6 types of investment in the UAE

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The main advantage of investing in the UAE is having good protection on a legislative basis. The UAE attracts a large number of foreign direct investments (FDI) every year and according to the report from the United Nations Conference on Trade and Development, the UAE has a leading position among the Arab states of the Arabian Gulf in terms of the ability to attract FDI. The country provides a wide choice of asset classes for investors. We have prepared the below article, which contains information about the 6 most popular investment options in the UAE.

6 Investment Instruments in the UAE

The UAE offers investors several investment opportunities such as stocks, bonds, mutual funds, ETFs, REITs and investing in real estate.

Stocks

Stocks are portions of the capital of any company, which can be owned by investors. Money by stock ownership can be made in 2 ways:

  1. Dividends are portions of a company’s net income, which are paid on the basis of shares the investor has. In most cases, it is paid every 3 months.
  2. Appreciation in the stock price is ideal for long-term investment. For example, a shareholder may have boughtstock of a company for AED 100 (USD 27) several years ago. Now, this stock could be worth AED 185 (USD 50). This method of investing means the investor has earned AED 85 (USD 23).

Investors need to open a trading account with a broker in order to start investing in the UAE stock market. The chosen broker must be registered with one of the following exchanges in the country:

  • Abu Dhabi Securities Exchange (ADX)
  • Dubai Financial Market (DFM)
  • NASDAQ Dubai

Bonds

Investors buying bonds, lend their money to companies and expect to receive a certain income in return. As a rule, the full amount of income and the timing of its receipt become known to the investor when buying the bonds. One of the main advantages of investing in bonds is the opportunity to assess your benefits in advance.

Bonds can only be held for a certain period of time, for example, 10 or 20 years. The investor can sell them at a higher price before the maturity date, thereby earning a profit on them. If the bonds were not sold earlier, their repayment takes place within the prescribed period. The issuer then pays the owners the nominal value indicated on the bonds.

The main risk in this kind of investing is the bankruptcy of the issuing company. Secured bonds are the most reliable type of investment in such situations because the safety of investments can be secured by deposit (company equipment or other securities). In case the firm goes bankrupt, the investor will be able to sell the deposit which will then return their money. Another security option is a guarantee from another company that will assume obligations on the bonds in the event of the issuer’s bankruptcy.

Three types of bonds that are suitable for investments are:

  1. Corporate bonds. Is a debt issued by a firm in order to raise its capital.
  2. Treasury (national) bonds. These are federal government issuances.
  3. Municipal bonds. These are debt securities, which are issued by governmental entities for funding day-to-day obligations and for the financing of capital projects like schools, highways and so on.

Making money from bonds is available in 2 ways:

  1. Interest payment. Payments are made to investors twice a year. Bonds have a fixed interest rate, unlike stocks.
  2. Growth in the bond value. Investors can earn money when a bond grows in its value. For example, when the interest rate drops and new bonds are issued at lower interest rates, the value of bonds issued at a higher interest rate only rises.

National Bonds Company

In the UAE, one of the best options for investors to purchase treasury bonds is the National Bonds company, which is totally owned by the Government of Dubai, Investment Corporation of Dubai (ICD). Investors can purchase in one of the 556 outlets of the National Bonds company, exchange houses and banks.

There is no maximum limit on the number of treasury bonds an investor can purchase. The minimum required purchase of National Bonds constitutes AED 100 (10 units of AED 10). Each passing year (12 monthly payments) investors will have 1% incremental expected bonus up to 10% and calculated on cumulative average contribution.

Mutual Funds

Mutual funds are administered by a fund manager, which collects money from all investors, and are then split into smaller parts and invests in securities of different companies. By doing this, the risk of exposure is reduced. Mutual funds in the UAE are offered by Emirates NBD, ADCB, CBD, HSBC as well as other banks.

A Systematic Investment Plan (SIP) is provided by mutual funds. Investors can invest a certain amount of money in SIPs on a monthly basis for a short period of time. The minimum amount of investment in SIPs is approximately AED 734 (USD 200).

Investors can make money in mutual funds by using 2 methods:

  • Dividend/interest. Managers in mutual funds buy stocks or bonds, then distribute the obtained dividends or interest among its shareowners.
  • Appreciation in the value of mutual funds. The price for a mutual fund depends on the value of purchased securities as well as the market demand for the organization.

