Generous capital appreciation, two-digit gross rental income on completion and limited pre-handover capital deployment: For investors of Off Plan Properties in Dubai who get their selection process and timing right, all this is achievable in Dubai. In an exceptional case analysis of real deals which are on the market today, this contribution would apply those concepts. Please note that with respect to the properties presented, my article does not constitute any kind of recommendation or offering. The exemplary investment properties selected are as follows:
In the Business Bay district, directly adjacent to Dubai Downtown, home to the world's tallest building and Dubai's No. 1 urban centre, this project by the very reputable and experienced private Dubai property developer SRG is located. SRG rightly focuses on smaller units, which is substantiated by the fact that in this luxury-dominated area of town, smaller, more accessible apartments are extremely underrepresented. A comparable and ready commodity of this kind will yield an annual rent of approximately 85,000 AED under the still subdued market conditions of H2/2016, changing hands on a sale for an estimated 1.15 m AED. SRG provides a 15 percent payment schedule upon booking, followed by two more 15 percent payments during the following year, while in November 2018 the balance of 55 percent is due upon handover. This project offers an attractive yield in a nutshell, while the venue, undersupplied target segment and powerful developer translate into a comparably low-risk profile choice.
This Mediterranean-themed villa project was launched by semi-governmental developer DP (Dubai Properties) targeting mainly families looking for accessible, mid-sized homes with calm, green surroundings. Serena provides excellent access to the vital transport lifelines Al Qudra Road, Sheikh Mohammed Bin Zayed Road and Emirates Road, located behind the sought-after Arabian Ranches group within the part of Dubai called 'Dubai land'. In addition, during rush hour hours, the new Academic City Road will pass just north of the town, providing another option and relief. For residents employed in Dubai Investment Park (DIP), Jebel Ali, IMPZ, Al Maktoum International and Dubai South, as well as the Expo 2020 site, the location of the community would be appealing, but even Jumeirah is a mere 15 minutes away, traffic permitting. The community centre is generously planned, offering on a regular basis everything needed or desired, including leisure opportunities (community pool and sports). Our sample unit is a 3-Bed townhouse plus maid's room available on booking with a 10 percent payment schedule, 5 percent every six months, while in Q2/2020 the balance of 60 percent is due on handover. Properties of comparable size, quality and location will be leased at AED 140,000 per annum under current market conditions, with an approximate price tag of AED 2,600,000. The strengths of this proposal are its government funding, good location and accessibility, as well as its place in the lower-end and family-oriented segment that is constantly undersupplied.
Situated on the outskirts of the prestigious Dubai Marina district, Studio One by Select Group offers studios as well as 1- and 2-bedroom apartments on 31 floors. The handover of the project is scheduled for December 2018. This choice is comparable to "Marquise Square" SRGs with regard to strategy, seeking to take advantage of the undersupply of small and therefore affordable living space inside the vibrant and glittering Dubai Marina. Therefore the young, usually single tenants, who form the demographic majority in this posh end of town, are expected to receive sufficient demand for such apartments. The tower has the usual facilities (pool and fitness club) plus a steam room and sauna, considering the respectable price point. The experienced developer has taken the deferred-payment option to another level, providing 10 percent payment on booking, followed by two more installments of 10 percent in the following 12 months and a whopping 70 percent on handover, a track record of 13 high-rise buildings in Dubai Marina only. At present, comparable units will produce 75,000 AED, yielding around 1,000,000 AED on a sale. This hypothetical contrast is won by Studio One, clearly due to its extremely lucrative payment schedule, which is expressed accordingly in the statistical notion of the Internal Rate of Return (IRR).
Let me point out that in fact, however the locations and segments of Property Developers in Dubai appear to perform very differently, which may yield a different outcome. Please also note that for purposes of convenience, I only considered an immediate exit from the handover investment, assuming that the current market conditions existed before the respective properties were handed over. Ancillary costs and costs were accounted for. However, contrary to the above assumptions, I expect that both leasing and transactional activity will significantly increase within the time frame considered, as well as technical and fundamental data (future supply) locations and segments indicate a likely market recovery from 2017 onwards. In addition to an immediate cash-out, the scenario of higher rental rates in particular opens up the potential for the owner of the property to stay invested, reaching double-digit continuing gross yields. Implications and Conclusion: The off-plan investment strategy requires the trading of a future delivery of the property against a discount on its price.