Affordable communities offer best rental yields

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Affordable communities offer best rental yields
Dubai Marina was the most sought-after community to rent in 2015 with over 68 million searches, says dubizzle. - Photo by Leslie Pableo

Dubai - Established areas have scope for capital appreciation

By Deepthi Nair

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Published: Wed 23 Mar 2016, 4:42 PM

A one-bedroom apartment in Dubai Marina was the most sought-after property type for sale in 2015, with over six million searches, according to data provided by dubizzle.
Dubai Marina was also by far the most sought-after community to rent in 2015 with over 68 million searches, reveals dubizzle.
This information will be of great help to prospective investors to zero in on a community that offers scope for both capital appreciation and rental returns."As the true value of your capital appreciation is only realised upon the future sale of your asset, buying in an area that will be popular for sale when you anticipate selling it is worthy of consideration. Now suppose you want your money to start paying you an income via a rental yield, it is imperative you research the best areas to rent a property. Look for an area with a high rental demand, not necessarily the most properties being offered to let," advises Richard Jolley, head of the property listings department at dubizzle.
If your aim of property investment is capital appreciation, it is ideal that you buy an offplan unit. However, these investments are high risk and could leave you saddled with negative equity in case the market goes down.
Alternatively, investing in a ready property can provide you with instant returns in the form of rental yields. Capital appreciation is also likely, although not guaranteed.
Total returns
A recent report from REIDIN indicates that rental yields can account for 40 per cent of the total returns on a property investment in the long run.
"Downtown Dubai, excluding Burj Khalifa, International City, Dubai Marina and Jumeirah Lakes Towers are potentially the best areas for capital appreciation for apartments. As for villas, the best potential capital appreciation areas are Jumeirah Park, Al Furjan, Jumeirah Village Triangle and Arabian Ranches," according to Haider Tuaima, head of research at ValuStrat. Other experts vouch for the investment credentials of established prime areas.
"In particular, we're thinking of the Palm Jumeirah, Emirates Hills and DIFC/Downtown. We also believe that Jumeirah, as an increasing number of freehold projects are being developed, should see very strong capital appreciation in the long term for those who can enter early and at a reasonable price - for instance, in City Walk or, over the next few years, around the Dubai Canal," says David Godchaux, chief executive of Core, UAE associate of Savills.
Meanwhile, the highest rental yields are witnessed in affordable areas such as Jumeirah Village, International City and Sports City, relative to blue-ribbon communities like Dubai Marina, Downtown and Palm Jumeirah.
"For example, in International City, an investor can attain a gross yield of up to 10 per cent, whereas in Downtown, it is capped between five to six per cent," says Hussain Alladin, head of research at GCP Properties.
Service charges
He cautions: "Another factor that an investor should be cognizant of is the service charges associated with the building. Typically, high-end properties have a service charge that is double that of mid-income localities on a per square foot basis, which further widens the gap between the net and gross returns for the segments."
In the same vein, ValuStrat's Tuaima informs: "The highest net yields for apartments can be found in International City up to 7.2 per cent, followed by Remraam and International Media Production Zone, both at seven per cent, and Discovery Gardens at 6.9 per cent. As for villas, the highest net yields can be found in Arabian Ranches at 6.8 per cent, followed by The Lakes at six per cent and Al Furjan at 5.8 per cent."
 Tenants ready to make a switch
Falling sales prices and stable rents make a good case for ten-ants in Dubai to consider home ownership and investors seeking high yields."The decline in prices at a quicker rate in comparison to rents has resulted in increasing yields and we expect this to continue for the best part of 2016, making it more interesting for renters to consider owner-ship and for investors to re-enter the market at lower prices and higher yield levels," says David Godchaux, CEO of Core, UAE associate of Savills.
"We are now witnessing a growing pool of investors and renters who are anticipating a balance in price and increase by the end of 2016, as many have shown they are ready to transact now if they believe the price is right," he adds.According to ValuStrat's Haider Tuaima: "Our outlook for the second quarter is that the residential market will continue its stable trend. Average asking rents will marginally soften and sale volumes will slightly increase, with prices witnessing minor upticks in some areas."
 
- deepthi@khaleejtimes.com


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