the property prices are bound to get a little depressed due to this. Morgan Stanley’s observations may be just a note of caution but it is something that no investor should take lightly.

So given the current rate of growth in the property market in Dubai, it may make more sense to invest in a long term Dubai investment property as opposed to a short term one. See my real estate investment theory is simple. Buy to make profits today at the very moment. Any appreciation in value is simply icing on the cake.

With the property market poised to deliver a solid return of nearly 30%, you should not be surprised to end up paying more for the property than what is listed in the paper. The first basic thing that you need to take care of is the real estate agent, who like his colleagues elsewhere will be charging you anywhere from 1% to 2% and that you will be required to make a deposit before making the purchase.

Then there is the maintenance charge as well as other costs that are involved in buying a property including the registration fee. Generally these charges are minimal; the real estate company will provide you with a fair estimate of the total costs involved so you would not be caught by surprise.

Making the decision to own a part of or the whole of a Dubai investment property is not an easy one to make. There are many reasons as to why a construction can come to a sudden halt and you need to make sure that does not happen to your investment.

So you need to make sure that whatever property you plan to invest in has the necessary capital resources to see it through to completion. Investing in a property in Dubai makes perfect sense (at least in theory) as you consider the rate by which the number of visitors keeps increasing year after year.

But do not go in blindly. Make sure you read the comprehensive Dubai Secrets guide to investing in Dubai properties. This is compiled by investors who have long standing experienced of investing in Dubai properties.

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