United Arab Emirates: Overview

RENTAL YIELDS

Last Updated: Sep 30, 2009

Prices, rents down in Dubai

Prices are falling, rents are falling, and the difference between this year and last year in Dubai is marked. But considering the amazing rise in prices between 2005 and 2007, the wonder is that prices have not fallen further, because while prices are well down on last year, they are not yet back at 2007 levels.

Another surprise: Prices and rents seem to have fallen at about the same rate. We find that Dubai apartment gross rental yields range between 5% and 7.5%, which is quite similar to last year, the difference being that larger properties surprisingly yield the most now.

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TAXES AND COSTS

Last Updated: Aug 15, 2008

Tax on rental income is low in Dubai

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	nil	nil	nil
Click here to see a worked example
Source:			Disclaimer

Rental Income: There is no income tax, but that is slightly misleading, as there is a 10% tax on residential leases, assessed on the rental income.

Capital Gains: There is no capital gains taxation in Dubai.

Inheritance: The thorny issue of inheritance has caused a lot of debate. It is hoped that the position will be clearer once the new Land Law is enacted.

Residents: The Residents' visa renewal fee is AED1,360 (US$370) every three years per person.

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BUYING GUIDE

Last Updated: Nov 19, 2007

Total transaction costs are very low in Dubai

Total round-trip costs are around 3%-7%. There are no property-related taxes in Dubai, which accounts for the low transaction costs. There is only the 2% registration fee and real estate agent's commission (1%-5%).

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LANDLORD AND TENANT

Last Updated: Mar 04, 2009

UAE’s rental law is pro-tenant

The government introduced a rent cap of 15% in 2006, which was slashed to 7% in 2007. The rent cap was further reduced to 5% in 2008, in an effort to curb inflationary pressures.

In January 2009, Dubai’s Real Estate Regulating Agency (RERA) unveiled a new rental index to replace rent caps. Following this a new rental law was released, establishing the rental index as a benchmark for rent increases.

However, RERA has come under criticism because the new rent figures were much higher than current rental rates in the market. The rental index, compiled during mid-2008 (at the height of the property boom and before the fallout from the global financial crisis), gives an inflated view of rents in Dubai. The discrepancy caused uproar and confusion among tenants who were left watching their landlords hike their rents to unwarranted levels.

This prompted RERA to update the new rental index earlier than planned. The revised index is due to be released in April 2009. Those tenants who have not yet renewed their contracts are likely to hold on to their old contracts until the new index is released.

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ECONOMIC GROWTH

Last Updated: Feb 26, 2009

The UAE faces challenging times

The United Arab Emirates (pop. 4.5 million) is one of the most developed countries in the Middle East. The UAE’s economic prosperity began in the early 1970s, after the changes in world oil prices. In 1971 the UAE was established as a federation of seven states. Then in 1973, the economies achieved monetary union with a common currency, the Dirham.

Despite enormous reserves of wealth, the UAE experienced erratic economic growth, with large slumps (-19% in 1986) and large growth spurts (16% in 1989 and 23% in 1990). However on balance growth has been strong, with an average of 6.5% annual GDP growth rate between 1972 and 1998, and similar growth since then.

Since the mid-1980s, people from all across South Asia have been attracted to settle in the country due to its high living standards and economic opportunities. This resulted in a large increase in population, with expatriate workers comprising 91% of the total workforce.

The UAE economy is extremely open and dynamic, a real hub of trade and enterprise. While oil remains the core, the non-oil economy has grown rapidly.

As a product of its diversification, Dubai now enjoys thriving tourism, real estate, finance, and manufacturing sectors. Service industries have grown fast with free trade zones in IT and the media. It is the home of numerous multinational companies such as AT&T, General Motors, Heinz, IBM, Shell, Sony, Reuters and MBC.

But the UAE’s economy, especially Dubai, is now facing challenging times. Many businesses are down-sizing. Banks are reluctant to lend. Nearly half of all construction projects in Dubai have been halted. Dubai’s stock market fell 72% last year. The real estate sector, which contributes around 15% of GDP, is collapsing.

Overall GDP growth is expected to slow sharply in 2009, with estimates ranging from 2.7% to less than 1%. For the first half of 2009 the economy could contract by as much as 1%, according to Standard Chartered.