Mr. Knoxville buys a stunning 4 Bedroom Villa in The Meadows for AED 3,700,000. He is able to secure financing with HSBC at 80% LTV over a 20 year repayment period.

Henceforth the loan/mortgage amount is 80% of 3,700,000 that is 2,960,000.

Original Investment:
He makes a down payment of AED 740,000 to make up the difference. A typical repayment mortgage interest rate for the Dubai market is 8.5% annually.

Financing Cost:
The monthly mortgage repayment is:
Interest only Mortgage: 2,960,000 (loan/mortgage amount) * 0.085 (Interest rate) = AED 251,600 / 12 (months) = AED 20966 per month.

Repayment Mortgage
Including the repayment portion of the loan = AED 312,780 / 12 (months) = AED 26065 per month

Rental Income:
Typical rental income for a 4 bedroom villa in the Meadows is AED 200,000 annually which is a rental yield of around 5.4%. A benefit to rent property in Dubai is that rents are paid annually and in advance.

Net income from rent is:
Interest only Mortgage: 200,000 (Rental income) – 251,600 (Mortgage payment)
= AED -51,600

Mr. Knoxville pays a difference of AED 51,600 if he opted for the interest only mortgage.

Repayment Mortgage: 200,000 (Rental income) – 312,780 (Mortgage payment) = AED -112,780

Mr. Knoxville pays a difference of AED 112,780 if he opted for the re-payment mortgage.

Looking at property selling prices over 2005 and 2006, property has appreciated 25% on average annually in Dubai.
 
Capital Appreciation:
 Increase of 25% annually: 3,700,000 * 0.25 = 925,000

Return on Investment:
Mr. Knoxville had a fruitful return of 118% on his initial investment of AED 740,000 in just 2 years. 

Interest only Mortgage:
-51,600 (Rental return) + 925,000 (Capital appreciation) = AED 873,400       Return on Investment: 873,400 / 740,000 (Down payment) = 118%
 
Mr. Knoxville still had a beneficial return of 109% on his initial investment of AED 740,000 if opted for the re-payment mortgage.
Re-payment Mortgage: -112,780 (Rental return) + 925,000 (Capital appreciation)
= AED 812,220

Return on Investment: 812,220 / 740,000 (Down payment) = 109%