How to choose an investment property in Abu Dhabi

The UAE is a desirable destination for investors wishing to make a profitable investment and generate a stable income. Even though Dubai is considered the leading emirate in terms of property investment, the Emirati capital, Abu Dhabi, is gaining popularity as it offers affordable and luxury projects throughout the capital. To make a profitable investment, one should understand the process of choosing the right property, corresponding to his/her needs. In this article you will find all the necessary information about choosing the right investment property in Abu Dhabi and generating a passive income.

While choosing a property, keep an eye on its developer and try to learn more about the company’s history and portfolio of completed and upcoming projects.

The following steps will help you to understand if your expectations will meet with reality:

• Spend some time surfing the internet and finding out information about the developer which you are interested in.
• Visit its official websites and social media accounts.
• Try to learn more about the awards which have been given to the developer.
• Check news about delays and read the specified forums without ignoring customer comments and reviews.
• If possible, visit their completed projects with a real estate agent, which will help you to see other pros and cons of the company.

Best Property Developers

The leading real estate developer in Abu Dhabi is Aldar Properties, which was founded in 2004. The developer creates unique projects corresponding to modern standards in residential, commercial, hospitality, leisure and educational sectors, as well as taking part in the creation of theme parks, marinas and golf courses. The portfolio of Aldar includes Yas Mall, Yas Marina Circuit, Aldar Academies, as well as residential projects such as The Gate Towers on Reem Island and Mamsha Al Saadiyat on Saadiyat Island.

Another well-known Abu-Dhabi based developer is IMKAN, known for residential, commercial, hospitality and retail projects across continents and countries such as the UAE, Morocco, Egypt, the Seychelles, Sri Lanka and Montenegro. IMKAN, which was founded in 2017, is a part of Abu Dhabi Capital Group (ADCG) and offers creative solutions for each project, which correspond to the needs of residents, tenants and investors. Among its most recent projects are Pixel in Makers District, Nudra community on Saadiyat Island and Sheikha Fatima Park.

Reportage Properties is one of the largest private developers in the Emirati capital, which is developing projects not only in Abu Dhabi, but also in Dubai. Its developments are in high demand among investors, no matter what their budgets are. The company was created in 2014 and has successfully earned a great reputation among local and foreign buyers. Thus, Leonardo Residences in Masdar City by Reportage Properties showed record-breaking numbers when 93% of all its residential units were reserved on the first day after the official groundbreaking ceremony in 2016.

Note: Among other known Emirati developers are SAAS Properties, Baraka Real Estate Development, Mubadala, Bloom and Tamouh.

Legal Issues

Since 2015, all real estate developers are required to follow the Real Estate Regulatory Act No. 3, which asks developers to:

• Provide investors with a development plan
• Get a construction permit from the Department of Municipal Affairs (DMA)
• Open an escrow account where investors’ funds will be stored

It’s worth noting that for each project, a special escrow account should be opened. This will be held in trust with the DMA or an authorised bank, and the developer will get access to the account after the construction phase is completed, which means overhead costs cannot be paid from these deposit funds. Moreover, 5% of the total assets is continued to be withheld by the trustee for a year after the completion of the project, as this money can be used to remedy possible defects in case the building doesn’t correspond with the standards published from the master plan.

To make a profitable investment, one should choose the right area which is popular among long-term tenants, business professionals or tourists coming to the emirate in search of entertainment and leisure activities. It’s better to choose an option which will correspond to the needs of various tenant categories, instead of just one

Best Units & Areas to Invest in

The choice of an apartment to invest in depends on your budget and aims. According to the H1 2022 Abu Dhabi Sales Report by Bayut & dubizzle, among the most desirable areas in Abu Dhabi, which boast a high ROI, are:

• Masdar City with 7.29%
• Al Ghandeer with 7.17%
• Al Reef with 6.89%
• Al Reem Island with 6.68%
• Yas Island with 6.58%
• Al Raha Beach with 6.05%
• Saadiyat Island with 5.32%
• Baniyas with 4.99%

Note: Yas Island is the entertainment hub of the emirate of Abu Dhabi, which attracts tourists throughout the year. This means that residences in this area will be in high demand for short-term rentals.

