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Dubai & Miami - Why Dubai has a better ROI

Published 27.06.2021

Dubai & Miami - Why Dubai has a better ROI

Miami has always been one of the leading locations for international real estate investments.
It is the seventh-largest city in the United States and according to the last census survey, more than 2.7 million people live in the city. It is a major tourism hub, with a mild climate, high economic potential and distinctive architecture. However, these features could be overcome by other attractive locations, such as Dubai. Due to the similar climate and coastal location, Dubai is often compared to Miami. Several residential megaprojects have been launched in Dubai over the last few years, including Emaar Beachfront, which was designed in an Art Deco style (Miami 1930's style). Today we'll talk about the advantages and disadvantages of each of these cities.

Real Estate Taxes in Dubai and Miami

Miami belongs to the state of Florida and is subject to its legal regulations. The average yearly property tax in Florida is 1.04% of the total value of all owned properties. Homeowners pay their taxes on an annual basis. This can be done via bank transfer, by cheque or by paying the bill in person at the IRS office. Total income from this type of tax is 4.7% of the county's annual revenue.

As of 1 January 2021, the real estate tax is calculated based on the assessed value of land and property, which is determined by an expert (a residential appraiser). After determining the current value of all real estate, the appraiser sends the data to the tax agent. The latter calculates the full amount of tax for all the taxpayer's property and sends a further corresponding notice to the tax department.

Next, the taxable base is multiplied by the tax rate which is set annually by county and municipal authorities. A tax assessment notice with the appropriate invoice will be mailed to the taxpayer no later than November 1 and must be paid before April 1.
N.B.
According to Florida Statute chapter 197, section 122, it is the taxpayer's responsibility to pay their taxes on time and to keep a complete record of the assessment. In other words, if you don't receive the appropriate bill by November 1, you'll need to go to the tax assessor's office in person and request a duplicate notice. It can be obtained online after signing up at the Miami-Dade Tax Collector website.

Certain discounts can be applied when paying taxes soon after receiving a notification:
  • 4% in November
  • 3% in December
  • 2 % in January
  • 1% in February
One can also pay their taxes in installments. To do this, a taxpayer should submit a corresponding application. The full amount of tax must be paid by March 31 of the following reporting year. A fee of USD 10 will be charged for each payment.
As for Dubai, there is no property tax, which is a considerable advantage. Any tax costs for the owner will be related only to the purchase or sale of the property.

When purchasing real estate, the buyer pays the following:
  • Property transfer fee (4%). This is set and paid at the time of the transaction in the DLD. Sometimes, the amount of the fee is divided equally between the buyer and seller, but usually, this amount is paid by the buyer.
  • Property registration fee (about AED 2,000–4,000, depending on the value of the property).
  • Value-added tax (5%). VAT was introduced in 2018. The fee isn't applied to all buyers of Dubai real estate, but only to owners and landlords of vacant commercial properties. Other types of real estate transactions are VAT-free.
  • Agent fee (2%). The presence of a certified realtor is a prerequisite when making a transaction of purchase or sale of property in Dubai. Usually, when buying a new-built property, the agent fee is paid in full by the seller. If you buy secondary real estate, the service fee of a realtor could be paid equally by both the seller and buyer.
N.B.
In the UAE, there is no gift tax or inheritance tax. The new owner will only have to pay the registration fee.

Overall Status of the Real Estate Market

As of mid-2021, the real estate broker, Redfin rates the Miami property market at 19 out of 100, deeming it unbalanced and non-competitive. The average time of selling property in Miami is 67 days at 4% below the asking price. Even highly competitive developments are being sold only after 27 days. Sales of single-family houses decreased by 8%, while sales of one-bedroom apartments decreased by 4%, compared to this time last year.
On the contrary, property in Dubai is in high demand among investors. According to the Dubai Land Department, in April 2021 alone, 4,832 property transactions worth AED 10.98 billion were registered in the emirate, which is the highest number within the last four years. At the same time, 60% of the total sales accounted for completed properties, where 69% of transactions were apartments, and 31% were villas and townhouses.
N.B. About 62% of the total number of investors who bought a property in Dubai in the first quarter of 2021 have never been to the emirate and have not bought any type of property in Dubai before. In other words, Dubai has managed to attract a whole new category of investors, while the city of Miami is slowly losing interest from foreigners.

