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How Important is Rental Yield when Investing?

How Important is Rental Yield when Investing?

How important is rental yield when investing?

When it comes to buying investment property, is rental yield the solid indicator that reflects the strength of your investment? Or is it another statistic that can mislead or misrepresent the potential of a property?

If you’re looking for investment property, consider rental yield as one tool in your kit, albeit an important tool. It indicates the possible annual return on investment, over time, in comparison to the purchase price. This is very common in Dubai as most investors are on the look out for high net yielding properties.

Rental yield is calculated thus:

Annual Rent / Price of property

So the yield on a typical investment property is calculated thus:

AED 45,000/ 500,000 = 9%

This is what we call Gross Yield. However, because it doesn’t include a host of other variables, such as services charges, chiller fees, cost of repairs, depreciation, insurance, property management, and rates, investors should not look to yield to determine whether a property will be either positively or negatively geared. This can only be achieved through developing a cash flow projection to produce a true net yield.

Neither does the yield figure indicate or factor in possible capital growth. In fact, on many occasions, a property with high yield will be likely to offer low capital growth overtime and visa-versa (although there are exceptions).

To give an international example, many investment properties in Australian mining areas are currently offering yields of over 8%, however the prospect of long-term capital gain – which what ultimately investors are seeking – is slim. In Dubai, the same can be seen in International City properties. Good net yield with little capital growth.

On the way to choosing an investment property, a high yield is important, but not to be used in isolation when making the decision.

The best pick when it comes to investment property is a high yield dwelling in an area that promises capital gains. Add to it low maintenance costs and a great Property Manager and you have the full package!

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7 Reasons Why You Should Own an AZIZI Property in Dubai

7 Reasons Why You Should Own an AZIZI Property in Dubai

We first came into contact with AZIZI two years ago, they approached us to sign up to sell their projects, and did a great job educating us on their vision. As a relative newcomer to the market, they had a solid pitch. The type of pitch that sells to the sales person themselves.  They were well calculated, humble, and visionary.

Fast forward to today since our meeting, and we find ourselves naturally building a strong momentum to raise awareness to their projects with buyers and investors who have not had the knowledge in what good investments they could actually be missing.

There are many reasons why we personally believe in AZIZI’s products, and why they stood out from the crowed of almost infinite sea of developers in Dubai.

  1. They deliver what they promise: 2 years from our first meeting, we see their beautiful buildings completed on time, standing tall in high quality, units immediately tenanted , with strong rental ROI and capital appreciation as predicted and fulfilled!
  2. They deliver faster than any developer in the market: The ghosts of delays and cancellations in the real estate market in Dubai still lurk around and scare potential buyers. This was addressed by tightening rules from DLD and also by some developers setting delivery timelines to be 5+ years! AZIZI approached this with wisdom by choosing types of buildings that can be built in 1.5 years average, and within strong compliance to the regulations of Dubai’s Land Department – no long delays!
  3. They maintain a strong vision that inspires investors‘ confidence: As the old saying goes in real estate “Location, Location, Location”, AZIZI have chosen their location wisely! They built their properties strategically next to the metro and the life line of the city
  4. They are a family business: This angle is our favourite. Family businesses succeed based on strong values. The father owns banks, the son leads the development in Dubai, and the daughter is the head designer! Even their building names are based on their family names.
  5. They are here to stay: We cannot disclose much at this point but AZIZI has incredible plans to come.  You will hear from us closer to release but this private family owned business is about to take on more of the big giants.
  6. They are backed by their own bank: You almost can’t fail when the builder of your house also owns a bank. Unlike other developers that rely heavily on investor upfront payments, AZIZI can hold their own and provide attractive payment options.
  7. They honour their relationships: We always rate our developers based on our relationship with them, how they treat us and the investors, how accessible they are to us, and how supportive they are in terms of information sharing and timely data. AZIZI has assigned us an attentive relationship manager who is accessible 7 days a week to service our buyers and investors promptly, which is a key element of differentiation in this market. They also do a great job educating and introducing us to their products with ease.

