Dubai’s many favourable conditions might lure Malaysian property investors.
Dubai is currently not in the radar of most property investors in Malaysia especially when the Middle-Eastern city is experiencing a prolonged soft market. Worries that the continuing oversupply of property may cause prices to freefall is somewhat allayed by Damac Properties PJSC Business Development Manager, Michelle Tay, who quoted figures from the Dubai Land Department which stated that property transactions had in fact risen in the first half of 2019 compared to a similar period in 2018. “Total value of transactions up to the first 5 months in the emirate grew 12% to AED106 bil compared to AE095 bil in 2018,” said Tay quoting the report.
Since then however, prices have remained “pretty stagnant” as the United Arab Emirates government is considering measures to deal with the oversupply issue.
“Damac Properties which is the biggest developer in UAE, has drastically cut back on launches but is still holding our market value,” the Malaysia-born executive said. In recent months, there have been calls by some property players in Dubai to restrict the supply due to the continued slump. “Dubai needed to halt all new home construction for one or two years to avert an economic disaster brought on by continued oversupply,” warned Damac Properties Chairman Hussain Sajwani in a recent Bloomberg interview. “We’re entering a crossroads now.”
Market cycle
The ups and downs of the property cycle in Dubai is a well-known phenomenon due to its dramatic consequences. During the last property slump back in 2008, many expatriates had to leave the city due to job cuts. They also left behind in their wake unsold cars and properties since there were no buyers. Many foreign developers also exited the market during the crash.
This round, fears of another repeat are real but savvy investors are waiting at the sidelines to go for the kill as usual. “When there is bloodshed in the market, we swoop in and snap up the best properties,” admits an investor who declined to be named.
Not all properties are subject to price fluctuations like that foreseen by the ‘savvy’ investor. Some, like Damac, managed to hold their value despite the market turmoil and a preponderance of off-plan projects. Why would investors even consider Dubai at all given its supposedly desert-like conditions in the Middle East? That’s where a lot of Southeast Asians might want to revisit their perception.
According to Dubai-based Tay. Dubai’s economic growth rate since 1980 is only second to Shanghai. “Back in 1980, Dubai was a desert but now, it is a futuristic metropolitan with expatriates comprising 92% of the population.”
With oil currently making up only 2% of GDP in UAE, Dubai has over the years invested in infrastructure instead. As a result, it is home to one of the most advanced infrastructures in the world encompassing transport, telecommunications and industrial.
As an example, the port city is building the Hyperloop, a world’s first, that can transport one at a phenomenal speed of 1,500km per hour from the capital city, Abu Dhabi, to Dubai in 20 minutes. Dubai also offers advanced healthcare with many world-class hospitals dotting the city.
‘Tax-free Status’
Thanks to its tax-free status, it is home to 364 Fortune 500 company headquarters. The cost of living is comparable to Singapore with cars and groceries considered affordable even when adding in the 5% Goods and Services Tax (GST). It is also consistently ranked as the number two safest country in the world after Finland.
Property investors will be happy to note that there is no property tax, no income tax on rental, no inheritance tax and no Real Property Gains Tax. There is however a 4% transfer fee on all properties and an extra one time 5% VAT on commercial and hotel units.
Properties can be sold to anyone without restrictions. The only restriction is for off-plan projects where the buyer is locked into a developer’s payment plan. In this case, the buyer would need to pay off 30-40% of the purchase price before being allowed to sell. Banks in Dubai generally lend to foreigners or expatriates at 50% margin of financing for the first property, and 60% financing on the second property.
One can set up a company without any local sponsorship or share ownership within the free trade zone of Dubai. Investors can also own multiple properties with 100% unrestricted ownership.
Furthermore, any purchase of property (both residential and commercial like hotel room) worth over AED1 mil entitles the purchaser to a 3-year renewable visa. According to a real estate agent, however the property must be completed, freehold, habitable and in a freehold community.
The British-style legal system also allows a lot of freedom to foreigners who are not subject to Islamic or Syariah law.
Sought After
As a result of its many favourable conditions and its highly liquid property market, Dubai has been attracting many well-to-do investors from India and China, The biggest property investors come from India, followed by Britain, Gulf states and China.
For them, the price tag of a minimum equivalent of RM2,600 psf for a furnished one-or two-bedroom condominium is affordable. The current soft market now yields a Return on Investment of about 7-10% which is about 20% lower than its peak. Rentals are adjusting itself from the peak, explains Damac’s Tay. “Our one-bedroom units located downtown sell out the fastest as many expatriates prefer to stay in the downtown area.”
So, is it time to consider buying in Dubai since it is relatively affordable even for Malaysians who have to deal with a depreciated Ringgit and a property slump back home? As the savvy investor mentioned earlier, Dubai is worth watching out for the ‘kill’ though it is always a good policy to buy on the way down.
More than a desert gem
Dubai is not just a desert gem, it also boasts pristine beaches and a high-end luxury lifestyle. Dubai Metro is the world’s longest driverless metro network and spans 74.694 kilometres across the Red and Green lines. Dubai International Airport is one of the busiest airports in the world for passenger traffic.
Meanwhile, some 40km away, the Al Maktoum International Airport is currently undergoing an AED117.54 billion expansion programme.
By the end of Q1 2022, it will be the world’s biggest airport with a capacity of 240 million passengers per year. Free Trade Zones give companies 100% foreign ownership; exemption from all import duties; 100% repatriation of capital and profits; and freedom from corporate taxation.