Prices

According to Realtor.com, the average price for property in Miami is USD 398K, which is 4.9% higher than this time last year. Meanwhile, experts from Zillow predict that the prices could increase by 9.4% over the next 12 months. However, due to the high cost and reduced demand during the pandemic, local sellers have to offer discounts to attract potential buyers. The actual purchase price of housing in Miami is 95-97% of the asking price.

According to the Miami Association of Realtors, as of February 2021, single-family house prices in Miami-Dade County have increased by 21.6%. The average price of the properties increased from USD 370K to USD 450K. The average price of condos also rose 17.6% from USD 255K to USD 300K. The increase in sales price has been seen over the past nine years and is largely due to common trends in the Miami real estate market, rather than to the pandemic.
N.B. According to Ken Johnson, an economist at Florida Atlantic University's College of Business, the real estate in Miami is overpriced. According to the expert, the overpricing over the last eight years is 20%. This situation is not a good sign, but we can't speak about a complete collapse yet either. During the 2008-2009 crisis, this figure was 60%.
The year 2020 was tough for both Miami and Dubai with prices for Miami real estate continuing to rise, whereas Dubai developers have gradually reduced prices by using more affordable materials and providing special installment plans.

In 2020, the average price of residential real estate in Dubai fell by 14% compared to the previous year. However, the total number of property transactions increased by 35.5%. Note that the cost of housing is declining in both the primary and secondary markets. The Head of Core, a research consulting company; Pratyush Gurrapua said that in the first quarter of 2021 the average cost of real estate in the secondary market fell by 1% compared to the fourth quarter of the previous year. Meanwhile, the sale prices of villas increased by 3%.

Let's take a look at the property prices in Dubai, using the example of Emaar Beachfront. This waterfront residential community was designed in the architectural style of 1930's Miami and was created as a contemporary and more profitable alternative to traditional Florida resorts. Dubai architects did their best to recreate the luxury aesthetics and atmosphere of South Beach., which is why we chose Emaar Beachfront as an example. The table below shows the average price of apartments in key Emaar Beachfront residential complexes.
Emaar Beachfront's pros:
  1. Property in Emaar Beachfront belongs to the premium segment, but its price matches mid-range housing in Miami. In other words, by choosing Dubai, you will get a higher quality of real estate for a similar amount of investment.
  2. The emirate is a better location in terms of taxation as well. In Miami, the right to own property will cost you 1.04% annually, while there is no such tax in Dubai at all.
  3. Another important advantage is the location. In addition to restaurants and the beach, Emaar Beachfront residents can visit the world's tallest lighthouse, the Dubai Lighthouse (443 feet high), the artificial island of Bluewaters with Ain Dubai, an 820-feet Ferris wheel and its close proximity to get to one of the emirate's largest shopping malls, the Dubai Marina Mall, which takes less than 10 minutes. Popular hubs such as Business Bay, Downtown Dubai and DIFC are located within a 25-minute drive.

Rental Income

Miami has a fairly large rental housing market — more than 66% of the city's residents do not own their own property. The highest return on investment comes from middle-class houses and apartments, which cost from USD 300,000 to USD 400,000. The monthly rental income for such housing is USD 2,000 – USD 2,400.

About 33% of all Miami properties are occupied by tenants. As of March 2021, average rental prices were the following:
  • one-bedroom apartment — USD 1,350 per month
  • two-bedroom apartment — USD 2,048 per month
  • three-bedroom apartment — USD 2,800 per month
  • four-bedroom apartment — USD 4,200 per month
Low-cost districts in Miami are:
  • Palmer Lake
  • Mays Gardens
  • Brandon woods
  • Cantisano
  • Coral Woods
  • Dixie Heights Gardens
The most sought-after neighbourhood in the city has always been and still is Miami Beach. It has a unique and recognizable look, but most of the housing located there are overpriced, even in comparison to other properties in Miami. The district has been named the most overpriced part of the city four years in a row.
Dubai also has a good rental market. About 75% of the population in the emirate are foreigners, two-thirds of which do not have their own property, so long-term rentals are in high demand. The average cost of rentals in Dubai are the following:
In Dubai, the most popular areas with affordable housing are Jumeirah Village Circle, Dubailand and Akoya Oxygen. Properties in Jumeirah Lake Towers, Dubai Silicon Oasis and Mudon are also in high demand.

Investors interested in high-yield real estate choose central areas with luxury residential compounds, such as Dubai Marina, Downtown Dubai, Arabian Ranches, Dubai Hills Estate and Palm Jumeirah.

