Source: Wealth Creator Magazine May/June 2006

In addition to the promise of high returns, Dubai offers investors a tax free environment.

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Dubai dreams

Source: Wealth Creator Magazine May/June 2006

Dubai dreams

With capital appreciation at 18% and rental yields running at 15%, the United Arab Emirates state of Dubai is becoming one of the world’s investment hotspots. But how easy is it for Australians to invest?

Dubai has embarked upon some of the most daring construction developments in modern times. Dubailand is bigger than Disneyland , with six themed worlds and over 200 individual entertainment projects, while Hydropolis will be the world’s first underwater hotel.

These mega structures are bringing jobs to the region and attracting tourists (the number of visitors is estimated to increase from five million to 15 million by 2012) which, when combined with the influx of enterprises moving into the region, has resulted in a massive boom in residential property building and a situation where demand outweighs supply. As a result, rental yields and property prices are soaring.

Why invest?

Capital appreciation was around 18% in 2004 and, as an estimate on your return if you were to sell, many of the off-plan purchases have literally doubled in price between commencement and completion. Unlike the Australian market, Dubai rental returns have been running constant at around 15%. This is exemplified by the Government’s recent intervention to cap rental increases at 15% to the end of 2006 in an effort to slow the speed of inflation created by the short property supply.

In addition to the promise of high returns, Dubai offers investors a tax free environment. It is not a tax haven, but simply a country with no tax or tax department. The price of property is also more affordable than Hong Kong and Singapore, which have to date attracted Australian investment due to their tax status.

To buy a 100m2 waterfront unit on the prestigious Dubai Marina will cost approximately $260,000. A similar property in Singapore would set you back around $1,000,000. Without the taxation of 48c in the dollar you can see why interest in Dubai’s property market is rapidly gathering pace.

Location, location, location

With so much development on-going in Dubai, where should you buy? Currently the most sought after locations include Dubai’s Marina and the Palm Islands, a palm-shaped development of three islands where numerous celebrities are believed to have purchased property. While the cost of a villa on the Palm can be as high as $6 million, luxury apartments in flagship developments like The Torch on Dubai’s Marina can be purchased for $302,000, with investors having access to the same facilities you would expect in a five star hotel.

What’s the catch?

To date it has not been possible for a foreign national to own the freehold on a property in Dubai. This situation is now changing, however a statement in March announced the finalisation of the land registry legislation. With this hurdle removed, the only real obstacle to investing in Dubai is that you will need to have cash ready to invest. In Australia, mortgages for overseas property are not readily available and Dubai’s developers require payment by completion to fund the construction of their development. Therefore, property is typically purchased and paid for over the term of the build. Your upfront costs will be around 20-to-30% of the purchase price, with monthly instalments throughout the term and a final payment upon completion.

Whilst few banks are offering finance on property in Dubai at this time, it is likely to change now that the land registry legislation is now being finalised. On the positive, the apparent lack of finance options is helping to keep prices low. The message seems quite clear – the best returns are going to be to those who get in early. Once mortgages are available and the ability to purchase property becomes more accessible, it is anticipated that prices will escalate.

More info:

Dubailand (www.dubailand.ae) Hydropolis (www.hydropolis.com)