In terms of units to choose from, luxury 1–2 bedroom apartments are among the most popular options for investment, as these types of units are in demand among single professionals, couples and small families with children.

Another popular question is, is it better to invest in off-plan or completed property? On one hand, purchasing an upcoming unit is more profitable, as you will always be able to resell it at a higher price upon its completion due to the fact that properties under construction are usually 10–30% less expensive than ready-to-move-in units. On another hand, purchasing a ready-to-move-in unit will provide you with an opportunity to rent it out and generate income straight after the successful transaction.

Note: The 2007–2008 crisis has shown that trends in the real estate market change rapidly. Therefore, you should always be ready that the value of your unit will decrease. In this case, don’t get into a panic, just remember that a rented property will provide you with income even during the negative times.

Calculate Your Future Rental Yield

ROI is a coefficient of return on investment and a key indicator of rental yield. The formula of this number is:

ROI = (Return on Investment – Net income / Cost of investment) * 100%

Even though taking the price into consideration is important while making a purchase, keep in mind that if the ROI in the area is low, you will not be able to generate a profitable income. In addition, beginners in the sphere of investment often ignore the costs of property maintenance, the process of finding tenants, renovations and other costs. Gross profitability depends on all of the above, and in order to evaluate the effectiveness of your investment with an ROI calculation, we provide you with the following example.

For instance, you have purchased a 1-bedroom residential unit with an area of 1,359 sq. ft in Mamsha Al Saadiyat on Saadiyat Island for AED 2,600,000 (USD 708,000). The rental cost of this type of property is AED 105,000 (USD 28,500) per year.

The gross rate of return from being the owner of such a unit will be:

GNP = 105,000 / 2,600,000 = 0.04 or 4%

The amount of your real income will depend on the registration fee which is 2% or AED 52,000 (USD 14,000), a brokerage fee which is 2% or AED 52,000 (USD 14,000), as well as the maintenance fee for the residence which is AED 13 per sq. ft or AED 17,667 (USD 4,810).

This means that:

ROI = (105,000 – 17,667) / (2,600,000 + 52,000 + 52,000) = 87,333 / 2,704,000 = 0.032 = 3.2%

Note: The rental procedure is a difficult process, which requires a professional broker to assist and guide you through every step. You can find more information about the process of renting a property in Abu Dhabi in this article.

The average return on investment in the Emirati capital is 7–9 years. To get the maximum profit, your property should attract potential tenants, and we advise you to answer the following questions before purchasing and renting the residence out

• Is the area where your property is located actively developing?
• Are there important infrastructure objects in the surrounding area?
• Is the transport network convenient enough both in terms of public and private transport?
• Does the surrounding area boast enough entertainment and leisure facilities?
• How many residential projects are similar to yours that can be found in the same area?

It’s worth noting that professional investors rely on the return of their rental income, and relying on potential capital gains is a risky investment. Keep in mind that in case you purchase a property with a mortgage, the rental price should at least cover your mortgage repayments, including bank interest and other overhead expenses. Mortgages are quite popular among foreigners wishing to purchase a property in Abu Dhabi and other emirates. Usually 25% of the total price of the chosen unit should be paid as a down payment, while the other 75% are financed by local banks. In terms of off-plan properties, a down payment can be as high as 50%.

Metropolitan Capital Real Estate brokers know everything about the real estate market of the Emirati capital. We will assist you in choosing the residential or commercial property, corresponding to your needs and budget. Our professional brokers will prepare all the necessary documents, as well as solve any legal issues connected with the transaction. If you wish to obtain a mortgage from a local bank or want to know more about the Golden Visa system, which will enable you to stay in the country without any limits and get a wide range of benefits, we are also ready to help you.

In addition, we offer property management services, which means that we will find tenants, conclude agreements with potential tenants and transfer the income straight to your bank account without the need for you to stay in the UAE.