Why Invest in Abu Dhabi Real Estate? The Benefits, the Options, and How to Choose Smartly

You received a brochure from Bloom Properties on the villas and apartments in their inventory that you can buy as a real estate investment in Abu Dhabi. You’re open to the idea but need more information and insights.

 

This guide hopes to provide just that.

 

Why Real Estate Investment Is Worth It

Investing in real estate is a significant financial commitment. Why should you do it? For the returns. In other words, you invest in real estate to earn money from it.

 

Why not invest in stocks instead? You should undoubtedly invest in stocks, too. It’s wise not to put all your eggs in one basket, so investing in real estate should not preclude investing in securities. However, real estate is definitely a worthy addition to anyone’s investment portfolio.

 

You see, while historical data shows stocks outperform real estate in terms of annual growth rates, the right real estate investment property may provide more value and growth in the long run.

 

Leverage: Leverage is what makes this possible. Specifically, when you invest in real estate, you can essentially use your money to get more of it. In practice, you use your money as a deposit to buy the property. The rest of the capital for the real estate purchase, you borrow from the bank. For beginners, resources like this Credit Guide for Mortgage Loan can be especially helpful in understanding how this borrowing process works and how to maximize your financing options.

 

In Abu Dhabi, your maximum loan-to-value for properties under AED 5 million is 80% if you’re an expat. It’s 85% if you’re an Emirati. If you’re a foreign national in Abu Dhabi, you can enjoy a 5:1 leverage. This means you can buy a one-bedroom apartment worth AED 1,000,000 on a deposit or equity of AED 200,000.

 

Why is this a good thing?

 

Risk Management: You actually get a bigger position or exposure (AED 1,000,000) but are at risk only for your share of the property value, i.e., your deposit of AED 200,000. If the market crashes and renders you unable to make your mortgage payments, the bank will foreclose on the property to recover its share, and you may lose the entirety of your AED 200,000 investment, but no more than that. Compare that if you bought the property entirely with your own money. In that case, you’d have to swallow the whole million-dirham loss.

 

Note: Of course, over time, your equity grows, and your share of losses increases apace with it. Your costs also grow as you pay interest on your loan. That said, during the same period, you may also be earning rental income and may even be earning more than your monthly amortization.

 

Maximizing returns: Beyond the risk, leveraging in real estate investment allows you to maximize returns. When you rent the property out, the rent is calculated based on the full property valuation. The bank that lent you the money does not get a share of that rent.

 

When the property value rises or appreciates, any capital gains are attributed to your share, not to the bank’s. For instance, if the AED 1,000,000 apartment becomes worth AED 1,100,000 after one year, your equity becomes AED 300,000: the sum of your deposit and the increase in valuation.

 

Note: For simplicity, the above discussion does not account for costs. You must calculate the expenses and deduct them from the gross rent and/or gains to arrive at net yields or profit, but this sufficiently illustrates how investing in real estate can provide attractive returns, especially if you use leverage.

 

Which Category to Invest In: Affordable or Luxury Real Estate

You’re convinced real estate is a good investment. Now, you must decide on which property to buy. Should you go for standard villas and apartments, or should you opt for luxury real estate instead?

 

It depends on several factors.

 

Affordable Property Segment: If you have budget constraints, even with leverage, you may have to start in the standard property segment. Investing in mid-price real estate may also be more appropriate if you plan to monetize your property via long-term rental. Such property is much quicker to rent out because price is a primary driver in the long-term rental market.

 

Luxury Property Segment: If you can afford to, however, consider investing in premium real estate. It provides a higher return potential than the affordable properties.

 

Luxury real estate appreciates consistently over time and provides more capital appreciation gains. This is due to several factors.

 

Typically, upscale properties are found in desirable and glamorous locations, offer majestic views, have high-end facilities, and are equipped with premium amenities. Upscale apartments and villas are also well-appointed, luxuriously furnished, and built with quality materials. They age more gracefully and remain in excellent condition, better than the standard villa or apartment.

 

Investing in premium real estate is also the better option if you’re considering short-term rentals as a monetization strategy. High-end apartments and villas are an excellent alternative to hotels as tourist accommodation. They suit the needs of premium travelers, who have money to spend on vacations and for whom cost is not an object.

 

Premium short-term rentals are costlier to maintain and operate. They need excellent cleaning, and they must provide seamless customer experiences to satisfy the luxury market. In exchange, however, they bring in a higher daily rent and, thus, high rental yields.

 

Which Type of Property to Buy: Off-Plan or Ready

The apartments and villas for sale in Abu Dhabi may be classified into two types: off-plan and ready property.

 

Off-Plan Property: Off-plan property refers to apartments and villas that have yet to be built. They’re typically just plans on paper, providing dimensions (cut size) and specifications (number of bedrooms and other features) visualized through architect drawings and images on the project website or marketing flyers and brochures.

 

Buying off-plan is one way to expand the utility of your capital. Off-plan properties offer greater value or discounted prices to offset the risk of buying a property that, so far, exists only on paper.

 

Off-plan properties also carry a much higher growth potential than ready properties. After all, they’re coming from discounted rates.

 

Ready Property: Ready properties are less risky because the apartment or villa already exists. You’re not buying into a vision but purchasing something tangible. More importantly, you can immediately rent it out or sell it, which means you can realize your gains much sooner.

 

Buying Property for Investment

Real estate is a good investment vehicle. It can generate rental yields or capital gains, and you can even use leverage when buying property. It brings excellent return potentials, whether you invest in mid-range or high-end real estate or purchase off-plan or ready property, so invest in real estate if you can.