Dubai is undoubtedly the most popular city among travelers, entrepreneurs, and expats in the Middle East.
It’s made a remarkable transformation over the decades with an economy that currently only relies 5% on oil exports. Nowadays, tourism, trade, real estate, and financial services play a vital role here instead.
In the past years, the government has rolled out a number of foreign-friendly policies in the past years. Foreigners can apply for long term visas, own freehold property, fully own businesses in Free Zones, and more.
Not surprisingly, many locals and foreigners look towards Dubai’s commercial property sector.
In this article, you’ll learn the following:
- Can foreigners buy commercial property in Dubai?
- What are the benefits and disadvantages?
- Where can I buy commercial property in Dubai?
- Freehold vs Leasehold
- What are the most popular areas to buy commercial property?
- Buying Hotels in Dubai
- Buying Residential Buildings
- Buying Office Space in Dubai
- Commercial Property Taxes & Fees
Can foreigners buy commercial property in Dubai?
Dubai opened up to foreign property investors in 2002 and the real estate market literally exploded after.
During its boom years from 2004 – 2008, prices almost quadrupled and it’s said that 25% of all the World’s construction cranes were located here at some point.
Here, you have no particular issues to buy residential property or commercial property as a foreigner. Just keep in mind that certain licenses and approvals are needed, depending on the industry you operate in.
This is not the case in many other Asian countries, like Vietnam, where you’re generally allowed to on the primary market.
Worth mentioning is that Dubai’s economy has been declining in the past years.
The stock market fell as much as 25% in 2018, which kind of speaks for itself. Local property developers, like Emaar, saw their shares plunge by 50%.
Yet, we’ve started to see some recovery recently, especially in the commercial property market.
With increasing tourism, trade, and foreign companies who set up offices in Dubai, we see a bigger demand for commercial property in Dubai.
What are the benefits of buying commercial property in Dubai?
The residential market has declined much since 2014, with a big downturn in 2018. And it seems like there’s more to come. Due to the COVID-19 pandemic, the market won’t recover before 2021 most likely.
Yet, the commercial property market has performed comparably well in the past years.
Increased tourism, trading, and new settlements of international companies are mainly to thank. Some benefits of buying commercial property in Dubai are:
- It’s less volatile than equities
- The returns are often higher
- The values increase as living costs increase
- Commercial properties can provide high rental incomes and a steady cash flow
What are the disadvantages of buying commercial property?
You’ll also find drawbacks to buying commercial property. For example, the commercial property market is sensitive to recessions and economic downturns.
Also, it can be difficult to sell a commercial property if the market declines.
Where can I buy commercial property in Dubai?
First of all, it depends if you buy freehold or leasehold property. If you go for a freehold property, you can only buy in the following designated areas:
- The Palm Jumeirah
- The World Islands
- Downtown Dubai
- Old Town
- Burj Khalifa
- Business Bay
- Dubai Marina
- Emirates Hills
- Jumeirah Lakes Towers (JLT)
- Jumeirah Beach Residence (JBR)
- Discovery Gardens
- Arabian Ranches
- Midriff (specified plots)
- Dubai Investment Park (DIP)
- Falcon City
- Dubai Sports City
- Dubai Motor City
- International City
- Jumeirah Islands & Jumeirah Village
If you buy a leasehold property, on the other hand, there are no restrictions on the location of the property.
Freehold vs Leasehold
Many readers wonder whether they should go for a freehold or leasehold property when investing in Dubai.
I understand that there are many questions on this topic. Below you’ll find a list with the pros and cons of both options.
Pros of Buying Freehold Property
First of all, freehold ownership will give you full control and ownership, over an indefinite period of time
- You can sell or rent out the property on your own will
- No need to dabble with renewals of leasehold contracts
- The price appreciation is generally higher
Cons of Buying Freehold Property
As a freehold owner, you’re responsible for maintenance and structural repairs
- You need to pay expenses for the maintenance of the building
- You can only buy in designated areas (see above)
Pros of Buying Leasehold Property
- You can buy virtually anywhere. There are no designated areas for foreign property buyers
- You have less responsibility and liability to maintain the property and pay for repairs (the freehold owner should do so)
- Commercial property owners mainly benefit from the income from leases. As such, you don’t necessarily need to own a freehold property, if your goal is to earn rental incomes
Cons of Buying Leasehold Property
- Changes like renovations or remodeling need approval from the freehold owner. Keep in mind that freehold owners also need approval from the developer, when making changes to the facade of the property
- When the lease expires, the property goes back to the freehold owner. But, the leasehold term generally stretches up to 99 years. And you have the option to renew the lease, if it’s stipulated in the contract
What are the most popular areas to buy commercial property?
