When considering long-term investment strategies, the choice often boils down to a few asset classes with real estate, gold, and traditional savings accounts being the most popular investment options. Each has its unique set of benefits and risks. Here’s a closer look at how these investments stack up.
Real estate vs. savings accounts
- Return on investment:
- Savings accounts: Typically offer interest rates between 0.5% to 3% per annum, barely keeping pace with inflation. For instance, a savings account with a 2% interest rate will yield only $1,218,994 on a $1 million deposit over ten years – given that this growth includes both the principal and the compound interest accrued over the decade.
- Real estate: According to Forbes, global real estate markets can deliver annual returns between 8% to 15%. In booming markets like Dubai, residential property values have seen an increase of 18.6% annually, significantly outstripping inflation and yielding high rental returns, as per a recent blog post by Viewit.
- Inflation impact:
- Savings accounts often lose purchasing power over time due to low-interest rates compared to the inflation rate.
- Real estate generally appreciates over time, often at rates that exceed inflation, thereby preserving or increasing wealth.
Real estate vs. Gold
Detailed case review
In 2021, the average price of an ounce of gold was about $1,799. By 2023, this price had increased to approximately $1,940.54 per ounce. If you had purchased gold in 2021 and sold it in 2023, you would have seen a profit of roughly $141.54 per ounce. This equates to a return on investment (ROI) of approximately 7.87%, assuming there were no additional transaction costs such as fees or taxes.
In contrast, Stake sold a property, Al Majara in Dubai Marina in 2023. An investor who invested $1,799 in this property in 2021 received ~$2,554.58 upon its sale in 2023. This represents a remarkable ROI of 42% over a holding period of 2.5 years.
Note that: The appreciation observed over such a short period is nothing but impressive, indicating that the market is exceeding expectations. Typically, real estate is considered a long-haul investment, however, 2.5 years is a short investment horizon. Thus this example highlights the substantial returns that can be achieved through wise real estate investments in markets like Dubai, compared to more traditional investments such as gold over the same period.
Now that the choice is clear; why Dubai real estate in particular?
Dubai’s real estate market offers a unique combination of high growth potential, significant returns on investment, and a stable investing environment due to the following reasons:
- Strategic location: Serving as a hub between the East and West, Dubai attracts international business and tourism. This dynamic positions Dubai not only as a key player on the global stage but also as a lucrative market for real estate investment, where strategic placement ensures continual appreciation and sustainable income through rental yields
- Government policies: Investor-friendly climate, including long-term visas and a lack of property taxes, make Dubai exceptionally attractive for real estate investments
- Versatile property options: Choices range from studio apartments in bustling areas like Downtown, City Walk, and Business Bay to luxurious units in high-end areas such as Jumeirah Golf Estates
- Rising global wealth: The influx of HNWIs into Dubai is reshaping the real estate landscape. According to projections from Arabian Business, the UAE is expected to witness a 24.6% increase in HNWIs by 2025, fueling a trend of demand specifically for ultra-luxury properties
Ending Note: In investing, clarity is key. After reading this, the choice is clear: Invest wisely, as each decision shapes your financial journey. Your money, returns, and time are all on the line. So choose your investment path with care!
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