Dubai: How much money should UAE residents earn to buy real estate?

Dubai: For many foreigners, owning their own home is a long-term goal and a sign of financial stability, for which many assume they need to save or invest a lot over many years. However, for residents of the UAE, it may be better and cheaper to buy rather than rent. Paying 6,000 dirhams a month for 20 years amounts to about 1.4 million dirhams, and this does not take into account the inevitable rise in rental prices. Just in the last year, rental rates have increased by 19-20 percent. Even with a projected annual increase of 5 percent, a person paying 6,000 dirhams this year will pay over 2.19 million dirhams in just 20 years. That’s 2.38 million dirhams for rent if you pay 6,000 dirhams a month now - over 20 years with an annual increase of 5%. Add in moving costs and other hidden expenses, and it becomes clear that buying is a sensible financial decision if you plan to stay in the UAE for a long time.

We will consider the possibility of purchasing housing in Dubai for a person with an income ranging from 15,000 to 30,000 dirhams - more details at the end of this report.

Ownership instead of renting

Indian expat Sharan (43 years old) is tired of the annual rent increases and moving. "My landlord has raised my rent twice, and my wife and I have already decided that we will stay in Dubai long-term," Sharan added.

This is exactly what prompted the couple to decide to buy an apartment. The sales manager pays almost 7,000 dirhams a month for her current two-bedroom apartment and likes the layout and size of over 1,500 square feet.

According to Property Finder data, the most popular areas for purchasing real estate were Dubai Marina, Downtown Dubai, Jumeirah Village Circle (JVC), Business Bay, and Palm Jumeirah. The Bayut list also includes Al Reem Island, Jumeirah Lake Towers (JLT), and Dubai Silicon Oasis (DSO).

With the help of an agent, he secured a mortgage for a two-bedroom apartment on a different floor in the same building in Dubai Marina. The price of the apartment was 1.2 million dirhams plus fees and commissions. Compared to his current rent, Sharan will only pay an additional 900 dirhams each month for the mortgage, including maintenance fees. The apartment is already being rented out for 96,000 dirhams a year. In a month, Sharan's new apartment will pay for itself through rental income (and even provide a little extra) - until he moves in. And when he does, Sharan will be protected from future rent increases.

Off-plan or ready property?

Off-plan sales in the UAE account for a significant portion of the real estate market in the country, and the main advantage is the low entry cost and attractive payment terms. When purchasing directly from developers, buyers can also benefit from additional discounts, participate in design discussions, and enjoy high capital appreciation of the property.

But what is better for residents - off-plan or ready property? Milos Antic from the Swiss developer DHG Properties says: "In Dubai, the strength of the off-plan segment is evident; sales in this segment reached an impressive 35.71 billion dirhams ($9.7 billion) in the third quarter of 2023."

Payment for off-plan

If you can afford to pay 30 percent of your salary of 30,000 dirhams for rent, that would amount to 9,000 dirhams per month. Any off-plan property purchase, along with rental expenses, means additional payments from your pocket/savings with the potential for value appreciation or rental income in the future.

"What has been said above means that the decision to rent or buy depends on the specific family's situation. Regardless of whether they plan to rent it out for profit or live in it, off-plan property offers something that ready-made properties do not - a lower barrier to entry due to its lower cost."

However, it is important to note that obtaining a mortgage for off-plan property is more difficult (as banks prefer to provide such loans only to large developers) and is limited to about 50 percent of the property's value. For residents planning to live in Dubai for at least 10 years, buying may be more affordable than renting. Even with payment plans at 1 percent and deferred payments, it requires having a large sum in the account or a high monthly salary. Thus, for people who lack such funds, ready properties may be more feasible with the help of a mortgage.

Data from Property Finder showed that completed properties account for 52.8 percent of the total number of transactions, and sales of completed properties reached a new record with 16,467 transactions, the highest figure for a quarter, with an annual growth of 21.2 percent and a 7.24 percent increase compared to the figures in the second quarter of 2023. This indicates that the demand for completed properties is high and continues to grow in the market.

