Minimise Real Estate Investment Risk in Dubai

Dubai real estate investment is seen as a desirable option for investors. From posh villas for sale in Downtown Dubai to the scenic Jumeirah Village Triangle (JVT), real estate options in Dubai are aplenty. However, no matter how lucrative the market seems, one must always tread cautiously regarding real estate investments. The real estate market is rife with different types of risks in property investments. Keep reading our article to understand the important factors that can help minimise real estate investment risks.

Investment Risks in Dubai: Minimize them

Let’s delve into some factors that can help reduce the risks of property investment.

• Research is Key

Any investment warrants extensive research, but it is all the more applicable to alleviate real estate investment risks. Gain an in-depth insight into the developer you plan to associate with and the property’s locality. You must critically review the developer’s previous projects in the region, payment plans, and other clauses the buyer must abide by.

You can also connect with a real estate broker for aid during this phase or research on the internet to gather more information on the developer and the project. Before you invest in Dubai real estate, carefully scrutinise factors like the locality’s development potential, access to amenities and the neighbourhood.

• Explore Multiple Areas of the Real Estate Market

A mistake novice investors make when they invest in Dubai real estate is failing to study the different areas of the market. The type of properties available in diverse areas of Dubai and the return on investment (ROI) that you can expect in each region are generally drastically different.

For instance, investment in International City might be deemed a decent investment due to the region’s high demand for residential properties and cheaper property rates. However, making a sizeable investment in a Dubai Marina property might yield higher returns in the long run. Even the number of bedrooms and property types varies from location to location. Hence, do a thorough review of the key areas before you invest in Dubai real estate.

• Plan Ahead

Investing in a property without planning can increase real estate investment risks. What is the motive behind your Dubai real estate investment? Do you plan to sell it immediately or give it out for rent? These are pertinent questions you must ask yourself before you invest in Dubai real estate.

Hence, investors should develop thorough plans with a clear exit route before they invest in Dubai real estate. To create a clear strategy for Dubai real estate investment, you can seek the assistance of a qualified financial advisor.

• Property Types

While ready sale can be the right option if you are looking for a quick real estate investment, slow and methodical investment into off-plan properties with a trusted developer could yield greater returns. However, since the pandemic, off-plan property investments in Dubai haven’t generated the expected returns. Hence, it is critical to analyse market dynamics carefully to avert real estate investment risks.

• Get a Realtor to Help You

Real estate agents in Dubai are required to register with the Real Estate Regulatory Authority (RERA). If you are new to Dubai real estate investments, it is wise to seek the advice of a qualified real estate agent familiar with the real estate market variables.

For instance, while an off-plan property investment might seem lucrative to you, the real estate agent could advise you against it due to the low development potential of the property’s location. Hiring a real estate agent is a fool proof way to minimise the risks of property investment.

• Off-plan or Ready-to-sell?

As discussed earlier, a ready sale is a much quicker investment when compared to off-plan real estate. However, ready-sale properties might not yield returns as high as off-plan properties.

In off-plan properties, the investment commences while the project is still in its nascent stages. It also offers flexible payment modalities to the buyer, including post-handover payment schemes.

The value of the final property after the handover would generally be higher than the buyer’s investment. But off-plan properties carry risks associated with delay in construction and handover, which could span years. Additionally, there is no definite guarantee that the property will yield the return the buyer anticipates. On the other hand, a ready-sale property is free of such real estate investment risks, though such properties generally offer lesser ROI.

• Choose a Property Based on its Functional Features

Apart from location and the track record of the buyer, the quality of the property itself is a critical determinant of your real estate investment risks. You shouldn’t have to shell out additional expenses for renovation after making a hefty investment.

Also, consider the long-term potential of your property. Will the property’s location continue to be the heart of the city years down the line? Ensure you consider the city’s ongoing developmental projects to reduce real estate investment risks.

In the case of residential apartments, it is critical to ensure quality standards, compliance with municipality regulations and access to essential amenities. Whether to resell or rent, if the property does not live up to necessary quality standards, it could turn out to be a liability rather than an asset.

• Select a Property or Area in demand

Whether for rent or resale, certain localities are always in demand due to easy access to schools, hospitals, airports and other amenities. However, this also depends on your long-term vision for the property. Do you plan to rent it long-term? If you plan to sell it, who are your potential buyers?

Investing in an apartment in a peaceful residential area could help turn your apartment into a source of steady rental income. On the other hand, investing in more posh localities, such as Downtown Dubai could ensure higher returns when you sell the property.

• Maintenance Costs to Consider

 While making a real estate investment, it is necessary to consider the possible maintenance expenditure. If you miss any major construction flaws during the inspection before purchase, it could cost you dearly later.

Hence, ensure you thoroughly scrutinise the property’s condition before purchase to reduce real estate investment risks. It is advisable to set aside a contingency fund for unexpected repairs or maintenance to be safe.

• Different Real Estate Projects/Areas to Invest in

It isn’t ever wise to put all your eggs in a basket. No matter how lucrative a locality in Dubai might seem for real estate investment, make sure your investments aren’t all in the same vicinity. As with any real estate market, your real estate property prices might fluctuate.

Choosing diverse locations for real estate investment can help offset the consequences associated with real estate market fluctuations.

• Invest Only a Portion of Your Budget

Real estate investment isn’t always a linear, one-time commitment. There is a multitude of financial variables that come along with it. At times, your real estate property value might depreciate, leading to losses, or you might have to spend extensively on renovation unexpectedly. Hence, setting aside a percentage of your initial investment budget for unforeseen expenditures or losses is critical to mitigating real estate investment risks.

• Identify Your Investment Horizon

It is important to set realistic goals while investing in real estate. Generally, real estate takes longer to yield returns when compared to other investment options. It might be difficult to quickly liquidate your real estate investment in a time of need. Hence, choose real estate as an investment option only if you are willing to make long-term commitments.

• Keep A Track of the Real Estate Cycle

The real estate market undergoes cycles of rise and fall. Various factors like global economic stature and developmental endeavours impact this. The real estate cycle generally consists of four key stages: recovery, expansion, hyper supply and recession. To become successful in your real estate ventures, you must research and familiarise yourself with these real estate phases’ impact on the market. This will help you to identify the risks of property investment easily.

• Make Your Real Estate Portfolio Diverse

Diversifying your investment portfolio is a guaranteed method to mitigate risk even outside real estate. Ideally, your real estate properties must be spread out across diverse locations, property types and prices. Hence, even if the demand for a certain property type or location wanes, you can rely on your other investments. Your real estate investment portfolio must also strike a good balance between high-risk and low-risk investments to minimise potential real estate investment risks.

What’s the Takeaway?

Dubai real estate investments are deemed a lucrative investment option by seasoned investors. So long as you familiarise yourself with the nuances of real estate investment, you can be hopeful of positive investment returns. This article is an essential introduction to mitigating the risks of property investment in Dubai.

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