The cost of shares depends on the value of bonds, stocks and securities, in which the mutual fund has been invested in. And, after some time, the investor will sell their share for a higher price than they purchased, and will, as a result, receive an income. For instance, an investor wants to invest in a mutual fund of AED 200K (54K) and the price for one share in the fund is AED 2K (USD 544). The necessary surcharge constitutes 1%, so the price of one share will be AED 2,020 (USD 550). Investors can purchase 99 shares for AED 200K. After a couple of years, the investor may want to sell their shares in the mutual fund. The price for one share has risen by AED 300 (USD 82) and now stands at AED 2,320 (USD 632). The investor can sell 99 shares for about AED 230,000 (USD 63,000).

As a result, the income for 2 years will be AED 30К (USD 8K).

ETFs

Equity funds are ideally suited to passive investors because in ETFs investors can own different types of securities within this investment option. There are 2 ways to invest money in equity funds: by yourself through brokers or through a financial advisor. In the first case, investors have to open an account with a brokerage firm, which must be registered with the relevant exchange. In the second case, the financial advisor will create an ETF portfolio for the investor and periodically review it over time.

Investors can reach more diversification by combining various ETFs. For example, the investor can buy an ETF of international stocks, ETF of US stocks and ETF of global REITs which increases the income of investors and reduces their portfolio risk.

REITs

Investing in REITs (real estate investment trusts) gives the possibility for investors to enjoy the benefits of the real estate market in the UAE without purchasing properties. Investors can buy and sell shares in REITs as with any other company. REITs make money through dividends and appreciation in the value of the investment trusts. One of the best ways to own REITs for investors is to purchase them as ETFs because it adds to the diversification of the portfolio.

One of the biggest real estate investment trusts in the UAE is Emirates REIT as the company is Sharia compliant and is incorporated in the DIFC. The value of assets under management constitutes about USD 723M. The shares of Emirates REIT are traded on Nasdaq Dubai.

REITs offer investors diversification of their portfolio, simplicity and flexibility. By buying a REIT, the investor obtains a multitude of properties with diverse income streams. In addition, trading shares in an organization is easier and faster than selling a physical property asset and owning a building requires maintenance and collecting rent, while owning a share in a REIT gives investors the right to regular dividends.

Investing in Real Estate

Investment options in real estate in the UAE comprise:

  • Buying residential property and its leasing.
  • Purchase of commercial real estate and its leasing to business owners.

One of the main advantages of investing in property in Abu Dhabi is that real estate in the country won’t be affected by inflation. For example, in the emirate of Abu Dhabi, average residential prices increased by 2.2% from January to August 2021, according to the CBRE report.

Residential Property

Residential real estate prices in Abu Dhabi are lower than in Europe or America. According to the Numbeo website, the price per sq. ft for an apartment in the center of Abu Dhabi constitutes AED 1,050 (USD 286), while in London per sq. ft costs AED 5,300 (USD 1,440). Such high prices in the capital of the UK are linked to the shortage of new residential developments in the city.

The location affects the anticipated ROI of the property. According to the Property Finder website, the most popular areas in Abu Dhabi to purchase real estate in 2021 are Yas Island, The Corniche Area, Saadiyat Island, Al Reem Island, Khalifa City, Al Reef, Al Raha and Al Mushrif.

Good property investments in Abu Dhabi can offer from 7% to 11% rental returns. For instance, the minimum price of a 1-bedroom apartment with an area of 611 sq. ft for sale on Yas Island is AED 427,000 (USD 116,000). The minimum rental cost for a 1-bedroom apartment in this community constitutes AED 48,000 (USD 13,000) per annum and has an estimated ROI of 11%.

Commercial Real Estate

When investing in commercial real estate in Abu Dhabi, investors can enjoy advantages such as high returns, the possibility of renting for at least 5 years, and many more. The most popular commercial real estate in the emirate are warehouses, coworking, offices and entire buildings. For example, when buying a warehouse with an area of 41,000 sq. ft, an investor can expect an estimated ROI of 16%. When purchasing an entire building, an investor can renovate it and turn it into an office or a hotel, and then rent the separate units out through a management company.

How can we help?

Agents at Metropolitan Capital Real Estate will help you in choosing and acquiring suitable real estate and provide more information about the property and its prices. Our company guarantees transparency and legal compliance in the process of buying real estate in Abu Dhabi.

Specialists of Metropolitan Capital Real Estate also offer you the further realization of purchased real estate. The “Property Management” service includes the lease of the property on your behalf and ensuring a 100% occupancy. Our brokers are well versed in the real estate market and the legislation of the UAE, which will save both your time and money when trying to find reliable tenants.

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