UAE Property: ‘I can’t find a buyer as my tenant is paying low rent’

A landlord can apply for a rental valuation letter from the Dubai Land Department and it will cost about Dh3,000. Leslie Pableo for The National

Question: I wrote to you before regarding evicting my tenant on the grounds of refurbishment, but I lost this case in court.

I have now issued my tenant with a new eviction notice on the grounds of selling the property, which I intend to do.

However, my tenant is currently only paying Dh190,000 ($51,735) rent annually. No one is interested in buying my property with a tenant in situ at this rate.

Should I get a rental valuation done since the current market rate for a similar property begins from Dh310,000?

If I lose the case again, I would not be able to charge more than Dh190,000 in rent. However, I do not want the tenant to either think I want him to stay or take me back to court to fight the eviction. MR, Dubai

Answer: If the tenant is paying rent at what you believe is way lower than he or she should be, you can go to the Dubai Land Department and request a rental valuation letter, which will cost about Dh3,000.

The valuation will help but the rent hike should also fall in line with Decree 43 of 2013, which determines the maximum percentage of rent increase for property in Dubai.

Having a tenant who is paying a reduced amount of rent will obviously not help you finding a buyer if they are an investor, but there are end-user buyers, too.

For now, I would advise you to go down the rental valuation letter route, to see if the rent can be increased.

Ultimately, you may have to wait for an owner occupier to buy your property.

Q: I want to diversify my income by investing in real estate in Dubai. I have money saved up but am not quite sure on where to invest it.

I want to buy a property only for the sake of investment and do not intend to live in it.

Would a residential or retail unit be better suited for investment, from the perspective of returns and capital appreciation?

Also, does a villa or a smaller-sized apartment generate better returns? Is it better to invest in established communities or up-and-coming communities?

I would also like to explore the idea of fractional ownership in property. I have been seeing advertisements that claim you can invest in Dubai real estate for as low as Dh500. How do these models work and are they reliable? GK, Dubai

A: Investing in real estate comes in many forms and you will need to do your research. But before this, you need to decide if the purchase is primarily for capital appreciation or return of investment – basically, whether the property is already built and can be let out for a return on investment or off-plan (capital appreciation).

It is important to note that capital appreciation is only possible in a rising market but just like stocks and shares, the value of property can go down, as well as up.

That said, we are presently in what is known as a bull run, where prices continue to rise, but as said, this could change at any time, depending on several factors.

The difference between residential and commercial in terms of investing can be daunting. So, unless you are commercially savvy, I would suggest you stick to residential units as both can attract capital appreciation. Getting it spot on with a commercial unit could be a tougher task.

With regards to villas or apartments, again this depends on what is currently trending. At the moment, villa communities are commanding a high premium in both sale and rental prices. This is due to the fact that there are less villa/townhouse communities being built compared to apartments within tower blocks.

Apartments can also command a great return on investment if the property attracts the holiday home market due to its location, beach and attractions.

These asset classes can achieve double-digit returns on investment, especially during high season. However, be careful about potential void periods during the low season.

Fractional ownership is starting to take traction in Dubai. There are a few schemes where you can invest a few thousand dirhams and be part of a larger investor base, but remember that the returns will be commensurate to the percentage of your investment.

For example, if you own just 1 per cent of the property due to the low entry level, you will gain only 1 per cent of the return on investment when rented or capital appreciation when it is sold.

Returns can be between 8 per cent and 12 per cent a year. The minimum investment is Dh2,000.

You will then have fractional ownership over a specific property. The beauty is that you can add, hold or withdraw your investment after the initial holding period. The choice is yours.

Mario Volpi is head of brokerage at Novvi Properties and has worked in the property sector for 40 years in London and Dubai. The opinions expressed do not constitute legal advice and are provided for information only. Please send any questions to [e-mail]