Mortgage or cash? AED 1.9m priced four ways

The property and the numbers

Worked example A tenancy paid in one cheque is the strongest form for a Dubai landlord: the whole year's rent lands on day one, there is no default risk across the term and no part-payment administration. Tenants normally expect a discount for it, and four or six cheques usually buy a higher headline rent. This apartment achieves AED 140,000 despite the single payment.

The calculation with a mortgage

Costs in detail: DLD transfer fee 4 per cent (AED 76,000), agency commission 2 per cent (AED 38,000), mortgage registration 0.25 per cent plus AED 270 (AED 3,358), bank arrangement fee, valuation and trustee fee (about AED 19,700). Since February 2025 the transfer fee and the commission may no longer be added to the loan.

What the apartment produces in a year

• Gross yield: 7.37 per cent
• After service charge: 6.66 per cent
• After service charge and management: 6.30 per cent
• Cash surplus on equity: 3.10 per cent

Worked example This calculation contains no capital appreciation. What is earned here comes from rent and amortisation.

Four structures, one result

Same apartment, same rent, same service charge; only the financing changes. All four are priced on the same assumptions: 5.99 per cent, 5 per cent management, no appreciation.

Why leverage adds so little here

Official rule A loan raises the return on equity only when the property out-earns the loan rate. That condition is met here, but only just:

0.31 points on a loan of AED 1,235,000 is about AED 3,800 a year; measured against AED 665,000 of equity and combined with the amortisation effect, that is the lead of 0.67 percentage points. Against it stand, once, the loan-side costs, the arrangement fee, mortgage registration and valuation, about AED 23,100 together, all of which fall in year one and consume that single year's lead.

Nexus Bridge experience From year two the lead stands, but the effect stays small while the spread between net yield and rate is under a point. Visibly positive leverage appears in Dubai on properties with a low service charge and strong lettability, as in case study 02, where the net yield is 7.4 per cent and the service charge only 5.7 per cent of the rent. There the loan carries itself comfortably.

What the loan is actually for

The useful question is not whether the loan raises the return but what else the capital could do. For this comparison the full cash requirement including one-off costs counts, because since February 2025 the DLD fee and agency commission can no longer be financed and must be paid in cash. On equal capital of AED 2,014,000 the comparison looks like this:

Three reasons remain that have nothing to do with the yield calculation and are often decisive anyway:

• Diversification. Two or three properties across different communities and price brackets absorb a void far better than one. That is a risk argument, not a return argument.
• Retained liquidity. AED 1,235,000 that is not sitting in concrete is usually worth more than two thirds of a percentage point of yield. Dubai property is tradeable, but not within a week.
• Access at all. For many buyers a cash purchase is not on the table, and then the question does not arise. For them the relevant number is not the yield gap but the affordable instalment, which is what the down payment guide is for.

The service charge takes 9.6 per cent

Nexus Bridge experience AED 17 per square foot is normal for a well-run tower in a central location and is still the largest single factor in the return after the rent itself. On 787 square feet it is AED 13,379 a year, 9.6 per cent of the rent, and it pulls the gross yield of 7.37 per cent down to 6.66 per cent.

The figure is never prominent in a brochure and is obtainable before you buy. Anyone who learns it after the transfer has negotiated the price on the wrong basis. What follows from it is in the property management guide.

One hundred thousand below the visa threshold

Official rule The ten-year residence for property owners requires a property value of AED 2,000,000. This purchase, at AED 1,900,000, is AED 100,000 short. The Dubai Land Department's valuation governs rather than the purchase price, and several properties can be combined, but as a single asset this apartment does not qualify.

Three cases side by side

Three properties, three price brackets, the same rules, and a spread from 3.47 to 9.41 per cent. The difference is not the bank and not the rate. It is service charge, rent per square foot and lettability, and those three figures are rarely printed next to each other.

What we take from it

1. Financing improves the return on a single property only marginally. At 5.99 per cent against a 6.30 per cent net yield, two thirds of a point remain, and the loan-side costs consume them in year one. That alone does not justify the loan if cash is available. Anyone presenting it otherwise is selling.
2. The loan is an access and diversification instrument. Its value is in making several properties, or any property at all, possible while keeping liquidity, hardly in a higher percentage.
3. The term decides liquidity, not return. Twenty against twenty-five years is 0.05 percentage points of total return and AED 891 a month of instalment. Choose it for the cash flow you need, not the return you hope for.
4. Taking a mortgage is a bet on price. Above roughly 0.1 per cent annual appreciation leverage wins, below it leverage loses, and it does so with two and a half times the swing in either direction. That bet is defensible. Taking it unknowingly is not.
5. The service charge belongs before the price negotiation. AED 10 against AED 25 per square foot is 0.62 percentage points of net yield on this property, more than any rate negotiation will ever deliver.

How loan-to-value, bank selection and costs work for buyers who live abroad is set out in our guide to the Dubai mortgage for non-residents.

Frequently asked questions

Sources