If you have been toying with the idea of buying a second home, but hesitating at the lack of enthusiasm in the market, it is time to think differently. Depending on your earning potential and ability to handle financing, this may be a good time to take a second plunge.
The dirham’s peg to the US dollar along with low oil prices had curtailed investments from overseas investors, especially from Europe, China, Russia and the GCC. In addition, government cost-cutting and regional instability have had a trickle-down effect on the regional housing market. However, there are various signs of improvement in the Dubai housing market. Overall, real estate transactions in Dubai have jumped to Dh77 billion, representing about 20,000 real estate transactions in the first quarter, a 45 per cent increase in value compared with the first quarter last year. Trends also show that a number of home transactions in Dubai have become more affordable in the past year and hence home financing activity has recorded an overall increase.
Second home
Property deals involving financing are less volatile than cash transactions. This signals maturity of the sector and weeds out speculators. In this more stabilised market, it may be advisable for investors to consider buying a second property.
If you have enough financial buffer and no real desperation for a living space, it would be wise to book a second home and get a good return on investment. Along with audacious investors who want to build a portfolio of multiple properties for capital gains, there is also a niche section of end users who buy second homes to rent out or sell within a short time when prices rise.
Choose carefully
Investors, though, should not take unnecessary risks; they should choose their properties carefully and diligently calculate returns on their investment. It is better to go for smaller homes in established localities, which are served by schools, hospitals and public transport.
Look for ready-to-occupy apartments that are well connected to business districts and can attract a salaried population keen on renting. This way, an investor is assured of guaranteed returns within a four- to five-year holding period. If such properties are unaffordable, investors can check out areas that promise to turn into prime localities in future, with good transportation plans in the pipeline.
Rental yield
Remember, rents in Dubai will always stay relatively resilient as a large number of expat families or middle-income households may not be able to afford their own homes, but need somewhere convenient to live in.
In fact, investors now have a greater choice of properties to select from. Newer, mid-income areas such as Jumeirah Village Circle and International Media Production Zone have opened up a variety of options.
Home finance
Access to financing is now one of the key elements to keep in mind when operating in the real estate market, whether you are a first-time buyer or an experienced one. Some regulations can be confusing, which is why investors should seek advice from their banks or do online research on property sites that list the provisions of Dubai’s mortgage or home finance laws.
Rate regime
In October 2013 the UAE Central Bank issued new regulations on home financing to banks and other financial institutions. UAE customers can opt for a second home finance but with a reduced finance-to-value (FTV) of 65 per cent for UAE nationals and 60 per cent for expatriates. This FTV requirement is the same for those applying for Islamic financing and basically applies across multiple financial institutions. Except for a higher down payment, the terms and conditions for a second home finance remain the same.
If the existing property is financed, the bank will scrutinise the payment history to ascertain a customer’s fiscal discipline. Banks also have the discretion to initiate marginal cuts on FTVs and allow risk-based pricing differences for first and consecutive financing. Therefore, you should always ask for options. Interestingly, customers can also apply for a second home finance even before their first home finance tenure ends.
Off-plan option
Given some of the challenging market conditions these days, potential investors tend to restrict their budgets and avoid risks. Middle-income households, earning between Dh10,000 and Dh30,000 per month, have few options when it comes to buying completed homes. This is why many first and second home buyers are once again turning to the off-plan market, which is much more affordable than completed properties and can deliver a high profit margin upon completion.
A second home can be a very sound investment decision, but you must have total confidence in your ability to take this risk.
