Fractional Real Estate Investing for Beginners: Dubai vs. the Globe

As a real estate investing beginner, where do you start? We recommend beginning with small investments in high-profit and fast capital appreciation markets. That’s why Dubai is your haven. An uprising real estate market delivered one of the highest global revenues in the past decade. Real estate investing for beginners might be a bit risky journey. You should start with easy wins that encourage you to complete the route till the end and never step back. 

If you’re still hesitant about real estate investment, Dubai’s rapid growth will change your opinion.

It encourages you to make even more courageous steps you never imagined taking, as it’s a market full of opportunities.

In this article, we’ll compare the major differences between investment in Dubai and other global locations that invite international investors. So, you can know why it’s the best spot to start investing from.

What Is an Equity REIT?

A real estate investment trust is a company that manages, buys, sells, offers for rent, and finances properties that produce attractive income in the market you target. These properties might be residential, commercial, administrative, or even hospitality Airbnb units. The unit that a REIT operates drives a lot of investors to gain shares that enable the company to grow its portfolio and distribute the profits back to shareholders.

So, you increase your income sources without taking on the burden of managing a unit or qualifying tenants.

Comparing Dubai REITs with Global REIT Markets

When we compare the REITS in Dubai to global REITS, you can easily detect the similarities. However, there are some major differences that make Dubai’s market miles ahead.

1- Dividend Distribution

A dividend is the amount of money your account gains quarterly, semi-annually, or even monthly to earn the part of the profit the REIT achieved based on your investments. In Dubai, dividends distribution occurs twice a year; often in April and September.

The Dubai residential REIT unit dividend yield is 3.39 which is considered a high return compared to the global market. Dubai REITs mostly distribute a range from 80% to 90% of the net taxable revenue, which is nearly the same with the most global REITs.

2- Taxation

Taking the US market as an example, REIT Dividends undergo a 39.6% taxation, in addition to 3.8% surtax on investment income. On the other hand, individual investors in Dubai are not taxed.

3- Portfolio Focus

Dubai REITs are more focused on residential, retail, commercial, and even educational properties. On the other hand, Global REITs are diversified to include other properties like warehouses, data centers, healthcare facilities, and other industrial properties.

Common Misconceptions About REITs in Dubai

You might receive some misconceptions about REITs in Dubai. Some might seem partially true, others need more verification from your side, for the case you’re intending to be involved in.

1- REITs Are Only for Big Investors

Some say that REITs are just for high-ticket investors. That might be true in some places, but not in Dubai. In the case of Dubai, there are many publicly traded REITs that ensure accessibility to all investors, whether they are locals or non-residents. This type of REIT applies lower transaction costs compared to private and public non-listed REITs, spread globally.

2- REITs Deliver Lower Returns Compared to Direct Investment

A REIT is mainly a company that operates a property, it has its own services fees and about 10% to 20% it keeps as a profit. In some cases, it might be lower than direct investment and managing a unit yourself. However, Dubai Residential REIT, for example, pays dividends that are higher than rental yields that landlords achieve with their properties.

3- REITs Sound Complicated

Purchasing a property in Dubai might be a bit simpler from your financial perspective. It might be partially true. However, if you simplify the process, you can understand that you’re assigning a company to maximize the benefits of a unit. So, you ensure your net profit without holding the burden of any management.

How to Choose the Best REIT in the Dubai

Dubai is the market we recommend to start from. But, to choose the most suitable REIT in Dubai, you apply the same conditions and KPIs you will determine in any other market.

1- Occupancy Levels

An occupancy level tells you the rate at which the properties operated by a REIT are rented. This guarantees a fixed income that turns into high dividends distributed by the end of each year’s half.

2- Dividend Yield Track Record

You need to know the performance of the REIT over the past years. Does the dividend yield track record get better in terms of y-o-y? Its recorded history also signifies the market fluctuations and the ranges you expect next.

3- Management Team Experience

Like mutual funds, a REIT has a manager or management board that is aware of the best choices in the market and, most importantly, the strategies for maximum profit. Thus, you need to evaluate their experience and determine their capabilities to make good wins.

What Is Equity Real Estate Crowdfunding?