 

What are they currently offering?

In the strategic Al Furjan area, they have launched Phase 5 of their buildings (yes they are in the 5th round!) and currently have limited stock left at an incredibly affordable rate and delivering in Q2 2018.  These buildings are strategically located in Furjan right on the new metro line extension being constructed from Ibn Battuta Mall area toward the new airport and expo site.

In terms of price investment ticket sizes, they carry:

  • Studios starting at AED 535,000 @ AED 1,093psd ($USD146,000 @ $USD298psf) with net yield of 8% (profit from rent after service charges deducted) and a capital appreciation projection of 15% PA
  • 1 Bedrooms start at AED 1M @ AED 980psf ($USD146,000 @ $USD298psf) with net yield of 7% and 15% PA capital appreciation projection
  • 2 Beds start at AED1.2M @ AED 1,101psf ($USD347,000 @ $USD300psf) with net yield of 7% and 15% PA capital appreciation projection

The BEST part is the payment plan:

For 1Bedroom and 2Bedroom:

  • Booking fee: 1%
  • Down Payment: 10 days after booking fee 4% (in addition 4% to Dubai Land Department to make the purchase official, and AED 5,000 ($USD1,360) admin fees)
  • 1st installment: 5% after 2 months from down payment
  • 2nd installment: 5% after 2 months from 1st installment
  • 3rd installment: 5% after 2 months from 2nd installment
  • 4th installment: 5% after 2 months from 3rd installment
  • 5th installment: 5% after 2 months from 4th installment
  • The above totals to 30% of the purchase price.
  • 70% remaining to be paid on handover in 2018-Q2

 

For Studios:

  • Booking/Down Payment: 10% (in addition 4% to Dubai Land Department to make the purchase official, and $USD1,360 admin fees)
  • 1st installment: 10% after 1 months from down payment
  • 2nd installment: 10% after 2 months from 1st installment
  • 3rd installment: 10% after 2 months from 2nd installment
  • 4th installment: 10% after 2 months from 3rd installment
  • The above totals to 50% of the purchase price.
  • 50% remaining to be paid on handover in 2018-Q2

These units can be rented out immediately after delivery and also can be sold (with capital appreciation, after 30% of payment and before delivery)

The investment opportunity here is fast moving, and no we are not just hyping it up. AZIZI have had significant stock movement in just the last few weeks so please talk to us about getting into some of these units, before they become history. We know the investors who bought from the first phases are happy, and more importantly, proud of their smart investment.

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Why 2017 is a Great Year to Buy Property in Dubai

Why 2017 is a Great Year to Buy Property in Dubai

As you may have heard and observed, there has been significant positive movement in the real estate market in Dubai since 2017 kicked off. We have been watching the transaction register at the Dubai Land Department (DLD) and have seen it close at a range between AED400M to AED1.4B (USD $109M-381M)! This truly signals the movement towards building the next phase of this ever-growing city, the new Dubai (Dubai South), and the road to Expo 2020 and beyond. I have spoken to a close contact who works as part of the 2020 team and he emphasized their focus on sustainability in their projects beyond 2020, and also a promising focus on the importance of legacy-oriented development. Meaning, once the 2020 expo is over, life will continue to fill out in the areas and beyond (Unlike many expos in the past where what’s left is shadows and memories past the events). This is also backed by the fact that the new Al Maktoum airport that’s aimed to be the biggest in the world. This is truly the time when we witness a new city being born.

In the first 45 days alone in 2017, the total real estate transactions registered at the Dubai Land Department netted AED45B $12.2B (half of last year’s total investors’ spend in Dubai real estate). This makes it an average of 1 billion a day!. Most of these transactions have been off-plan (buying property currently under construction or to be constructed), and we have seen some of the giants in the development market releasing new projects almost every other week and selling out in hours!

Contact Harcourts Real Estate today to discuss how you could best capitalize on this strong property movement, and we will be more than happy to assist you find the right property investment.