- The burning question remains for investors when tapping into the UAE market: should one invest in real estate or enterprise?
What to watch for when deciding to invest in real estate or enterprise in the UAE
The burning question remains for investors when tapping into the UAE market: should one invest in real estate or enterprise?
Over the last few years, the United Arab Emirates (UAE) has firmly established itself as one of the leading global business hubs worldwide, drawing attention from international investors, innovators and entrepreneurs.
In Dubai in particular, in line with the Dubai Industrial Strategy 2030, the Emirate continues to build a nurturing environment that provides startups and businesses with the incentives and infrastructure to flourish. It presents a synergetic landscape of multiple sectors that complement each other’s growth and, in turn, create a thriving economy leading as an example for nations worldwide.
This intricate landscape is further leveraged by private equity firms, increasingly playing an important role in navigating and capitalising on the region’s unique market dynamics. Private equity firms can help identify lucrative opportunities and investment strategies for clients and businesses, contributing to the growth of individual businesses and strengthening the broader economy.
The two most successful sectors in the UAE over the past few years, and especially since the Covid-19 pandemic, are real estate and enterprise – intricately intertwined and acting as vital catalysts for the nation’s sustained economic prosperity.
Real estate projects fuel enterprise growth, and burgeoning businesses in turn stimulate demand for commercial and residential spaces. The burning question remains for investors when tapping into the UAE market: should one invest in real estate or enterprise?
Market demands and trends
The UAE’s ambitious 10-year economic roadmap includes the Dubai Economic Agenda (D33), which aims to double the size of the economy over the next decade, becoming one of the top three economic cities in the world. Today, the region shows no signs of slowing down, despite global uncertainties.
As the population grows, there is naturally more demand and heavy reliance on the real estate industry to provide homes; both for rental or purchase. The real estate market in Dubai has grown massively in recent months, and the current upward trend of high pricing is evident in both rental and purchase sectors.
For real estate owners, the value of their assets is remarkable – probably the highest they have ever seen. For those who have not yet invested, they may consider purchasing real estate after the sharp increase. Typically, the earlier one invests, the better, as the full arch of growth is experienced.
As more people settle in Dubai, increasing wealth enters the city and enterprises are being set up at an extremely fast pace. Whether it is businesses from abroad, franchises, or start-ups, more jobs are being created to respond to the growing demand for skilled talent – something that no other city has experienced in such a small window of time. Whether it is from Europe, India, Hong Kong or Russia, the increase in wealth has allowed enterprise to boom and create more jobs, with residents living happy and balanced lives.
The regulatory environment and ease of business
Real estate is one of the biggest contributors to the country’s GDP today. Home to millions from across the world, the population has witnessed a surge year-on-year mainly due to very clever governance, and the intelligent operating and running of the country.
In addition to various economic factors impacting other areas in the world, the GCC brings peace, high standards of living, and huge opportunity for the future – Dubai, Abu Dhabi, Doha and Jeddah are seen as the next Los Angeles, Paris, London and New York.
In some countries, it can take an investor months to purchase real estate, while in Dubai investors can buy a property in 24 to 48 hours. Investors in real estate are also eligible for the country’s 10-year golden visa.
There is a reason why wealth comes to Dubai from across the world and it is the ease of doing business. In the past two years, the UAE has set great reforms to promote and encourage investors.
Tourist visas are usually received on arrival or can easily be applied for in advance. Depending on the industry, setting up a company is a relatively seamless journey that also ensures the business owner receives a residence visa. Additionally, there are many consultancies that can ease the hassle and support new business to set up quickly.
Risk and return on investment (ROI)
Dubai is a small nation in terms of land and there is a vast difference in value and pricing in the different areas within the Emirate. For instance, the Palm Jumeirah has experienced huge spikes of appreciation in the value of villas – some over 100 percent in the last 18 months – allowing owners to record significant returns or rental yields.
Looking at other built-up areas where foreign investment has poured in such as District 1, Emirates Hills and Dubai Hills, investors have witnessed significant returns, while newer areas such as Dubai South present tremendous investment opportunities going forward.
However, it is difficult to predict as Dubai is a developing economy, which inevitably brings a certain level of uncertainty, contrary to classical markets such as the UK where real estate has been traditionally stable and secure in the long-run.
Nevertheless, Dubai is growing at a fast rate and becoming increasingly mature – almost quicker than its age. Some industry professionals may think we’ve reached the top of the market, others will say this upward trend will continue for the next few years.
For enterprise, there is no typical ROI as every company or industry is different – but there is certainly opportunity. Dubai is home to millions of individuals across all age groups, nationalities and multiple income levels, providing the perfect chance to push a new product or service.
One has to set up right: ensure they have a unique product that people want, and be aware of the socio-economic landscape of the country, law reforms, and the population outlook, in order to guide investment decisions.
Governance and careful planning are key – the UAE has already put in place strategies to mitigate risks of external economic factors. For instance, the local currency, the Dirhams (DHS) is currently pegged to the US dollar (USD) and, as the latter continues to face significant challenges with still worse to come, the UAE is continuously adapting to ever-changing economic landscapes with positive ties and trade deals with other nations and other currencies.
It is important to note that scalability will always be there – the government supports businesses and continues to nurture new ventures and entrepreneurs.
So, who is the winner?
Real estate and enterprise go hand in hand. Without high demand in real estate, there wouldn’t be many enterprise opportunities. Without this wealth flocking into the country, there wouldn’t be a high demand for jobs.
However, if one must ask where to invest, then the answer hinges on the investor’s risk appetite, current investment portfolio, outlook of the market, and sector expertise. Today, it may be smarter to invest in enterprise as Dubai is a fast-growing economy, where there are unlimited opportunities and a diverse, wealthy market to sell to. However, real estate will continue to present great opportunity for future growth, but perhaps not as the same levels as the last two years.
Nonetheless, with a strategic approach, both sectors offer promising opportunities for savvy investors looking to buy into the UAE. Careful due diligence work and thorough market analysis are crucial starting points. An investor new to the market can rely on private equity’s expertise.
At Berkeley Assets, we’ve seen a progressive shift in investor attitude in the UAE which is the opposite for the same in UK & Europe. Investors who have settled in the UAE over the past three years carry an optimistic outlook once again and often seek opportunities with increased risk for higher rewards. We aim to continue capitalising on new investment opportunities to provide stable and sustainable returns for our clients.