Before you invest in commercial property, it’s important that you understand where we’ll see the biggest future growth. The area should also suit your business operations.
In terms of search volumes, the most popular areas when investors look for commercial property are:
- Business Bay
- Jumeirah Lake Tower (JLT)
- Jebel Ali
- International City
- Dubai Marina
Located only 15 minutes from the international airport and having its own metro station, Business Bay is one of the most vibrant and trendy areas in Dubai.
Established in 2003, It’s one of the city’s many central business districts that’s set to grow much in the coming years.
There are currently around 250 residential and commercial buildings in the area. Some of the most prominent commercial buildings include JW Marriott Marquis Dubai Tower 1 & 2, Ubora Tower 1, Executive Tower M, Vision Tower, and Executive Tower M.
You’ll also find high-end residential buildings such as Churchill Residency, Trident Grand Residence, and City Premiere Hotel Apartments.
It’s widely known for being one of the best places to live in Dubai.
Jumeirah Lake Tower (JLT)
JLT is similar to Business Bay in the sense that there’s a good mix of commercial and residential buildings in the area. It’s slightly smaller than Business Bay with around 80 high-rise buildings, surrounded by artificial lakes.
Interestingly, Jumeirah Lake Tower is the second most popular area to both buy and lease commercial property in Dubai at the moment.
Here, you’ll also find many hotels, which bars must be attached to in order to sell alcohol (more about that later).
The same as it goes with Business Bay, you’ll find a metro station, many shops, and restaurants here.
Jebel Ali is the third most searched area for commercial property investments, a port town located Southwest of Dubai. As such, it’s more suitable if you’re involved in trading, logistics and similar activities.
Here, you’ll mostly find warehouses, industrial property, logistics centers, and other commercial properties in the light and heavy industry.
Thousands of companies are located here and the Jebel Ali Port is currently the biggest in the Middle East.
International City is not as packed and congested, many residents decide to stay here.
Having some of the most affordable prices in Dubai, International City has around 60,000 residents. In comparison to the above-mentioned areas, it’s suitable if you plan to buy a shop in Dubai.
Interestingly, the area has many country-specific and themed residential developments.
Some country-specific districts include England Precinct, Russia District, Spain District, Italy District, Emirates District, China District, and Greece District.
Being the fifth most popular district for commercial property in terms of search volumes, Dubai Marina is a trendy and upscale residential area in Dubai.
It’s an artificial canal city and completely man made by one of the biggest developers in Dubai, Emaar Properties.
Here, there’s a less commercial activity and more residential homes, but you’ll also find office space.
Dubai Marina has a number of renowned establishments such as Jumeirah Beach Residence, Marina Promenade, and Dubai Marina Mall.
Buying Hotels in Dubai
Dubai’s economy relies heavily on tourism. Being the fourth most visited city in the world, it’s not strange that the hotel market gets a lot of attention.
Sure, there’s been an oversupply of hotels recently and some developers even claimed that they look for investment opportunities elsewhere. However, many of these companies have already made great investments in the hotel market, adding thousands of rooms.
In addition, other real estate companies say that the oversupply will diminish after the Dubai 2020 Expo, which will welcome as many as 25 million visitors.
The hospitality industries are set to grow much in Abu Dhabi, Qatar, and Dubai in the coming years. This is something that the hotel markets will most likely benefit from.
Regulations when Buying Hotels
Buying or setting up a hotel in Dubai can be a complex matter. Therefore, you should find a reputable agent and property lawyer that can help you from day one.
To run a hotel business, you first of all need to meet the guidelines listed by the Department of Tourism and Commerce Marketing (DTCM).
