Case Study: Investment in a Dubai Property

Binghatti Crescent — Jumeirah Village Circle

Real Estate Investment in Jumeirah Village Circle

Background:

In November 2022, our client invested in a one-bedroom, two-bathroom apartment of 765 sqft in the Binghatti Crescent project located in Jumeirah Village Circle, Dubai. The purchase price was AED 975,000 for a unit that was under construction. This case study evaluates the performance of this investment over five years, focusing on rental income, capital appreciation, and overall return on investment (ROI).

Investment Details:

• Original Purchase Price: AED 975,000
• Unit Size: 765 sqft
• Initial Payment Structure:
• During Construction (60%): AED 585,000
• Mortgaged Amount (40%): AED 390,000
• Mortgage Rate: 4.89%
• Mortgage Term: 25 years
• Legal Fees: AED 4,000
• DED Tax (4%): AED 39,000
• Total Initial Investment: AED 660,700 (inclusive of furnishings and fees)

Current Market Value:

• Similar units are currently valued between AED 1,100,000 and AED 1,200,000.
• Assumed Current Value (2024): AED 1,200,000

Annual and Monthly Costs:

• Annual Maintenance Fee: AED 8,000
• Monthly Electricity and Water Bill: AED 450
• Monthly Internet Cost: AED 150
• Annual Upkeep Cost: 6% of total rental income

Rental Income:

• Nightly Rate: AED 400
• Occupancy Rates:
• 2024: 90%
• 2025 onwards: 80%

Property Management Fee:

• Current (2024): 17%
• Reduced (2025 onwards): 9%

Capital Appreciation:

• Annual Appreciation Rate: 2.4% (starting from 2025)

Calculations

1. Monthly Mortgage Payment: Using the amortization formula, the monthly mortgage payment for AED 390,000 at 4.89% for 25 years is approximately AED 2,256.26.

2. Annual Rental Income and Management Fees:
Annual Rental Income=Nightly Rate×365×Occupancy Rate

For 90% Occupancy (2024):
Annual Rental Income=400×365×0.9=131,400
Management Fee=131,400×0.17=22,338
Net Rental Income=131,400−22,338=109,062

For 80% Occupancy (2025 onwards):
Annual Rental Income=400×365×0.8=116,800
Management Fee (2025 onwards)=116,800×0.09=10,512
Net Rental Income=116,800−10,512=106,288

3. Annual Costs:
Annual Utility Costs=(450+150)×12=7,200
Annual Upkeep Cost (2024)=131,400×0.06=7,884
Annual Upkeep Cost (2025 onwards)=116,800×0.06=7,008

4. Net Annual Rental Income:
Net Income (2024)=109,062−8,000−7,200−7,884=85,978
Net Income (2025 onwards)=106,288−8,000−7,200−7,008=84,080

5. Capital Appreciation:
Value in 2025=1,200,000×1.024=1,228,800
Value in 2026=1,228,800×1.024=1,258,563.20
Value in 2027=1,258,563.20×1.024=1,289,452.72
Value in 2028=1,289,452.72×1.024=1,321,441.57
Value in 2029=1,321,441.57×1.024=1,354,568.61

6. Mortgage Reduction:
Using the monthly mortgage payment of AED 2,256.26 over 5 years, the remaining principal after 5 years would be approximately AED 355,793.69.

Summary

Annual ROI Calculation:

ROI = Net Income+Capital Gain / Initial Investment

Net Annual Returns:

• 2024 (90% Occupancy):
  Net Rental Income=85,978
  Capital Gain=1,200,000−975,000=225,000
  ROI = 85,978+225,000​ / 660,700 = 47%
• 2025 (80% Occupancy):
  Net Rental Income=84,080
  Capital Gain=1,228,800−1,200,000=28,800
  ROI = 84,080+28,800​ / 660,700 = 17%
• 2026 (80% Occupancy):
  Net Rental Income=84,080
  Capital Gain=1,258,563.20−1,228,800=29,763.20
  ROI = 84,080+29,763.20​ / 660,700 = 17.2%
• 2027 (75% Occupancy):
  Net Rental Income=84,080
  Capital Gain=1,289,452.72−1,258,563.20=30,889.52
  ROI = 84,080+30,889.52 / 660,700=17.4%
• 2028 (70% Occupancy):
  Net Rental Income=84,080
  Capital Gain=1,321,441.57−1,289,452.72=31,988.85
  ROI = 84,080+31,988.85 / 660,700=17.5%

The total remaining mortgage at the end of year 5 is AED 355,793.69.

The total equity in the unit at the end of year 5 is AED 998,774.91 (calculated as the unit’s value of AED 1,354,568.61 minus the remaining mortgage of AED 355,793.69).

Conclusion

This case study demonstrates the potential profitability of investing in a property in Jumeirah Village Circle. By leveraging a strategic mortgage and focusing on rental income, the client achieves significant returns. The reduction in property management fees by Totality Estates from 2025 further enhances the investment’s profitability. The appreciation in property value and steady rental income provide a solid ROI, underscoring the attractiveness of real estate investments in this area of Dubai.

Additional Potential Costs That Will Reduce The ROI:

1. Any potential unforeseen costs or additional fees.
2. Precise long-term maintenance cost projections.

This structured approach provides a comprehensive analysis and clear presentation of the financial performance, helping potential clients understand the benefits and returns of investing in Dubai’s real estate market.

Disclaimer: This case study is intended to provide an example of potential outcomes when investing in real estate in Dubai. It should not be considered financial advice. Individual investment results may vary, and it is important to conduct thorough research and consult with a professional financial advisor before making any investment decisions.