As previously reported, property prices and rentals have dropped over the last few years and is reportedly expected to drop another 5-10% next year in Dubai. However, according to industry analysts, the emirate and the capital Abu Dhabi offer rental yields more than double of what is offered by major capital cities like Paris, London and New York.
Moody's Investors Service, which provides credit ratings and research that covers securities and debt instruments, revealed that the residential demand in the UAE will highly likely remain supported by attractive average rental yields - ranging between 6 and 7 % - in the past year.
Compared to cities such as Paris, London, New York or Hong Kong that have 2 and 3% average rental yields, UAE’s is quite attractive as mentioned by the global ratings agency in the Global Property Guide data.
Despite the downward trend seen in residential prices and rents, the UAE real estate continues to provide some of the highest returns globally and there is an increase in property construction in 2019 and 2020 compared to last year. According to fäm’s data, 59,822 units is expected to be completed this year while in 2020 there will be an additional 3,025 units.
The reports added that Arjan apartments in Dubai came on top of the list with 12.4 % gross returns. Also, International City improved from 9.2% to 10.1% all due to healthy demand from local residents moving from other emirates during the second-half of last year.
Other areas such as Dubai Silicon Oasis, Jumeirah Village Triangle, Al Barsha, Dubai Investment Park, Green Community, Al Quoz and more offer between 8 and 9% rental returns.
On the other hand, Downtown Dubai offers 4.5%, the least rental return. This is followed by Cultural Village, Mirdif, Old town and Al Sufouh. The data also showed that even the UAE’s bottom-ranked areas offer higher returns offered by major Western cities with average rental returns of 2-3%.
In terms of villas and townhouses, Town Square offers the highest rental returns (7.2%) followed by Mudon, Reem (Mira), The Springs and JVC. While in Emirates Hills, Palm Jumeirah and MBR City offer between 2.3% to 3.4% per annum, which is the least rental returns.
Considering factors such as the location and type of property, whether apartments, villas or studios, the rental yields differ. For example, newly-established communities offer higher gross rental yields than others, and studios offer better rental yields than larger apartments.
Moody's Investors Service also forecasted that demand for residential units will grow at a slower pace in the next 12-18 months and property developers will probably continue to attract demand by extending payment terms. In return, this will create sales opportunities, especially for first-time buyers and expatriates.
In addition to the UAE offering best returns on investment, Dubai and Abu Dhabi also ranked highest for best 'quality of living' standards in Middle East for expats. It has also seen a steady improvement in personal safety, proving it an ideal place to settle and invest.