In Dubai, equity release is a largely overlooked tool and is underutilized in most property investors portfolios. With interest rates near lows and the Dubai economy and property market heating up, there simply is no better time to consider your equity release options.
What is it? Equity release is a simple loan on a property you already own to unlock the “equity” within. You still own the property and can use the cash to generate additional income and capital appreciation. Let's consider a simple example. Mohammad owns in full, a 3-bed villa in Dubai currently valued at 4 million Dhs. My colleagues at Fam Mortgages can usually release 50 – 65 % of the property value. Using our preferred lender would result in Mohammad receiving 2.5 million in cash for a modest cost of 1% of the loan value and a valuation fee of 3,000 Dhs. So now Mohammad has 2.5 million in cash for a cost of only 28,000 Dhs upfront and an ongoing monthly cost of 11,924 Dhs. That sounds great but what to do with the cash ? Well looking at the opportunities on my desk right now I would suggest 2 options.
A sea view 2 bed in Bahar 2, JBR, selling for only 2.1 million or 1,367 Dhs/Sq.Ft. With beachfront property in high demand and similar properties appreciating fast, Bahar 2 still offers genuine value and a compelling lifestyle that is hard to beat in Dubai. Placing the unit into the charge of Fam Holiday Homes could see returns of up to 38,000 Dhs per year after all costs. When you consider this return can be generated from a small investment of 28,000 Dhs (loan fees plus valuation costs) the annual return on Capital Deployed is 100 % + (based on 1,100 room rate for a sea view upgraded unit and 72 % Occupancy) Your mortgage is paid and a decent profit is generated while you particpate in the long term capital gains estmated at 7 - 10 % per year over the next 10 years. It is a great addition to any pension plan.
G+1 villa plots in Jebal Ali Hills by Meras. This has to be one of the most compelling opportunities available right now. Freehold villa plots close to Palm Jebel Ali and only 24 mins drive to Marina Mall (same drive time as from Arabian Ranches), with zero maintenance fees/holding cost, selling for around 100 Dhs per Sq.Ft. With comparable freehold villa plots in Dubai ranging from 400 Dhs Per Sq.Ft + the long term prospects for land here are outstanding. A simple buy and hold an investment that could generate 100 % + returns over the coming years that does not require any maintenance or service fees. Of course, you would need to cover the annual finance costs while you wait for appreciation however with Palm Jebel Ali due to be re-energized in the coming quarters it is likely that meaningful gains will transpire within a year or two.