ASK THE AGENT

 

mrmohanadSince the prices are going up every month, should I continue to rent or should I consider buying a property?

Another way of phrasing your question is this: Am I better off using my money to increase my wealth or somebody else’s?

Owning property allows you to better utilize your hard-earned dirhams from covering an expense which offers you no future financial return to an investment which does. In a way, it’s a forced form of savings which will reap future benefits for you in the form of property ownership. It allows you to build your individual net worth through the capital appreciation of your property.

Paying rent can actually inhibit your ability to build net worth. For example, as somebody who pays rent, inflation is a problem because you are consistently being asked to pay more, putting greater pressure on your disposable income.

But as a property owner, inflation is working in your favor, because, in all likelihood, your property is increasing in value and, if kept for years, you will enjoy an inflationary compounding effect on its value.

Is the property market cooling off? Is it still worth investing when the market is losing some of its steam?

we need to reset expectations and understand that high, double-digit capital appreciation is an unsustainable phenomenon that had been driven by a number of ad hoc, unusual or non-recurring events.

With the industry “cooling” somewhat to return to high single digit capital appreciation, we are Witnessing the effect of new regulations and the market’s determination of fair value levels. It’s all part of the maturation process. One of the benefits of a robust, stable, well-regulated industry is the increased predictability and sustainability of price rises as compared to the boom and bust scenarios typical of young. undisciplined, unregulated markets.

If you are taking a long-term perspective, say, seven to 15 years, it is still the right time to buy. Barring any unforeseen shocks, economic or otherwise, and assuming your investment is well-managed, you can confidently predict an average Yo Y capital appreciation of at least 7% over that period, and a net Rental yield of at least 5%.

With prices having moved so quickly in the market, how can you tell whether you are paying a fair price for property?

You need to determine and locate the type of property that will work best for you. There is no such thing as a fair price for something you don’t want or value! You can contact a reputable real estate brokerage to assist you but make sure you conduct your own research as well.

Remember that. fundamentally, price is determined by the market. Through research, you will be able to ascertain pretty accurately what a property will sell for in any given market. Remember, any significant deviation from your research findings usually means there is something wrong. If it looks too cheap to be true, it probably is! The key word is ‘value’.

Once you have found a property at what you believe to be is at fair market value, negotiations can begin. If you cannot find a property immediately that will satisfy your value expectations, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach so you make a sound business decision.

I want to buy a residential apartment for long-term investment purposes. Should I buy one in Dubai Marina or Skycourts in Dubailand?

Assuming you have two alternatives, both priced at fair market value, cash flows and capital returns as a percentage of funds invested are likely to be greater in Skycourts.

Demand for more affordable developments is rising rapidly due to a strong “trickle down” effect as areas that were leading the recovery, such as Dubai Marina, have become too expensive. This has resulted in developments such as Skycourts overtaking the more established areas in terms of rental yield and capital appreciation.

Some properties located within Skycourts have shown an average 24% increase in gross rental income since the 3rd quarter of 2012, outperforming virtually all of their more expensive peers.

Meanwhile, apartments in the same development achieved YTD average price growth of 28%, with demand being driven mainly by first home buyers and investors seeking the increasing yields on offer.

Question of the Week

What is the difference between a leasing agreement and property management agreement ?

You would enter a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments, facilitate the signing of the ‘tenancy agreement leaving you to assume the responsibility and devote your time to managing the tenant and all aspects of the property thereafter. A property management agreement includes a lot more.

A competent property manager will provide an assessment, strategy and activity plan designed to harness the true financial potential of your property.

Considerations include history, current market factors and risk factors, whether they be globa , regional or local in nature requiring a good understanding of economic factors, industry knowledge extending to policy and regulation, finance and market dynamics.

An activity plan will be provided covering pricing and marketing, customer relationship management, tenant management and policy,
cost management. maintenance supervision, communications and review schedules, status reporting, financial reporting and resourcing.

All Of these activities will be performed by the property manager under a property management agreement.

EXPERT EYE -A common yet unnecessary dilemma

 

mrmohanadRising property prices have people wondering whether to rent or buy 

With the return of confidence to the Dubai property market, an increasing number of people are contemplating the purchase of their first home.

For many, making this commitment can be a daunting prospect, and decision making can get clouded given the significance of the decision and its possible effects on individuals and family lifestyles.

For the uninitiated, there are things to consider such as budgeting and finance, asset type, area, fair market value and timings. The added complication of buying into an appreciating and strengthening market causes many to procrastinate over their ‘rent versus buy’ ‘decision.

So, why buy your first home? Some may re-phrase this question by asking “How do I use my money to increase my wealth instead of the wealth of my landlord?”Buying your. first home is an important step towards establishing your financial security by building your equity or net worth.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money, but you are at the mercy of rental inflation as well. This is a problem because you are consistently being asked to pay more while your salary increases are lagging behind, effectively eroding your ability to build wealth.

By owning your home, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for multiple years, will enjoy an inflation driven compounding effect on its value.

There are a number of reasons to buy your first home in Dubai and start building your wealth. The market is benefitting from a bow wave of demand as the broader economy stages a strong recovery. Prices have been growing at around 20% YoY or more; and while concerns regarding asset values have resurfaced, it is important to remember that some areas lost around 60% of their values from the highs of 2008. The recovery has been underway for two years now, and the market is still around 22% shy of the highs reached five years ago. This would suggest the market still has some way to go before a broad-based major correction occurs.

