Low mortgages make some apartments cheaper to buy than rent in DubaiPosted on 10 April 2011 with 7 comments from readers
The financial case for buying rather than renting in Dubai is currently tilting in favour of buying with mortgage interest rates down from eight per cent a year ago to around six per cent. But you still need to do your calculations carefully as this is not true for all apartments.
Service charges make a big difference. Take a modest one-bedroom apartment at The Greens now available for purchase at AED550,000 or for rent at AED50,000 with a service charge of AED11,000.
Renting vs buying
This unit will cost AED33,000 in mortgage (although in practice less with the 25 per cent deposit) plus the service charge, making a total of AED44,000 (actually AED35,750 with the deposit paid). To rent the same unit is AED50,000.
Then look at a four-bedroom penthouse in the Shoreline apartments on The Palm Jumeirah. You can presently rent this unit for AED250,000.
To buy the same property for AED4 million would mean finding AED240,000 in annual mortgage payments (or AED180,000 with 25 per cent deposit paid), plus a AED100,000 service charge making a total of AED340,000 (AED280,000 after deposit paid).
Clearly the buyer of a Palm Jumeirah penthouse would still be better off renting than buying because the landlord gets to pick up the horrendous service charge. Indeed, the same unit would have to sell for AED2.5 million to cost as much in mortgage payments annually as renting it.
Service charge impact
Therefore residents looking at buying rather than renting in Dubai are well advised to check service charges as this can make all the difference.
Of course, if you could find a property where the asking price was depressed due to a high service charge that would be a very different proposition. Then you could gamble on either rising house prices reducing the proportional impact of the service charge in future years, or an elected community board eventually lowering these charges.
However, in the meantime high service charges look likely to ruin the case for buying in certain areas of Dubai, while those apartments with lower service charges will command a modest premium and still be a good deal.