It’s an online investment approach that gathers small amounts of investment from you as a contribution to partially own a unit. It’s another opportunity to diversify your investment portfolio yourself. So, you can purchase 1% of a villa, 5% of a retail store in a shopping mall, 10% of an apartment, etc. Even if you don’t have a large capital, you can invest!

The online platforms play as an intermediary that connects investors to developers who initiate projects that require funding. Crowdfunding yields high returns based on the capital appreciation and rental income exceeding public REITs’ dividends.

Comparing Dubai Crowdfunding with Global Crowdfunding Markets

Global markets including Dubai develop regulations and terms that protect investors from fraud or any form of abusing their investments. International Organization of Securities Commissions (IOSCO) increases the investor awareness and offers a transparent framework that controls crowdfunding markets.

While in Dubai, DFSA (Dubai Financial Services Authority) performs the same role to prevent money laundering attempts, set rules, and license firms.

1- Dividend Distribution

Relying on the rental income, dividends are distributed on a monthly or quarterly basis through the online platforms that trade properties in Dubai. In other countries, the dividend distribution frequency is the same, occurring every month or every three months.

2- Taxation

Any amounts earned from crowdfunding in Dubai are tax-free, including personal income tax and annual property tax. In other countries, dividends are taxed as ordinary income for individuals. When you also sell your shares in the USA, for example, your sold investments are subject to capital gains tax. 

3- Portfolio Focus

Most online platforms that trade properties in Dubai enable you to diversify your investment portfolio. However, most units fall under the residential category in established areas, and some commercial real estate. In some parts of the world, you can find industrial properties included in the equation of crowdfunding. However, residential and commercial real estate are the center of attention.

Common Misconceptions About Crowdfunding in Dubai

Crowdfunding might receive some criticism from investment experts in terms of financial safety, so they might prefer a traditional real estate mortgage. However, if you used to invest in stocks, it’d be the same. Here, you’ll know the misconceptions about crowdfunding and the factual truths behind them.

1- Bad Deals End Up on Crowdfunding Websites

Some would say that properties that have no direct investors go for crowdfunding. False! On crowdfunding platforms, you can easily access premium units that have integrated facilities and accessibility to all needed amenities. However, their prices might be higher than average, which means they have fewer opportunities to sell. 

On the other hand, real estate businesses get access to a larger base of investors who look for prime units for partial ownership. So, the capital needed to raise is easily gathered from multiple investors of the same objective, not just one.

2- When a Crowdfunding Platform Goes Out of Business, Your Money Evaporates

Before you take such a decision, which is investing with a crowdfunding platform, you should review its bankruptcy contingency plan for such an event. Look for platforms supported by a special purpose vehicle (SPV) to isolate any financial risks.

3- Platforms With More Deals Are Better

Don’t look for quantity and seek quality. Some platforms add deals as much as they can without putting much attention to the features, case conditions, etc. So, they might deliver you more options, but that ends up being useless. Explore reputable platforms that you can trust, regardless of the number of deals they encompass.

How to Choose the Best Crowdfunding in the Dubai

Like any other investment option, you need to take into account some considerations. Thus, you become 100% confident that the equity crowdfunding in real estate is worth it for you.

1- Check the Dubai Market Regulations

Before getting involved into any investment process, you need to know the regulations that control the market you’re entering to protect your rights. Any platform you think to invest with has to be licensed by the appropriate regulatory body, either DFSA or SCA.

2- Know the Upper Investment Limits

As a retail investor, you need to preserve this classification to sustain the greater protections Dubai government offers. That’s why, you should know that you can not invest not more than 50,000 USD in an individual property and 100,000 USD in total in any year using a platform service.

3- Revisit the Illiquidity Period

You should know the period you cannot use your capital invested in the crowdfunding platform. It may be locked in for a period that extends up to 2-5 years, or until the next resale window.

Conclusion

Investment is a long journey that needs much patience and wise choices. However, the market of Dubai provides better real estate investing for beginners. As a reminder, many might make fortunes from indirect real estate investment, but real assets come from purchasing a whole property. So, consider fractional ownership, either REITs or crowdfunding, as a step toward a bigger step, which is owning a home investment in Dubai.