Looking forward, the effect of the 2020 Expo on the UAE economy cannot be underrated. For real estate, hosting the World Expo will provide additional impetus for industry growth. Because of the Expo, the predictable surge in appetite for UAE real estate is sure to have a significant effect on property values.

And it is not just Dubai which is recovering. The global economic recovery is definitely gathering steam bolstered, of course, with ever increasing confidence that the long awaited US economic recovery is well underway.

One side effect of the gradual reduction in quantitative easing in the US has been a strengthening of the US dollar and, therefore, the UAE dirham. This is likely to continue as the program is eventually fully unwound.

For expat investors, the opportunity of a nice currency hedge emerges while local investors will benefit when looking to invest abroad with a strengthened dirham.

Finally, systemic risk has been rapidly declining. The continuously increasing levels of governance, oversight and scrutiny of the industry are significantly decreasing risk, whether perceived or real, associated with buying
into the market.

The ongoing development of the industry’s regulatory framework and-implementation of laws and regulations to safeguard buyer rights and interests, the overall industry and the economy at large from rampant and irresponsible speculative, -predatory or unethical practices, reveals a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term.

The free-for-all days of the past are long gone and investor’ not speculator, confidence has been making a big comeback.

 

ASK THE AGENT

 

mrmohanad

I want to invest in apartments and I have been considering Dubai Marina and Downtown Dubai. Are there any other areas you recommend?

I suggest you consider more affordable areas of Dubai as well. Properties in Dubai International City, Dubai Sports City, Discovery Gardens and JLT are the places where people are now seeking more affordable accommodation as areas like Dubai Marina (including JBR) and The Greens have become too expensive.

Properties located within International City and Discovery Gardens have shown 23% and 26% increase, respectively in rental income since the 3rd quarter of 2012, outperforming virtually all of their more expensive peers. Meanwhile, a wide variety of apartments in Dubai Sports City, Skycourts and JLT achieved YTD average growth of 20.5%,23 %and 21%, respectively with demand driven mainly by first home buyers and investors such as yourself seeking the increasing yields on offer. There are definitely opportunities in the more affordable end of the market.

Is it too late to buy or should I wait until prices come down again?

Trying to time property cycles is difficult. If you are buying your first property for personal use, and you are taking a long-term perspective, it is still the right time to buy as you will be making your first proactive move towards building your equity or net worth. Paying rent hinders your ability to build net worth. For a start, your rental payment is increasing somebody else’s wealth, not yours. There are other factors, too.

Inflation is a problem because you are consistently being asked to pay more. Conversely, as a property owner, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for a number of years, you will enjoy an inflationary compounding effect on property value.

Owning property allows you to change the application of your hard-earned dirhams from covering an expense, which offers you no financial return, to an investment which does. In a way, it’s a forced form of saving which will reap benefits for you in the future.

I am thinking about buying an apartment off-plan. Can you advise on what considerations I should be taking into account?

Buying off-plan means you can benefit from capital appreciation exceeding the market average in the period just prior to launch and over the ensuing 12 months.

As always, you must be thinking location, and anything which is close to the beach (especially with a sea view), a golf course view or situated near the downtown area is a good place to start. If you have close access to a metro station, even better. Study plans carefully, and ensure you are satisfied with spatial details, views, car parking plans, access to buildings and building amenities.

Get details of the planned infrastructure, utilities, surrounding amenities, expected service charges, and owners association formation, building delivery timings and payment plans including full disclosure of all costs associated with the purchase. Make sure you have a legal expert review any contracts before signing them and have them explain the latest investor protection laws to you.

What are the functions of the Tenancy Dispute Centre?

The Rent Dispute Settlement Centre is part of the Dubai Land Department and consists of two sections. The Judicial Section, chaired by judges, provides legally binding decisions based upon majority vote, and the Administrative Section is responsible for the operational and administrative requirements of the section of the center. One of the core aims of the new center is to provide timely resolution to disputes and, where possible, have disputes resolved amicably without the need for escalation.

Its Arbitration and Reconciliation department is tasked to settle rent disputes within 15 days from the date of the appearance of both parties, while all disputes must be settled in 30 days or less. Deadlines may be extended in accordance with the rules and procedures adopted by the chairman of the Centre while appeals will be allowed only in cases where the value in dispute is over Dh 100,000 .In all other cases, judgments are considered final and legally binding.

Question of the Week

I heard that build quality is not too good in some Dubai developments hurriedly built during the boom times , and they already showing serious quality problems . I want to buy off-plan but how can i guard myself against ” buying a lemon”?

First of all, you need to make sure you are dealing with a reputable developer. One positive effect of the global financial crisis was that a lot of poor developers were exposed and are no longer in business. Ask around or seek professional guidance, as those in the industry have a good appreciation of who the reputable developers are.

Make sure you query directly what proactive measures are taken to ensure the end product has been built to an acceptable standard, and take the time to inspect buildings already completed by the developer. Warranties and any quality assurance policies should be discussed in detail. Have the sales and purchase agreement reviewed by a professional, to ensure you have legal recourse should any quality issues arise.

Upon completion, you hive the right to inspect (snag) your apartment and report any legitimate issues to the developer for rectification. Items which can be remedied in the short term should be fixed immediately; and remember, once you have taken ownership of the apartment, the developer is obliged to fix any issues that may arise for a full 12 months following the transfer of ownership.