The Indian rich is buying property in Dubai – Tax benefits to rental yields, the driving forces at play

• In 2023, apartment prices in Dubai rose by approximately 18% and villa prices by about 22%
  
• Dubai also has no capital gain tax, which makes investing in real estate a compelling proposition.
  
• Rental yields, robust capital appreciation, and the stability of the Emirati Dirham (AED) are other reasons cited for investment.
  

After the COVID pandemic got over, the real estate market has been going from strength to strength with affluent Indians also looking outside the country to make investments. Sample this – as per a report by ANAROCK, in 2022, Indians accounted for about 40% of all home-buying deals, with a total investment of ₹35,000 crore, nearly doubling the investment from 2021.

Now, according to the Betterhomes Residential Market Report 2023, Indians have emerged as the leading investors in Dubai's real estate market, surpassing Britons in the third quarter of 2023. In the first six months of the year gone by, Indian investors pumped approximately $335 million into the Dubai real estate sector.

The Dubai real estate market has experienced robust growth in terms of price appreciation and rental yields. “In 2023, apartment prices rose by approximately 18.3%, and villa prices by about 22.2%. The market is expected to continue this trend in 2024, with short-term rentals projected to jump by around 20% and long-term rentals by 15% compared to 2023,” says Morgan Owen, managing director, Middle East and North Africa, ANAROCK Group, a real estate services company.

Growth potential

The Dubai real estate market is projected to grow by about 15% in 2024, driven by a robust economy and foreign investor interest.

“Dubai real estate has been very volatile over the last few years, but the last two to two and a half years has been a golden period. You have a market where you are seeing a boom,” says Sanjay Guha, Founder and CEO, Acquist, a real estate advisory firm.

Golden visa and tax benefit

Given its proximity to India and a sizable Indian diaspora of over 3.5 million residing in Dubai, the city has long been perceived as a second home for many Indians. “The attractive aspects of investing in Dubai include impressive rental yields, robust capital appreciation, and the stability of the Emirati Dirham (AED) being pegged to the US Dollar,” says Akash Puri, director, international, India Sotheby's International Realty.

Puri adds that Dubai's "Golden Visa" initiative has also garnered significant attention from Indian investors. Acquiring property stands as the simplest way of investing and securing a Golden Visa. If your purpose of investment is to get a Golden Visa, then you need to buy a property worth at least 2 million dirhams in Dubai. This will grant you a Golden Visa for 5 years, renewable on the same conditions.

“It must be noted that Dubai also has no capital gain tax, which makes investing in real estate a compelling proposition. Ease of doing business and a tax-friendly environment are a big plus,” says Puri.

“What is happening is that you have an option to invest in Dubai from ₹2 to ₹2.5 crore. If you look at Mumbai, you cannot buy anything at this price in a place like South Mumbai,” says Guha.

Why the HNI are investing

According to Guha, a lot of HNIs invest in Dubai to de-risk their portfolio. Their primary investments remain in the Indian rupee, but they can have alternate asset classes in dollar terms, since the Dirham is pegged to the dollar.

“Dubai offers rental yields of 4% to 7% annually, with no taxes on property rental income and capital gains, increasing the profitability of investments,” says Owen.

There is also another advantage of investing in a Dubai property. “In Dubai, you can buy the flat, put the flat on rent, get the money in your account, pay any required taxes sitting at your home in India or anywhere in the world, it is that easy and professionally managed,” says Guha.

How to invest in a property in Dubai?

The Liberalised Remittance Scheme (LRS), a program implemented by the Reserve Bank of India (RBI) allows resident individuals in India to freely remit up to $250,000 per financial year (April 1st to March 31st) for any permissible current or capital account transaction or a combination of both. That is about ₹2 crore.

Let us say a family is buying a property worth ₹8 crore in Dubai. Each of them can remit a maximum of ₹2 crore approximately in one financial year ending March. According to Guha, the payments to be made for a property can be done in such a way that half the payment is made at the end of a financial year and the other half is made in the next financial year. When done at the end of March this would mean only a few days gap in between, thus utilising limits for both financial years for both individuals.

What to keep in mind

Before investing in a Dubai property, it's crucial to conduct thorough research on the market trends and dynamics. Understanding the legal aspects related to property ownership in Dubai is paramount to ensure a smooth and compliant investment process.

“When planning to buy a property in Dubai, the initial step is to clearly define the end goal: whether the purchase is for investment purposes or personal use. This clarity guides the selection process along with comprehensive market research and engaging a reputable agency which will further be invaluable in navigating the process,” says Puri.

Additionally, considering the location and the reputation of the developer can significantly impact the property's long-term value.