Dubai Property Price Drops Driving Stronger Yields

The property market in Dubai continues to call off, but it seems the progression of the decline holds a definite silver lining for new and potential buy-to-let investors …

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The property market in Dubai continues to call off, but it seems the progression of the decline holds a definite silver lining for new and potential buy-to-let investors in the emirate. Prices are falling and, more importantly, they are falling faster than rents. As properties in Dubai become more affordable, the balance between prices and rents tips in favor of the latter, causing overall rental yields to increase.

According to non-profit MENA Research, the year to June 2015 has seen residential property prices in Dubai fall by roughly 12.2%. Over the same period, rents have declined by only around a tenth of that speed, falling by a mere 1.2%. The result is that properties are significantly cheaper, yet commanding rents not much lower than they were before.

As of July this year, the average yield in the mainstream Dubai property market has reached a respectable level of 7.42%. This is an increase of almost a tenth (9.9%) compared to the yields on offer when the cooldown began.

This is partly down to Dubai displaying the same trends as many other major cities and economic hubs, such as London. The areas are populous and offer some of the strongest job prospects around, yet even when property purchase prices fall they remain out-of-reach for many ordinary workers. The result is strong rental demand, which tends to remain strong even when prices decline, and this is a key factor that’s propping up Dubai’s rents in the face of the current cooling off period.

Dubai has been a strong-performing and popular market recently, and even during the cooldown has not entirely ceased to receive foreign demand for properties. Speculative investors who hope to weather the cooldown and benefit from lower purchase prices and strong growth when things turn around, have still been displaying interest.

Whilst the crash Dubai experienced in 2008 was something of a catastrophe for investors at that time, the run-up to the current cooling off period saw Dubai’s government show that it had learned valuable lessons by putting in safeguards to prevent a further dip from being so much of a disaster. As such, a number of investors believe that things will be different this time, and British buyers in particular, tend to invest in Dubai in the hopes of strong capital appreciation.

According to MENA research, the strengthening of yields as a result of recent trends has reignited further interest in Dubai amidst the continuing price declines, and interest from an arguably different kind of investor. With initial rental yields proportionally stronger than they were before things started to cool off and prices now more than 12% lower, income-seeking investors are now increasingly considering whether this might be a good time to invest in the emirate.

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