Real estate investment excites me. I cannot stop exploring and comparing real estate investment even when I am outside Canada on vacation!
However, my recent trip was different. One of the reasons for a trip to Delhi and Dubai was to meet with some of my overseas Canadian investor clients and tie up with a few top builders in Dubai and Gurgaon (a fast growing suburb of Delhi, India).
Real estate investment is all about diversification. Some investors tend to buy real estate in different national or international markets. But mostly, people seek a sense of security in buying real estate investment in places where they have either lived earlier or have close ties with.
Here are my two cents on real estate in Dubai, UAE and Gurgaon, India. Please note that my views cannot in any way be taken as an expert on these markets. Real estate is all about local expertise and local real estate specialists can always help you not only save money but also equip you with inside information about local real estate. I can proudly tell you that I have some solid connections in these markets and can always refer you to local real estate specialists in the above markets.
Gurgaon vs. Dubai vs. Mississauga (Square One) Real Estate
I explored some top builders in Gurgaon (such as DLF, Ansals, Unitech, Emmar MGF, Orris, Vatika etc.) and I can tell you that except DLF, not a single builder comes close to quality standards found in Canada. DLF is the market leader and develops sub divisions like no other builder.
However, a big problem in India is traffic, coupled with poor road construction (with the exception of some highways). Once you step out of a gated community you are in sheer chaos. People have no traffic sense. You will often find yourself sharing the road with cows, dogs, cats and pigs much to your amusement or concern, whichever way you look at it. One can only pray to safely reach one’s destination from one point to another at such times. Currently, the Delhi Metro (equivalent to TTC in Toronto) has done a great job in helping the common man reach from one corner to another in the National Capital Region (NCR) which is conceptually similar to the GTA (Greater Toronto Area).
Quality construction, top class infrastructure, traffic sense and cleanliness in Dubai can be rated as one of the best in the World. Dubai Metro (our GO Train version) is not widely spread like in Delhi, but still covers a few major arteries. Surely, it helps the common man travel with ease.
Price (per square foot)
Before I discuss the price per square foot of Mississauga condos vs. Dubai or India, I want to clarify that both in India and UAE, builders include a major portion of common area including the balcony into their square footage. So if someone in Dubai or Gurgaon discloses that their condo is 1,000 sq. ft. in size and comes with a balcony of 100 sq. ft. size, then as per Canadian standards this condo is in real only 850-900 sq. ft. The builders in India and UAE charge buyers rate that includes balcony.
Thankfully in Canada, builders exclude balcony when calculating square footage of apartments.
If I compare a similar type (2BR) and quality of property (Executive Towers condo by Dubai Properties in Business Bay, Dubai, Park Place condo by DLF in Gurgaon and Ovation condo by Tridel in Downtown Mississauga), the price per square foot is CAD 450 p.s.f in Dubai, CAD 250 in Guragon and CAD 350 p.s.f. in Mississauga).
Condo fees are only 0.06 cents p.s.f. in India, 0.60 cents in Dubai and 0.50 cents p.s.f. in Canada. Property tax in both Gurgaon and Mississauga are similar at approx. 0.9% of CVA (current value assessment) of the property.
In Dubai, there is no property tax. There is 5% of rent tax paid by the tenant (giving Dubai landlords an advantage when it comes to cash flow).
Rent to buy ratio is very poor in India, totalling to approx. 2.5% of property’s price. Where as in Dubai, rent sit at 7.5% compared to Canada at 5.5% to 6.5% in Downtown Mississauga, Square One area.
However, quality of tenants is good in all three places.
Price Growth, Inflation and Interest Rates
Undoubtedly, the best price growth can be found in India and UAE. Dubai market grew 100% (50% per year) from Dec 2011 rates (after the Dubai real estate market crash, following the worldwide recession). Prices have still not reached where they used to be at the peak in 2008. The market in Gurgaon has increased approx. 25% per year since 2009 and now price growth has been almost stagnant since 2011.
GTA market average price growth has been approx. 20% in a five year period from Dec 2008 to Dec 2013.
Inflation erodes price growth or in other words, the value of money. India’s inflation rate in 2013 stood at 7% and home loan cost was approx. 9% per annum. UAE’s inflation rate in 2013 was 1.4% and home loan cost was approx. 3.5% per annum. In Canada, our inflation rate in 2013 was 0.9% and home loan cost was approx. 3.2% per annum.
Risks and Rewards
The Canadian Dollar has appreciated approx. 65% against the Indian Rupee from Dec 2008 to Dec 2013. So investing one’s money in India poses a big currency risk. Investing in India might suit Canadians who are planning to settle down in India, especially those who plan not to repatriate their money from IRS to CAD. The government rules on investment by foreigners are friendly and pose no risk.
The Canadian Dollar also appreciated approx. 10% against the UAE Dirham, which is pegged to the US Dollars, from Dec 2008 to Dec 2013.
At the time of real estate boom in Dubai, anyone could buy a property with a small down payment. People were allowed to flip properties easily and this created a bubble. Builders went on a rampage, used investor deposits and reinvested in more and more projects. With no real users, Dubai real estate market was unable to sustain the unreal paper (assignment) transactions.
Today, things are very different. Real estate is fast becoming regulated with the introduction of RERA (our version of CREA). Banks in the UAE are not allowed to give mortgage loans to people who buy pre-construction projects. Residents cannot buy with less than 25% down payment and non-residents need to come up with minimum 50% down payment.
Dubai has done a fantastic job by learning from its mistakes, and in my opinion, by 2020 (Dubai 2020 Expo), the real estate market could be doing very well. Many investors still feel that Dubai can pose risks since government rules can change at the blink of an eye.
I strongly feel that investing in one’s own country makes sense. If you are a first time buyer thinking about investing then the best advice is to invest in yourself.
Call me and I will help you buy a suitable property close to where you live.
With time, your equity will grow, you will save more, and one day you will come back to me to buy your second property, by God’s will.
If you are an investor who is planning to buy your first investment property, try becoming a first time investor in the GTA. I can put you in touch with some fantastic investment opportunities (condos and freeholds) in Mississauga, Brampton, Milton, Oakville, Burlington, Toronto area.
In a few years, you can graduate to become a landlord. And when you feel that you are ready to take a risk, I can put you in touch with my real estate referral network in Dubai or Gurgaon.
How does that sound? Call me at 905-339-5111 for more details to get the most out of your real estate investments.
- Gurgaon real estate market growth
- Dubai real estate market growth
- Mississauga (GTA) real estate market growth
- Inflation rates