29 November 2016
Many long-term Dubai residents are faced with the decision to either buy or continue renting a home. A big number of expats have been in the emirate for more than 5 years and are still living in a rented apartment or villa. So when does it make sense to buy rather than rent? There is no ‘right answer’, but there are a few guidelines that anyone can use to help figure out if buying a home is a better choice than rent or not.
Long-term plans to remain in Dubai
For end-users planning to live here for the long haul, one must consider the fact that the current prices of homes in Dubai have now become equivalent to the cost of renting the same property for a period of 12 to 15 years. In this case it actually works out better to own the home rather than rent it. We also must not forget the advantage that the money paid to purchase a home, unlike paying rent, remains in the property if the buyer wishes to sell the asset at a later stage. Coupling that with the highly promising long-term prospects that the real estate sector in Dubai enjoys along with a host of other reasons that make Dubai one of the best locations in the world to live and work in, it is a win-win situation of positive equity within the asset for those living in the emirate for a long time.
Availability of cash for down payment
With the property market in Dubai remaining healthy and well-positioned to face any potential challenges, buying a property to occupy is a wise move despite tightened lending regulations, making it necessary to invest more cash upfront. Residents who are able to make the required 25% cash down payment, can take advantage of the more affordable mortgages and shorter processing times, factors which further strengthen the financial case for buying, especially now at a time when the market prices are stable. Buyers who transfer their salaries to the lending banks can also secure home loans at preferential interest rates, which further reduces the cost of buying a home.
With the softening house price-to-rent ratios around the world, end-users can take advantage of the trend and own their own homes. If one simply considers the purchase price of a property divided by the annual rent of a similar home, the resulting price-to-rent ratio will give a clearer indication whether it is best to rent or buy.
With ratios currently ranging from 10 to 14 across a number of locations in Dubai, the indicator points to a ‘buy’ rather than ‘rent’ scenario. This is according to thresholds set by global real estate marketplace firms, which define a ratio of 15 or lower as being favourable for buying from a financial perspective.
In the event the ratios are higher than 15, it would make sense to consider renting. So at the current levels below 15, it makes more sense to consider buying a home rather than renting, at least from a purely financial perspective.
Any opinions expressed here are the author’s own.