The most popular areas for purchasing real estate, according to Property Finder data, were Dubai Marina, Downtown Dubai, Jumeirah Village Circle (JVC), Business Bay, and Palm Jumeirah.

ZaZEN Properties, a developer focused on affordability and sustainability, hopes to address this issue. Madhav Dhaar from ZaZEN stated, "In 2019, it was reported that only about 77 percent of residents in the UAE have a net worth of less than $100,000, and about 22 percent of that group have a net worth of over $100,000." "We understand that not everyone can afford the luxurious lifestyle associated with Dubai," he added. The company plans to provide quality housing that is affordable for the middle class, Dhaar said.

The cost of rent has risen by double digits in several areas of Dubai this year, with tenants paying up to 90,000 dirhams for one-bedroom apartments depending on location and amenities. With the increasing number of branded residences, luxury villas, and penthouses being sold in the UAE, it may seem that middle-income residents can hardly afford to buy their own homes. However, data shows that this is not the case. A study by real estate consultant Knight Frank indicates that regardless of net worth, mid-range apartments—specifically two-bedroom and three-bedroom units—are in demand. For investment purposes, one-bedroom apartments are also a priority, according to the Knight Frank report. Sales search data from Bayut also shows that over 35 percent of views on the real estate website pertain to one-bedroom apartments, followed by two-bedroom apartments at 33.87 percent. The average price for a two-bedroom apartment can range from 800,000 to 2.2 million dirhams, depending on the area, amenities, and developer.

The influence of the Blue Line on prices

Sumit Augustine (35 years old) has a young son, and her real estate aspirations are focused on generating income and investments for her family's future. Augustine's father, who owns his own business, has an apartment on Palm Jumeirah that he bought for 1.2 million dirhams in 2008, when the global market was in decline. That timely purchase is helping Augustine save now - she is setting aside over 40 percent of her salary for a down payment on a studio or one-bedroom apartment.

The expat lives with her parents and brother in a family home that has now doubled in value due to its picturesque and desirable location. The expansion of the Dubai Metro Blue Line is expected to increase property prices by about 25 percent in areas with metro stops/stations. "I would buy a studio or a one-bedroom apartment, possibly in a new area, in light of the expansion of the Dubai Metro Line," she said.

Augustin wants to buy a ready-made apartment that he hopes to rent out during the peak tourist season in Dubai. A representative from Bayut stated: "According to reports from RTA, land prices in areas along this line could increase by 25 percent in line with the rise we have observed in areas such as DIP, Al Furjan, and Discovery Gardens after the launch of Route 2020."

How to determine if you can afford a ready-made house?

You need to have at least 20 percent of your target budget as a down payment - so for a house costing 1 million dirhams, you need to have at least 200,000 dirhams in savings, according to experts. Even if there is a possibility to reduce the down payment, you still need to have at least 10 percent of saved funds to cover the Dubai Land Department fees (4 percent), registration fees, NOC fees, insurance, commissions, bank fees, and other charges.

Monthly mortgage payment and potential income. If you can comfortably pay 30 percent of your income to cover mortgage expenses, you can afford to buy a home for living. If you plan to buy property for investment, your apartment should ideally pay for itself if it's ready for living, or the total amount of expenses (rent + mortgage) should not exceed 40 percent of your total income.

So, to have your own home with a salary of 15,000 dirhams, you can pay 5,000 dirhams a month after saving for the down payment. This will allow you to buy an apartment worth 1 million dirhams (after paying 200,000 dirhams as a down payment, with a mortgage interest rate of 4.24 percent, fixed for a 25-year loan). This calculation assumes that you intend to start living in the apartment. In another scenario, you could buy a studio for rental income investment. In this case, for example, if you take a studio worth 400,000 dirhams that generates rental income, you would pay just under 2,000 dirhams a month for 20 years after an initial down payment of 80,000 dirhams (20 percent). Ideally, the rental income would cover the mortgage payment and provide you with additional income.