Risks of Buying Property in Dubai: What Investors Should Be Aware Of

Market volatility and economic uncertainty

Market volatility is a hazard in Dubai’s property market - or any other property market, for that matter. While Dubai’s real estate market has recently witnessed high transactional numbers and a significant increase in property prices, it is also subject to periods of contraction depending on various factors. 

Fluctuations in property prices

Let’s take an example. From 2012 to 2014, there was an unsurpassed surge in Dubai’s property market, where property prices were high and rents were surging. However, the market experienced a gradual decline in prices that continued until 2020. 

There was a sudden change in 2020 when transactions and property prices began a sharp upwards move that has continued until the time of writing. As of August 2024, property have grown by 17.7% in the last 12 months to a record high and have risen by 77.4% since the previous market low (as per Property Monitor). This shows that historically, slumps and growth are integral parts of Dubai’s real estate market. 

Impact of global economic conditions on Dubai's real estate

Global economic conditions can have a significant impact on Dubai’s real estate market. Events such as changes in government policies, oil price movements, and important economic events can cause a certain degree of volatility in Dubai’s real estate market. 

While buying property in Dubai is generally considered a steady investment, it is important to understand the risk of market volatility and conduct research before making a purchase.  

Legal and regulatory challenges

Dubai’s rules and regulations for real estate are relatively straightforward but can come across as confusing, especially for first-time buyers. It is also important to note that the city’s regulations are strict and non-compliance can result in legal consequences. 

To navigate the legalities of Dubai’s real estate market, buyers should consult with a RERA-accredited real estate agent who ensures that all the regulations are followed and all the paperwork is completed correctly before submission.  

Understanding property ownership laws for foreign buyers

While buying property in Dubai as a foreigner is allowed, there are certain rules that they must abide by. For example, there are specific freehold areas in Dubai that allow foreigners to buy both residential and commercial property. It is important to know about those areas and understand what kinds of properties you can buy. 

There are also specific rules for foreigners wanting to buy property in Dubai on a mortgage. Consulting with an experienced mortgage advisor in the UAE and a real estate agent can give clarity on one’s options. 

Navigating visa regulations and residency requirements

Dubai’s real estate market is open for non-resident investors, which means that not every buyer will hold a residence visa while investing in or buying property. However, non-resident investors must hold a valid passport that confirms their identity while buying property in Dubai.

They may also be required to provide a No Objection Certificate (NOC), pay a registration fee with the Dubai Land Department (DLD), and apply for a mortgage (if applicable). 

Financial risks and hidden costs

One of the most prominent risks of buying property in Dubai is the monetary aspect. Buyers often assume that their financial requirements for a Dubai property are over as soon as they have bought it. That is not the case. 

There are several hidden costs to buying property in Dubai. Before buying the property itself, you would have to pay, such as home insurance, DLD fees, real estate brokerage, property registration fees, and more. That is not all. 

Potential maintenance and service fees

As a property owner in Dubai, paying maintenance and service fees is an integral part of your ownership journey. 

Depending on factors such as your property type (e.g. apartment/townhouse/villa), the location, and surrounding amenities, the cost of maintenance and service fees will greatly vary. Generally, the higher the price point for the property, the higher the fees. 

Risks of off-plan property purchases

Off-plan properties in Dubai are highly popular options with both investors and buyers, as they generally cost less than completed properties. 

However, the risks of buying an off-plan property in Dubai pertain to factors such as:

• Delays in project completion 

• Changes in the project development plan 

• Project cancellations 

To avoid such risks, buyers should conduct due diligence and thoroughly research the property developer’s financial records, track records, and ensure that the sales contract has protective clauses to address any potential delays. 

Developer and project risks

The biggest asset any property developer has is their previous record for starting and completing projects on time. However, even the most reputed developers may face issues during the project development - which is a risk all off-plan property buyers should be aware of. 

Evaluating developer reputation and project viability

The best way to mitigate such risks of buying property in Dubai is to research the developer of a property you are interested in. Ensure to:

• Research whether people who have invested in the developer’s previous projects were satisfied with the final product. 

• Verify the developer’s reputation by looking for news articles, financial records, and project completion dates. 

• Understand the project timeline and construction milestones.

Risks associated with delays or project cancellations

Historically, the biggest risk of project delays or cancellations is the loss of money that was invested in the project. However, the DLD has introduced various regulations, such as the use of Escrow accounts, to ensure that buyer's are heavily protected in the event that any major issues arise.

Future market projections and investment outlook

While this may not be one of the biggest risks of buying property in Dubai, it is definitely an important factor to consider. 

Before diving into the buying process with thoughts such as, “How to buy an apartment in Dubai?”, it is important to analyze the potential returns of your investment and understand how future market projections could have an impact. 

Long-term vs. short-term investment strategies

Before buying a property, an investor should consider whether they want to have a long-term or short-term investment strategy.

A short-term investment strategy typically means owning a property for less than one year. Most commonly, this involves buying a property that is in need of modernization, renovating it, and then selling it for a higher price. This strategy has both a high potential return on investment but also higher risks. 

A long-term investment strategy generally results in the investor/buyer holding the property for over a year. This generally involves buying a property with the intention of renting it out, either on a short-term or long-term basis. Whilst the returns may be slower than with a short-term strategy, the risk is also typically lower and the investor can benefit from both rental income and capital appreciation over time.

Understanding market trends and future growth areas

A important way of mitigating the risks of buying property in Dubai is to research market trends and understand future growth areas that could significantly impact your investment. 

For example, the current market trends for Dubai’s real estate market are:

• Its strong and stable economy is not only being diversified into different industries but is also attracting an increasing influx of investors and foreigners - thereby creating more job opportunities. 

• The UAE government’s 0% tax rate on personal income and capital gains has attracted many business people, investors, and entrepreneurs to work and live in Dubai. Additionally, there is no annual property tax for residential and commercial properties in Dubai. 

• Sustainability is being integrated with newer constructions as developers and the government in Dubai are emphasizing a sustainable present and future. For real estate, this primarily means the implementation of green building practices and ethical sourcing of construction materials. 

• Luxury properties are witnessing a higher demand as areas such as the Dubai Marina, Arabian Ranches, Palm Jumeirah, and Downtown Dubai have seen a record number of transactions for high-end apartments, villas, and townhouses. 

Keeping abreast of Dubai’s real estate market will help you safeguard your investment and, to the best of your capability, reduce the risks of buying property in Dubai. 

Conclusion

When it comes to understanding the risks of buying property in Dubai, nobody is more privy to the real estate market workings than a real estate agent. Having years of experience and expertise in the property market, a credible real estate agent will provide end-to-end solutions for how to buy an apartment in Dubai.

Engel & Völkers is here here to guide you throughout the property investment process. With our global network and in-depth knowledge of Dubai’s property market, you can trust us to help you make informed decisions and maximize your returns. 

Contact us today to discover how we can support your real estate journey.