Commercial vs. residential property investment pros and cons
The benefits of investing in commercial property
Rent is reviewed annually and is usually increased based on mutual agreement and/or the LAW as it prevails.
Commercial tenants will also tend to maintain the property better as the look and condition of the property is important to their business and their staff. But commercial leases also have added protection for the owner in the form of make good clauses, maintenance clauses and management clauses.
The return on invested capital on commercial properties ranges between 7% and 10% net after all costs. Residential property investors must pay all outgoings and other costs, although of course this can be negatively geared. Deductible rates on commercial property, though, are higher than for residential because of higher depreciation rates.
The benefits of investing in residential property
Lenders are much stricter on borrowing criteria for commercial properties and if the property is not let at the time you purchase it, you may have to pay more in terms of incidental costs.The commercial property market can be less predictable than the residential market (where historically properties tend to double in value every 7 to 10 years). There are also different kinds of commercial property to consider such as commercial, industrial and retail. With proper research, you may find that you are more comfortable making the decision about which type of property to invest in.
Although residential leases are shorter than commercial ones, residential properties are generally easier to let, meaning you will have less time when the property is vacant. It can take months to find a new commercial tenant.
Whether you choose residential or commercial property, the more you know about your market, the safer your investment will be
How much money can I borrow?
How much do I need to save for a deposit?
What other costs are involved in a home purchase?
- Developer administration fees
- Land Department TITLE DEED REGISTRATION fees
- Agency Commissions as applicable
- Valuation fees
- Lenders mortgage insurance (LMI)
- Connection fees/deposits phone/gas/electricity
Until 2002 it was not possible for foreign nationals to own freehold title to property in Dubai…however, in a bid to boost investment into Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum announced that he would change the laws back in 2002 and a property boom ensued.
Dubai property buying process
It is usual for a buyer who selected a Dubai property off plan to hold back a small final percentage until completion to ensure the construction is completed properly. Once final inspection has been made, keys have been handed over and possession of the property has been taken over by the buyer, deeds will be transferred into the purchaser’s name.
One of the additional benefits of buying property in Dubai is that purchasers are given residency rights in the emirate. These rights apply whether you buy new or resale property. If you choose to go for the latter option then the buying process is slightly different to that covered above. For a start an offer has to be made to the vendor this is usually only a verbal offer and, if accepted, both parties in the sale sign a preliminary sales contract and a deposit is paid…this can be up to 10% of the purchase price. This deposit is generally non-refundable unless the vendor withdraws from the sale which they can only do under exceptional circumstances.
If a buyer will require a mortgage in Dubai they must have this agreed in principle before signing any contract and parting with any money. With a mortgage agreed in principle, a lawyer instructed to act on the buyer’s behalf, a verbal offer made and accepted and a preliminary sales contract signed and deposit paid, any conditions of that sale that have to be met such as successful searches being completed etc., a final contract is drafted and signed and all monies remaining are transferred. Finally, the property for sale is transferred into the name of the new owner.
When conducting a property transaction through a brokerage in Dubai, only work with licensed brokerages who are registered with RERA. To verify the license number provided, please contact the Dubai Economic Dept. To verify RERA Number, please contact the RERA.