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Oliver Muller
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Current: Manager at Varengold Bank - Mayfair, London, UK. Previously: Emerging Markets FX Derivatives trader - Standard Chartered. Junior G10 Spot trader - Standard Chartered. Equity Research Analyst - Audi Capital. Education: American University of Beirut & UCLA, Economics & Finance
  • Where To Invest $1 Million This Year - Real Estate 1 comment
    Sep 11, 2013 1:50 PM


    Low crime Cheap petrol
    Low cost of living
    6th richest population
    0 TAX

    But for some reason.. 19th place for world Real Estate.

    (click to enlarge)


    Dubai is one of the most affordable cities in the world - but that is soon to change.

    - 18 cities are more expensive than Dubai per square foot.

    - Income: Dubai has the highest Income-per-capita of ALL these cities. Real estate prices are correlated with income. Richer people can spend more on real estate, ie higher prices.

    In this case, the richest people are buying the cheapest properties.

    - Rental Yield: Dubai has the highest Rental-yield on the list. How is that, when price-wise it is down at 19th?

    You pay an average of 6-7% of an apartment's value to rent it. That's even higher than the interest on a mortgage. So why would anyone rent when you can BUY the place with your mortgage payments?

    High rental yield is usually a leading indicator of a rising housing market. House prices usually follow rental yield and push it down to a normalized 2-3%.

    To reach 2% rental yield, the 'average' apartment would have to More than Double from today's value. And if the rental rate goes up in the process - which it will - the property has to go even higher to reach the 2% rental yield.

    - Tax: Dubai has 0% tax. Look at Number 1 on the list. Also tax-haven status: Monaco.

    - Airport: Dubai will have the worlds number One airport in a few years. More people will pass through Dubai than London, NY or any other city. Some of these travellers will stay and spend on the economy.

    - Affordability: London tenants pay weekly. My tenants in Dubai pay yearly, 1-cheque, and in advance just to get it over with.

    - Capping Mortgages: Government is considering capping mortgages in a few months to avoid a real estate bubble. This is a good thing. Hong Kong did the same and real estate prices sky-rocketed afterwards. Not that it matters - Dubai market is 85% cash buyers.

    - EXPO 2020 - With millions spent on marketing (Lamborghini police cars), Dubai has a good chance of winning the expo this year. It attracts millions of visitors who explore pavilions, exhibitions, cultural events. The expo could create up to 300,000 new jobs in Dubai and could add a nice bump to your property portfolio.

    - Dubai Debt: Economy is doing very well, stock market up 80% this year, property market up over 30%. Eventhough Dubai has several big loan repayments in 2014 and 2016, it's unlikely anything will go wrong. And there's always Abu Dhabi there to back up the Emirate in times of crisis.

    - OIL. 6% of global reserves in UAE. Economy is also well diversified with great Services sector.

    - Population Growth: 5% and expected to continue. Inflow of people to Dubai due to tax/weather/jobs/stability.

    - Safe Haven: With turmoil in the Middle East, Dubai seen as stable / safe haven.

    - Oversupply? People say Dubai is a desert with endless supply of apartments.

    Not true anymore. High-end apartments are in very high demand and hard to find.

    Index is highest quality building in DIFC, and voted best-quality building Middle East 3 years ago. You're getting a 1-bed in there for $500k.

    - Mortgage Costs: Rental income on a property entirely covers your mortgage expense (including fees, maintenance/service charges, etc) - and most likely pay you something nominal every year.

    (click to enlarge)



    Buy 3-4 apartments on leverage in the DIFC area (Dubai International Financial Center).

    Hardly any plots left to build. No new buildings coming up. Buildings like Sky Gardens are at 100% occupancy.

    The DIFC is home to 16,000 bankers. This 1 financial center contributes 3.6% of Dubai's entire GDP. Where do all these bankers live? In luxury apartments around the

    Index Tower is probably the highest-end of the towers, where you can get a 1-bed for $500k and 2-bed for $850k. For many of the bankers in DIFC, that's 1 year's compensation.

    Best of all, Index Tower is 1 block from the DIFC, and only 2 minutes from Downtown Dubai, and the Burj Khalifa (world's tallest building).

    Imagine buying a 2-bedroom, ultra-luxury, 2,000sq foot apartment in London for $850,000 - in the heart of Knightsbridge.

    If Dubai moved up only TWO spots on the global Real Estate list, to reach Istanbul at 17th, that's a DOUBLING in price - from $5,000 to $10,000/sq ft.

    EVEN AFTER DOUBLING - Dubai would be 1/4th the "average" price of London and New York.



    - Buy 4 apartments (2-beds) in Index Tower.

    - Use Leverage (80% Loan-to-Value).

    Down-payment required: $870,000. (Including fees)


    Market goes up 50%, (14% for 3 years), to AED 3,000/sq foot: you get $3,120,000. / 3.6x your money.

    Market doubles, (25% for 3 years), to AED 4,000/sq foot: you get$5,000,000. / 5.8x your money.

    Market up 150% (35% for 3 years), to AED 5,000/sq foot: you get$7,000,000. / 8x your money.

    (click to enlarge)

    UAE - 6th income rank statistic

    Photo links:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: real-estate
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  • applebook
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    Thank you very much for this valuable information. My dream is to live in Dubai.
    9 Feb 2014, 12:53 PM Reply Like
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