My back-of-the-envelope calculation for the case of investing in a home in the UAE is very strong if you are going to occupy it yourself, and have at least a five-year time horizon as an expatriate with sufficient salary for a mortgage.
But I am not entirely convinced by the argument for local residential property as an investment class, or buy-to-let. That is unless you are focused on a likely, but uncertain, future capital gain rather than rental income.
This is because UAE law is currently rather too slanted against the economic interests of the investor, in other words, the landlord.
Now it is true landlords can take advantage of tenants from time-to-time, raise rents when they are allowed to by law and sometimes when they are not, and occasionally evict a tenant for nefarious reasons.
However, if landlords are unduly restricted in the way they run what is actually a business and not a social service, then that will inevitably backfire: there will be less investors prepared to risk their capital in rental housing. In extremis, tenants would not have any homes to rent.
Dubai landlords have two major complaints: rent rises are controlled by a published table of allowable increases that usually lag behind the market rate, while tenants can demand an instant cut in rent whenever the market falls. And obtaining vacant possession of an apartment or villa with a tenant can be a lengthy and tedious process.
To do this landlords must issue an official eviction notice giving the tenant 12 months' notice. This will also have to be from the next annual contract renewal date, so in practice it can be almost two years.
By contrast a tenant can leave at anytime with a far shorter notice period, usually two or three months.
Furthermore, it is not enough for repossession that a landlord simply wants their freehold property back. They have to prove that its return is either for their own use, or that the property will be sold.
There are stiff penalties if the landlord is found cheating the rules to repossess what is actually in law their freehold property. It is, of course, harder to sell a property without vacant possession, for obvious reasons.
The situation could be far worse though. Woe betide an investor in French rental property who wants to evict a family with young children. Be prepared for a lot of legal work and a very uncertain outcome.
Actions of the concerned authorities do have an important impact on local real estate investment; it is not just a matter of doing what is fair for tenants. The landlord actually makes this process possible.
Rebalancing these rules and regulations could make sense. Abu Dhabi removed rent control some years back, for example, and that was a success in terms of increasing investor interest in the UAE’s capital city.
Perhaps the much larger freehold market in Dubai would benefit from similar treatment.
A friend of mine recently went to New York to wind up the estate of a deceased aunt whose apartment boasted fantastic views over Central Park. I think he was hoping to inherit it but it turned out to be a rent-controlled apartment costing US$1,000 (Dh3,673) a month, a quarter of the market rate. The old lady who died was 99 and her original landlord was long dead.
Any property law that allows a tenant to hang onto a property for a long time at a low rent do not benefit investors.
I know of a former tenant in Dubai that once rented an apartment in The Greens during the recession of 2010 and stayed for five years.
The way that the Rera rental index lags behind the market meant that by the time he finally decided to leave due to redundancy he was paying 30 per cent less than the market rate. Great for the tenant, but what about the investor that owned the apartment? Their rate-of-return was much lower due to the managed rather than free market. Will such investors decide against buying real estate in Dubai?
The answer depends on the alternatives. The clampdown on the UK buy-to-let sector in recent years does not make that such an attractive option now. Some Asian real estate investment trusts might be a better deal.
However, would-be Dubai real estate investors do have some other special advantages to take into account. There is no income or capital gains tax payable on any number of properties that you own, rent or sell.
This makes it much simpler for real estate investors to calculate their return than in many other cities and it offsets some of the downside of rent control and tough repossession regulations.
But I would not say the life of a UAE real estate investor is necessarily happy.
Since January 1, there has been 5 per cent VAT on community fees and maintenance that you can no longer recoup from rents, while rents and house prices are falling across the board.
Dealing with estate agents and tenants in a market with 160 or more nationalities is not easy either, and tenants can also be very demanding. They often treat the landlord like a 24/7 hotel concierge rather than a property investor. Villas tend to be more problematic than apartments because they have more maintenance issues.
What happens when a tenant breaks something in the villa and demands an instant repair job from the landlord under the terms of the lease? Do you just pay up and arrange it, or sue them for breach of contract under duty of care? How do you prove such negligence? But these are universal problems.
As an old friend once said: "You can only deal with so many boilers blowing up in the middle of the night!"
And finally with rental yields running at record lows around the world, why would you put your hard-earned capital at downside risk in an investment with so much hassle attached?
Well, future capital gains when you ultimately sell your property could more than compensate for all these problems. That may be the best reason for becoming a landlord in the UAE.