Impact of the COVID-19 Pandemic

There is no country in the world that has been left unharmed after the COVID-19 pandemic. The real estate markets in both Miami and Dubai have previously come to a standstill. Since May 2020, real estate sales throughout Miami-Dade County have decreased by 48%, or by 2.9% on a year-on-year basis. In Dubai, the situation was similar, with the number of transactions decreasing by more than 50%.

Since the beginning of 2021, both cities began to gradually pull out of recession, but the reaction to its consequent effects in both cities was very different. Miami has maintained both its pricing policy and property type development priority, but the structure of demand itself has been changed.

Back in 2015-2018, the main investors were wealthy foreigners — citizens of China, Russia, Brazil, Argentina, Britain, Turkey etc. In 2011, almost 33% of Miami's residents were foreigners, yet 50% of them eventually got U.S. citizenship. Today, wealthy foreigners want more affordable and safe regions, such as the UAE. Which means, the USA experiences an internal capital shift (an increase of 6.1%) — citizens with high annual income are moving to Miami from states with a higher tax burden.
N.B. The state of Florida is popular among the population of retirement age due to its mild climate.
On the contrary, Dubai's developers are becoming more active and beginning to launch new real estate projects in different price ranges. One of the sales initiatives was the promotion of exclusive residences in under-construction developments of Emaar Beachfront — Grand Blue Tower II (phase two in Elie Saab Tower) and Shorefront Residences in Beach Isle. In the past few months, several other luxury projects, such as The Royal Atlantis in Palm Jumeirah and Palm Hills in Dubai Hills Estate, have been launched in Dubai. The prices of apartments in The Royal Atlantis start from USD 1,999,000.

Since the beginning of the pandemic in Dubai, there has also been a decline in apartment prices. This is partly due to the fact that more affordable housing has appeared on the market and also due to the increased supply of ready apartments and increased demand for villas and townhouses. However, the market is showing significant growth at the present time. The latest sales numbers show that prices have increased by 10% for apartments, but it is still lower than prices for the same apartments in Miami.

Return on Investment

Return on investment, or ROI, is one of the key elements in choosing a property for investment. Both Dubai and Miami are major tourist hubs, but they have very different development potential. In addition to tourism, Dubai has price and tax advantages. In the UAE, obtaining a resident visa or staying for a few months legally in the country as a tourist is much easier than in Miami.
N.B. Real estate in Dubai gives its owner the right to become a resident. In Miami, owning property in the U.S. is not a key factor for getting a green card. Therefore, before you buy a property in Miami, you need to think about how long and on what grounds you will stay in the United States.

It is also important to consider the stability of the market for both buyers and tenants. Over the past few years, real estate prices in Dubai were declining, but even in such circumstances, the market remains relatively stable and predictable. If we are talking about Miami, the demand for residential real estate is highly dependent on the influx of foreigners, so there can be quite significant fluctuations.

The average return on investment of real estate in Miami is 3-5%. In Dubai, the ROI ranges from 4 to 8.5 percent. Considering these rates, real estate in Dubai pays off in 10-12 years on average, while property in Miami will take around 15 years to pay off.

Let's compare the ROI of real estate in these two cities. As an example we took a one-bedroom apartment in Marina Vista, Dubai (70 sq. ft, USD 327,000) and a mid-range condo in Miami (70 sq. ft, USD 300,000):
Dubai has no property ownership tax at all, while in Miami it is 1.04% per year of the assessed value of all owned properties. Both in Dubai and in Miami, when renting property owners must cover the cost of repair and maintenance of the complex, including security, parking, swimming pool, fitness room, sports grounds, landscaping etc. In Miami, this amount can vary from USD 100 to USD 800. In Dubai, maintenance is often based on the square footage of the property (about AED 15-20 per square foot).

As you can see from the table above, given that the starting prices are almost equal, buying property in Dubai offers a higher return (7.6%) than in Miami (3.16%).

Conclusion

When comparing the investment property market in Dubai and Miami, the following characteristics should be pointed out:

  1. In Miami, an investor will have to pay an annual property tax of 1.04%, while Dubai has no such tax. In the Emirates, investors will have the minimum tax burden, while in the States the owner will have to declare all their property and income to the state.
  2. Property prices in Miami are higher, but it is losing popularity among foreigners, while in Dubai, there is a moderate pricing policy and high demand from investors.
  3. ROI and demand for rental housing in Dubai are higher than in Miami.

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