What a solid property investment in Dubai looks like

I am about to purchase an investment property and would like to hear your opinion before going ahead. The property I am interested in buying is located in the Jumeirah Village Circle area of Dubai. It is a four-year-old, three-bedroom flat spread over 2,650 square feet. The final selling price, directly from the current owner, is Dh1.6 million and the flat is rented annually for Dh130,000. The total annual service charges and maintenance is about Dh25,000, so the net operating income will be Dh105,000 annually.

Since I will be financing 75 per cent of the property’s purchase price, I will be paying Dh90,000 annually as mortgage repayments for a 20-year loan.

Considering the above, the investment in question has the following:

• Gross rent multiplier = 12.31 per cent

• Return on equity in year one = 3 per cent (based on the Dh480,000 paid as the down payment and the closing fees)

• Break-even ratio = 89 per cent

• Capitalisation rate = 6.6 per cent

Based on the above, is this investment property a good deal? I see potential in JVC but in five years' time. YM, Dubai

Based on the information you have given, the investment return is likely to be heavily based on the future capital appreciation of the area. JVC is a growing community but I do agree with you that the optimum time to allow the community to appreciate sufficiently is five years. That said, I’m sure that after approximately two to three years from now, you will have already seen enough good capital growth to possibly think about selling at that point.

Three-bedroom apartments around this size in JVC are selling for much more than Dh1.6m. In fact, the sale prices should be around Dh1.85m to Dh1.98m. You can therefore see that you have already negotiated a good deal. The current rental income is bringing in a net return on investment of 6.6 per cent but this percentage figure would rise when you look at market rents rather than current rents. JVC is undergoing major construction including road infrastructure and the building of the community mall due for completion next year. These alone will add to the area’s popularity, which in time will then increase the return on investment. So in a nutshell, I do believe this purchase is a good investment.

I own a leasehold apartment in Dubai Silicon Oasis. Yesterday I was approached by an agent who says that his client is Japanese, however the rent is going to be paid (in one cheque) by an Emirati and the tenancy contract will also be signed by the cheque issuer. My question is should I allow a third person to occupy the unit? Is this tantamount to sub-letting? Is there any risk associated? ZK, Dubai

This is not as uncommon as it may seem. What I suggest you do here is get a letter/notification in writing from the person signing the contract and cheque confirming that he is issuing the payment on behalf of the Japanese person who presumably will be residing in the property.

He will also have to acknow­ledge that he will be respon­sible for this person and whatever obligations fall on the person living at the property.

It is worth mentioning that sub-leasing as such is not illegal as long as the landlord is aware of it. It is only illegal if he is not aware or has not agreed to it in the first place.

Mario Volpi is the chief sales officer for Kensington Exclusive Properties and has worked in the property industry for over 30 years in London and Dubai. The opinions expressed do not constitute legal advice and is provided for information only. Please send any questions to mario.volpi@kensington.ae

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