Looking to invest overseas but just don’t know where to start? Have a look at Dubai, a great place to start your overseas investment portfolio.
Dazzling Dubai – the numbers
- 18% average growth in property prices last year (rental yields also reached 18%)
- 280km2 the area that will be covered by Dubailand, a forthcoming tourist resort and theme park, making it larger than Disneyland and Disneyworld combined
- 700m the height of Burj Dubai, which will be the world’s tallest building when completed in 2008
- 11,000 the number of new businesses that have opened in Dubai in the last year, including Microsoft, Nokia and CNN
- 4,000,000 Dubai’s expected population in 2010
- 500,000 new homes needed in the next 10 years
DINKS main buyers in Dubai
The data from GulfTalent.com indicates a large proportion of expats living in Dubai are young professionals – either single or married. This would suggest to investors that one- or two-bedroom luxury apartments, especially those close to the marina, might be the best way to go.
Too good to be true?
Such rampant and rapid construction as Dubai is currently experiencing makes it easier for a mismatch between supply and demand in the market to occur. The worst-case scenario for the overseas investor is an overabundance of property developing, which could then see prices trend downwards.
Prices seem to rise almost as fast as the buildings, and according to Damian Harrington, associate director of international real estate firm CB Richard Ellis, the biggest risk that will face Dubai in the future is inflation.
“While Dubai offers strong returns and growth potential for investors, there is generally a higher deposit you need to pay for off-the-plan developments compared to what you’d pay in Australia,” Harrington says.
Where to invest
- Dubai Marina. Jamie Andrew of Dubai Select believes the Dubai Marina will provide both residential and commercial investors with sound long-term returns. The reason for this, he says, is that the Dubai Marina will attract holidaymakers and residents alike and will become the hub of Dubai. A small unit on the Dubai Marina costs approximately $290,000.
- The Palm, Jumeirah will provide commercial as well as residential opportunities for investors. The 5km-long man-made, palm-shaped island will consist of around 2,500 villas, a further 2,500 apartments as well as shops, restaurants, bars and retail stores. Prices for apartments can be anywhere between US$180,000 and US$2m, while villas can reach US$10m.
- The Dubai Waterfront consists of several different areas and will be the largest man-made waterfront in the world upon completion. Prices vary depending on which area of the waterfront you buy in.
- A series of loft apartments, currently being developed, are going off the plan for between US$210,000 and US$1.2m.
- Old Town is located in Downtown Dubai inland from the waterfront. The world’s tallest tower, the Burj Dubai, will house several residential apartments as well as restaurants. In total, Old Town will house 1,300 residential apartments with one-bedrooms starting at US$300,000 and the larger three- or four-bedroom apartments going for close to US$1m.
Fees and taxes
Taxes in Dubai
- Transfer tax: There are two taxes here: the first is a tax if you buy off the plan which is known as IVA. The other (ITP) is a tax you pay on a resale of a property. Both of these taxes are 7%
- Stamp duty: It currently rides at 1% regardless of the property’s cost and is payable only on the purchase of the property
- Plus valia: This tax relates to the increase of the land cost since the last sale of the property. The tax is minimal, however, and only equates to a few hundred dollars
According to Greenfields Conveyancing Consultants, as a rule of thumb you should add around 10% of the purchase price of the property to cover all foreign fees and taxes.
Any income that’s incurred must be declared, even if it’s from overseas. Capital gains tax also applies; however, because you also have to pay a foreign tax on the property, you’re entitled to a foreign tax credit, which means that when you declare the capital gain in Australia you subtract the foreign tax that you’ve already paid.
Most banks and lenders will agree to finance a Dubai property so long as you use equity from a property in Australia. It cannot be a property in Dubai or in any country other than Australia. Once you do obtain a loan, you’re charged the same rate of interest.