The math behind a real estate opportunity in Dubai

[Luca Dal Molin]

Hi everyone,

I live in Dubai and I'm starting to consider to buy a property to rent here in Dubai. The market at the moment sells at good discounts compared to 2/3 years ago and probably will see another correction in the upcoming months.

I would like to hear your opinion about two possibiliteis I have and, for convenience, I'm going to convert all the numbers in USD (rounded for easiness)

I receive from my employee an allowance to rent on my own of 46.800 USD a year. I spend 28.500 USD (utilities paid) to rent an apartment, the rest, 18.300 USD comes in my pocket.

Let's consider I want to buy an apartment at 360.000 USD (fees included) that can give me a rent of 24.500 USD a year. Having saved from my allowance 18.300 USD, would be like having a rent of 42.800 USD.

The bank offers me two options:

1. Mortgage at 4.25% variable (fixed rate not possible)

2. Personal loan of 231.000 USD to be payed in 4 years at a fixed rate of 3.25%

If I run the numbers in my Excel sheet, of course the personal loan gives me a negative cash flow for the first four years of about 15% but, after the loan is paid, the same would jump at 22% per year.

In summary, my Company contributes in paying my apartment and in 4 years it would be mine.

What do you think is best, mortgage or loan?

Luca