Some of these include:
- That the investors/owners of the company needs to provide a bank guarantee, before a tourism license can be issued
- The hotel rooms should be at least 30 square meters
- From consumer security reasons, you should also provide an effective program to store guests’ data safely
- Packages and prices must be correctly displayed
Getting a Hotel License
As mentioned, you need to have a hotel license to run a hotel in Dubai. This is similar to other industries, where companies normally need to have a trade license.
To get a hotel license you need to provide, for example:
- Documents for the initial approval and related certifications
- Receipt of the initial approval
- ‘No objection certificate’ (international group or brand of hotels)
- Certificated trade name and other payment receipts
- Ejari certification for the property itself
- Approval from the Dubai Municipality and other entities for waste management, public health, and more
Getting an Initial Approval when Buying Hotels
To get an initial approval, you need to provide:
- An application form from the Department of Economic Development (DED)
- Passport copies of the applicants
- Plot maps, location schemes, building completion certificates for the property
- The hotel business’ classification card
- Passport copy, diplomas and certification letters from the Hotel Manager
- Approved ‘Certificate of Good Conduct’ by DTCM
Buying Residential Buildings
It’s not uncommon that companies and individuals buy complete residential buildings in Dubai.
The prices for a complete building are far off those in the central parts of places like London and Shanghai, for example. Yet, the returns can be great, stretching up to double digits.
Not to forget, you can even find objects where sellers offer guaranteed returns for many years, starting from 6% and going up.
If you want to buy a complete building, a recommendation is to work closely with a reputable agent and property lawyer. They can help you to draft all necessary contracts, negotiate with the seller and help you to close the deal.
Examples of Residential Buildings for Sale in Dubai
Just to give you an understanding about the price levels and expected ROI when building residential buildings, I’ve included two examples of listings up for sale:
- An off-plan residential building in Al Andalus, Jumeirah Golf Estates, having 29 units, 1-3 Bedrooms. The selling price is AED 30.2 million (around USD 8.2 million). The agency offers a 7-8% guaranteed return for 3 years
- A new residential building in Ewan Residences, Dubai Investment Park, having 12 units, 1-3 Bedrooms. The selling price is AED 8.5 million (around USD 2.3 million). The annual rental income is more than Rent AED 900,000 (USD 243,000)
Buying Office Space in Dubai
The office market has seen an oversupply, but we’ve also seen that media and tech firms drive demand for office space.
Truth be told, Dubai is a metropolis and financial center that continues to attract foreign entrepreneurs and businessmen.
In the past years, the government has introduced a number of new foreign-friendly policies, including long term visas, investment visas, the right to full ownership of businesses in Free Zones, and the list continues.
This doesn’t only entice bigger companies moving to Dubai, but also SMEs and startups.
As such, investments in office space can give you great returns.
Just keep in mind that the location of office space is of high importance. As mentioned above, Jebel Ali is probably most suitable if you operate in logistics or in light and heavy industries.
Areas like Downtown Dubai, Business Bay, and Jumeirah Lakes Towers (JLT) are suitable for various kinds of businesses, offering good accessibility and proximity to other central business districts.
Commercial Property Taxes & Fees
It’s important that you understand how much you need to pay in taxes when you buy, hold, and sell a property. No one wants to face any unpleasant surprises at a later stage.
Below, I’ve listed some of the most significant taxes and fees you need to pay when acquiring commercial property in Dubai.
Dubai Land Department Transfer Fee
The transfer fee is set to 4% and usually split between the buyer and seller. An administrative fee of AED 540 is added as well.
AED 4,000 for property valued above AED 500,000.
Estate Agency Fee
The real estate agent commission is generally 2% of the purchase fee. The commission rate differs and generally goes down for larger transactions.
Usually range between AED 6,000 – AED 10,000, but can go up for larger transactions. Valuations of big hotels, for example, can cost several times more.
Rental Income Tax
Leases of commercial properties are taxed at a flat rate of 10%. The rate for residential properties is 5%.
A so-called Oqood fee is charged when buying off-plan property and is usually 4% of the purchase price.
The Dubai government has also added a VAT of 5% for commercial properties.
Capital Gains Tax
No capital gains tax is charged when selling commercial property.
I hope that you found this article interesting and also recommend you to read our other property guides about Dubai.