To understand why Dubai, United Arab Emirates, is a good property investment option we should understand what are some main influential factors to consider when investing in any country.
Once we are aware of these most influential factors to consider when investing in any country, we can summarize them and gain more clarity and make a better investment decision.
So what are those factors to consider before investing in any country?
- Safety (Crime Rates, Geopolitical Problems)
- Economy (Growth of GDP)
- Government Ideology (Proactive Government)
- Population Shifts (Growth & Potential)
- Potential Income (Rental Yield & Capital Gains)
- Tax System (Income Taxes, Capital Gain Taxes, Land Taxes)
- Round-trip Transaction Cost (Total Cost of Transaction)
- Long Term Appeal (How would it look 20 years from now)
Safety
Safety is one of crucial factors to consider when investing in any country that no one would like to compromise on. The safety and well-being of you and your family is always the first step to consider even for a weekend trip. So why would it be any different for a real estate investment?
The truth is, for your property to bring you rental yield it has to have a tenant. For property investment to provide you with capital gain you would have to sell it to the new buyer. If the location of your investment is not safe, no one would ideally want to live or buy property there.
Safety is not only counting on human factors (crime rates) but also on environmental circumstances. Why would you invest your capital in locations where tsunamis, earthquakes, wildfires or anything of the sort occurs? It doesn’t make any sense, right? But people still do it.
Economy
The economic state of a country is a byproduct of huge amount of factors and influences. The main thing you should be looking for in a country you are evaluating for investment is growth.
A growing economy means more development, more roads, more factories, more supermarkets, hospitals etc. which ultimately means more jobs!
More jobs means more people so location can expand, you have potential tenants and your location becomes more valuable causing it to grow in rental and capital value.
Government
Government is definitely one of those big factors to consider when investing in any country. The laws & regulations, their implementation, responsiveness, transparency and efficiency determine in which direction will the country go.
Ideally we would be looking for a very transparent government. One with low corruption and good laws in place that will make the country advance faster, develop stronger economy and invite more foreign investments. All of which are good for property value.
If a country through government causes or is caused with geopolitical problems and potential disasters it would be a red flag for further evaluation.
Population Shifts
Population of the country and city we are looking to invest in is very important to consider.
Is the population growing or shrinking, what are the age groups of most residents, is there potential for further growth? Answers to these questions will give us a far better insight of how good an investment will be “down the line”.
If it is growing and country and city are inviting to more residents and younger generations there is a great potential for property appreciation.
Population shifts are happening for some time and are about to be more and more common. Now younger generations are more inclined to explore the world. That is greatly enhanced by the amount of information and it’s easy accessibility. For better weather, job or career opportunities, safer environment and overall better lifestyle people are leaving their home countries more and more.
Calculating this into your property investment can have massive benefits.
Potential Income
We have reached the point of return on investment, which of course is most important to many investors.
The key takes here are high rental yields and potential for capital gains. If we correctly evaluated previous points then we are quite sure that our investment is safe. But how profitable is it?
A high rental yield and capital gains would depend on the current market situation and entry point combined with future potential. The target for rental yield or really good rental yield would be anywhere in the range or higher than 7% annually.
It is important to understand that high rental yield and high capital gain usually don’t go hand in hand. So decide which one is more important to you.
Taxes
Another crucial point of evaluation our investment are taxes.
What’s the point of achieving 7% rental yield or 30% capital growth if half will be paid in taxes?
That is why we always evaluate taxes as one of the factors to consider when investing in any country. What are the income taxes, is there any capital gain taxes or land taxes and how much would they cost for our particular investment?
After all, it is only the net income (after-tax) that we benefit from.
Transaction Cost
Transaction cost is what most investors are not fully aware of. This cost includes every payment that needs to be covered before you can take ownership of the property. They may include everything from sales/transfer taxes, brokerage fees, registration costs to legal fees & others.
Across countries these figures vary wildly with 25% of the property price as one of the highest total transaction costs.
Even 10% of the property price as transaction cost can change the investment outcome in investor’s point of view. That is why it should be definitely considered and understood before making any commitment.
Long Term Appeal
While thinking of factors to consider when investing in any country. You should keep in mind that Real Estate is not a short-term investment. Even though there are ways to treat it as such.
The real benefits come after years of ownership and some investors hold properties for decades. That is why the long vision should always be counted in when making a good investment.
How are things looking to change over the next 5, 10 or 20 years? Understanding all the above points covered in this article you will be able to clarify with more precision if an investment in desired country will make sense over longer periods of time.
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