Common knowledge about Abu Dhabi includes; a luxurious lifestyle, well-endowed infrastructural facilities, and sound economic growth. The real estate market of the capital has been rising progressively in its graphs with assistance from government policies and investment as per the data from official authorities of UAE. The opportunity to invest in real estate is very attractive to investors. However, it is necessary to know the potential Return on Investment (ROI) when investing. Now, let us consider the approach to the ROI evaluation of an Abu Dhabi property.
Understanding The Return On Investment Of Property
Another important measure concerning an investment’s performance is the rate of return, also known as the return on investment (ROI). undefined
ROI = (Net Profit / Cost of Investment) × 100
In this context, net profit refers to the amount of income that is left from the expenses of the given property.
We now turn our attention to the essential variables that help in evaluating the ROI of real estate in Abu Dhabi.
Determine The Property’s Purchase Price
To ascertain the return on investment, one has to determine the price paid for the property in question.
- Registration fee and legal expenses
- commissions for agents
- mortgage costs, if any
- Any costs that are incurred before the process of remodeling or repairs is initiated
Calculate The Potential Rental Income
In Abu Dhabi, the total rental revenue has a considerable say in the ROI of the property. Moreover, the rental market is great and offers a multitude of properties for rent in Abu Dhabi that fit different market segments. You have to conduct a CMA to be able to estimate your potential revenues from rent. It involves the process of comparing your property to similar homes in the area. This research also enables you to appreciate the pricing of the property, the rental income it can generate, and its potential for capital appreciation. Specifically, a well-implemented CMA can offer helpful information regarding strategies for boosting the ROI.
Besides, the occupancy data can also be applied in assessing the return on investment of a property in Abu Dhabi, since high occupancy means steady rent figures. There should also be a consideration of seasonal variation because there might be times of the year when travels are more frequent and consequently, the rental fees hike too.
Assess Operational Expenses
A strong relation between rental operational costs and net profit implies that the net profit of a rental property can be greatly influenced by these costs. Among these costs are:
- Fees for property management
- Upkeep and fixes
- Consider utilities that could be possibly paid for by the landlord
- Insurance for properties
- Some of the costs that are charged by the merchandising department include costs relating to marketing and advertising.
Evaluate Financing Costs
If the buying of the property is rezoned for the use of a mortgage, then you need to determine the cost of financing. This comprises:
- Mortgage payments each month
- Rates of interest
- Any other expenses incurred in borrowing finance would also be included in the definition of the term ‘costs.’
Project Appreciation Value
Eventually, properties for sale in Abu Dhabi grow in value and increase the rate of return on investment. You should be able to get an appreciation value estimate by analyzing the past pricing trends of the area. You should also consider future construction and infrastructural development projects that may add value to properties.
Net Profit = Total Rental Income − Total Expenses
Finally, employ the formula used at the start of this article to find the ROI.
Factors Influencing The ROI
Thus, it is advisable to name several critical factors influencing the access to ROI and guarantee a successful investment. undefined
Location
Location has always been known to be the major determinant of the capital growth of a property and the rental yield likely to be realized on it. Foreigners and locals seeking a comfortable lifestyle have created demand for the houses and thus the premier areas such as Saadiyat Island, Al Reem Island, and the Corniche have developed into mature places with very good rental returns.
On the other hand, some of the favorable locations in Abu Dhabi specifically for apartments are Al Reef and Al Ghadeer.
Property Type
When using the ROI equation to determine the return on investment of an Abu Dhabi real estate investment, the kind of property is also very crucial. There are very active markets for leasing of homes and homes, especially to overseas people; others are townhouses, apartments, and villas.
Nonetheless, commercial property especially the real estates, available and accessible for business within the Mussafah Industrial Area to name a few, can yield good profits. Some of the kinds of real estate in this category are; offices, commercial buildings, avenues, and industrial premises.
Market Trends
Supply and demand and other aspects of a running market need to be closely understood by a subject. But one should keep tabs on the following because too many new projects can lead to a decline in property prices as well as rentals. On the other hand, the research reveals that houses in demanded areas of the suburb, usually as a result of closeness to schools, business centers and public transport in Abu Dhabi offer a better return on investment.
