The main advantages of investing in the UAE are the strong legal framework to protect investments. Year after year, the UAE attracts a large amount of foreign direct investment (FDI), and according to the UN Conference on the Trade and Development report, in 2021, the UAE was ranked 1st among Arab countries and 15th in the world for its ability to attract FDI. As the UAE state provides a wide range of asset classes for investors from all over the world, we have prepared an article with details of the 6 most popular investment options in the UAE.
6 investment options in the UAE
The UAE offers investors several investment options in areas such as shares, bonds, mutual funds, ETFs, REITs and real estate investments, which will be described below.
Shares are part of any company's capital, which any investor can own until he or she decides to sell them. In this case, when investing in shares, you can count on 2 ways of making a profit: dividends, which are paid out every 3 months in most cases, or through appreciation. The second option is more suitable for long-term investments as, for example, investors who bought International Holding Company PJSC (IHC) shares at AED 1,400 (USD 380) in 2016 were able to sell them at up to AED 152,200 (USD 41,400) in 2021. But it is worth bearing in mind that shares can not only rise in value, but they can also fall, resulting in substantial losses.
Note: To invest in the UAE share market, you need to open a trading account with a broker. The selected broker must be listed on one of the following stock exchanges within the state: Abu Dhabi Securities Exchange (ADX), Dubai Financial Market (DFM), NASDAQ Dubai.
A bond, unlike the shares mentioned above, which can be sold or bought at any time, is a fixed-term loan that is given to a company or government in exchange for regular interest payments (e.g. for 10 or 20 years). At the maturity date, all bonds pay the principal, but there are some bonds that pay interest to the holders along with the principal. Bonds with an annual interest rate are payable to investors between the time the bond is issued and its maturity date. One of the main advantages of investing in bonds is that you can assess your benefits in advance.
Before maturity, the investor can sell the bonds at a higher price, thereby making a profit. If the bonds were not sold earlier, they will be redeemed on their due date. The issuer then pays the owners the nominal value indicated in the securities.
The main risk in this type of investment is the bankruptcy of the issuing company. Secured bonds are the safest type of investment in these situations because the security of the investment can be ensured by a deposit (company equipment or other securities). If the company goes bankrupt, the investor will be able to sell the deposit, which will allow them to get their money back. Another option for security is a guarantee from another company, which would assume and take responsibility for the obligations of the bonds in case of the issuer's bankruptcy.
The most suitable options for investment are:
Corporate bonds that have been issued by a company for the purpose of raising capital.
National – issues from the federal government.
Municipal – securities that are issued by government organisations to finance everyday obligations and to finance capital projects such as schools and highways, etc.
As for how to make a profit from buying bonds, there are 2 ways: by paying interest twice a year at a fixed rate, or by increasing the price. When interest rates fall and new bonds are issued at lower interest rates, the value of bonds issued at higher interest rates only increases.
A mutual fund is a pool of money from several investors who have a common investment objective. This collective amount of money is invested in bonds, shares, gold, real estate and other assets by financial or stock managers. This type of investment is suitable for those who do not have enough time to study investment opportunities. It is worth noting that in this case, the investors are not direct owners of the shares that the trust buys, but they have a share in the mutual fund's gains and losses.
Emirates NBD, ADCB, CBD, HSBC as well as other banks offer mutual funds in the UAE. They offer a systematic investment plan (SIP) where an investor can invest from AED 734 (USD 200) in a SIP on a monthly basis for a short period of time. The price of a mutual fund unit depends on the price of bonds, shares and securities in which the mutual fund is invested.
In this case, you can make a profit in the following ways:
Dividend/interest, where mutual fund managers buy shares or bonds and then distribute the dividends or interest received to the shareholders.
By increasing the value of the mutual fund, which depends on the value of the securities purchased as well as the market demand for the organisation.
There are open-ended and closed-ended funds on the stock market. The difference between them is that open-ended funds are available for sale throughout the entire holding period, while closed-ended funds are only available with a certain maturity date. Investors may also encounter both actively and passively managed funds. Passive funds include index funds and active funds include debt, specialised and balanced funds. Passive funds propose to match the performance of the market and active funds propose to exceed this performance. However, active funds are not always transparent to owners but promise higher returns, but they also have higher risks and fees.
Equity funds are ideal for passive investors, as investors can hold different types of securities in ETFs as part of a given investment option. You can invest in equity funds in two ways: on your own with brokers or with a financial adviser. In the first case, you will need to open an account with a brokerage firm, which must be listed on the relevant stock exchange. If using a financial advisor, they will help build a portfolio of ETFs for the investor and will revalue them over time.
To achieve greater diversification, you can combine different ETFs. For example, an investor can buy ETFs of international stocks, ETFs of US stocks and ETFs of global REITs, which will only increase investor returns and reduce any possible risks.
Real estate investment trusts or REITs allow investors to benefit from the real estate market in the UAE without having to buy the property outright. Like any other company, investors can buy and sell shares in REITs, earning profits through dividends and growth in the value of investment trusts.
Among the largest real estate investment trusts in the UAE, Emirates REIT stands out as it is Shariah-compliant and registered with the DIFC. The value of the assets under its management is around USD 723M. Emirates REIT shares are traded on Nasdaq Dubai. REITs provide investors with the ability to diversify their portfolios and also provide ease and flexibility of operations. When an investor buys a REIT, he or she thereby obtains a variety of properties with different income streams. In addition, trading shares of an organisation is easier and quicker than selling the physical asset of a property, and owning a building requires maintenance and rent collection, whereas owning REIT shares entitles investors to regular dividends.
Investing in real estate
Due to its stability, flexibility and affordability, the UAE real estate market has evolved into a leading overseas investment destination over the years. The main advantage of investing in real estate in Abu Dhabi is that it will not be affected by inflation and can generate an annual income of between 7% and 12%. In Abu Dhabi, for example, average residential property prices rose by 2.2% between January and August 2021, according to a CBRE report. According to the Numbeo website, the selling price per 1 sq. ft in some of the central parts of the emirate is AED 1,086 (USD 295), while in London, GB this is USD 1,562. Outside of the city center it drops to USD 751. Several strategies are available when considering buying property as an investment in Abu Dhabi:
Buying off-plan properties – you buy directly from the developer, under convenient payment schemes broken down into certain periods. The financial burden is lower than when buying a ready-made home, as is the cost itself. In addition, the price of properties only increases as the construction stages are completed. Once construction is complete, the investor can either resell the asset or start renting it out and start earning a steady, passive income.
Buying a ready-made property allows you to start renting out the unit immediately and earn an income. But it is worth bearing in mind that the sale price is higher compared to off-plan properties, but you can apply for a mortgage and use the rental money to cover some of the costs.
In addition to residential properties, investments in commercial buildings such as hotels, office buildings and warehouses are also in great demand. Here leases are concluded for longer terms (anywhere from 3–5 years or more) and the return on investment is much higher – up to 15%.
It is important to keep in mind thatinvesting in property in Abu Dhabi, and the UAE in general, can be quite a complicated process, especially if you are unfamiliar with the jurisdiction and don't have the time to research the Emirates property market. In this case, we atMetropolitan Capital Real Estate LLC are here to help you find and select an investment asset that will perfectly match your requirements, providing you with full support at all stages of the transaction, including assistance in obtaining a mortgage and the further sale of your asset. Our brokers are well-versed in the UAE real estate market and legislation, which will save you time and money when looking for reliable tenants in the future.
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