I own a third of a floor of office space in Business Bay, with two other parties sharing the balance of the floor space. We are having some difficulties finding reputable tenants at a reasonable lease rate. Can you offer any advice?
The issue of multi-strata ownerships, particularly when looking at office space, would be a concern as prospective tenants do not want to negotiate or deal with multiple owners.
One solution requires the willingness and commitment of all owners to form a type of cooperative or rental body. Under this concept. the owners would commit their space to a “rental pool” to offer to prospective tenants.
This pool would be managed by a third party appointed by the owners so that tenants requiring space owned by more than one person would be dealing with one central body representing those owners, and all ‘owners benefit om the rental receipts garnered from leasing ‘pool” space.
This concept requires commitment. discipline, participation and cooperation from the owners, but if implemented with full owner support, will provide superior returns in an office market that currently extremely competitive.
Would an asset bubble be reappearing in the Dubai real estate industry?
The recovery has been created by a number of market factors and catalytic events, the Expo 2020 bid win notwithstanding.
confidence has returned to the emirate as . solutions to debt issues have been identified, we have a booming tourism industry, and a geo-political position which has been a prime attraction to capital fleeing troubled regimes around the region. Seeing this, you will understand why demand would be accelerating in a post-recession world as these fundamentals all up to a compelling case for investment.
Do you think more affordable segments of the market offer any investment opportunities?
Definitely. While the greatest growth in the Dubai real estate recovery has been seen in the middle to high-end villa and apartment segments, there will be an increasing requirement for housing at the affordable end of the spectrum.
An investor taking a long-term view when creating a property portfolio will recognize that there is tremendous value promising extremely healthy returns in the affordable segments as demand will only increase as Dubai’s economy continues to grow.
Already, apartments in developments such as Skycourts, JLT and MotorCity have witnessed substantial capital appreciation, while villas in areas such as Dubai Silicon Oasis have appreciated significantly as well.
While it may be glamorous to invest in the more luxurious or iconic locations, sometimes it is just as lucrative to invest in the lesser-known and more affordable developments.
I have been considering taking advantage of the low office rental rates and relocating my business. Do you believe rates in Dubai have bottomed out?
The office segment in Dubai has definitely bottomed out, and there are instances of rental growth emerging in some areas such as DIFC and in some space configurations.
For example, there is a relative shortage of Grade A. large floor-plate, single owner space. This type of space is favored by larger, often multinational companies and, with Dubai’s economy rebounding strongly, demand for this type of office space has been growing rapidly.
Vacancy rates outside the CBO/DIFC area are still quite high. In developments such as Business Bay, many buildings are suffering from fragmented ownership and configuration issues. However, depending on your size requirements, you may still find space that suits your needs at reasonable leasing rates.
Question of the Week
My apartment is finally ready . When i stated that i want a professional to inspect my unit , the developer said that they had already completed their inspection , and you would be wasting my money as they believed the apartment to be satisfactorily finished , is this right ?
Technically, once an official Completion Certificate has been issued for the building by the Dubai Land Department (DLD), it is deemed ready for handover and your contractual obligations regarding transfer of ownership remain. Nevertheless,l doubt if the developer has your best interests at heart in this instance.
You have 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 “lit may arise for a full twelve months following the transfer of ownership.
It is in your best interest to snag your apartment. and I strongly recommend you engage a professional to do this on your behalf. There is a good chance that it will save you a substantial amount of money in the long term and provide you with some peace of mind.
I am an overseas investor and not familiar with district cooling. Can you provide a little background on this?
District cooling where chilled water is provided to apartments from a central facility for cooling has emerged globally as a way to provide cooling in a more environmentally sensitive way. It is known to provide great environmental benefits in the long run by using less energy and, in addition, helps in saving on the cost of electricity which is reflected in lower DEWA bills of owners or tenants.
Having said that. the DEWA savings will be offset somewhat as the overall utility charges of units that are “quipped with chilled water district cooling will be slightly higher as it involves the remuneration of the fixed operating costs of the chilling unit via a capacity charge, in addition to the application of the appropriate consumption charges.
The system has benefitted all stakeholders in a high temperature environment such as Dubai. It is more energy efficient, environmentally friendly and cheaper for the owner or tenant.
Will the commercial real estate sector witness growth comparable to that of the residential sector?
While not matching the outstanding performance of the residential sector, commercial real estate performance has
improved markedly, and is expected to continue doing so for the foreseeable future.
Demand for commercial space is highly correlated to economic performance and, with the Dubai economy:S growth in 2013, robust growth is also expected in 2014 and 2015; commercial real estate performance, notwithstanding inventory anomalies, will continue to improve.
Already, there are shortages of certain types of spatial configurations. For example, well-located Grade A space a available in floor plates of 25,000 sqft, or more is not readily available. Many multinational companies will pay a premium o have their entire operations situated on a single floor.
As with the residential sector, improvement in the commercial sector will be a little two-paced. The issue of fragmented ownership of Single floors will continue to per the effective marketing and leasing of those units, and this issue may take some time longer to be resolved.
Is there any truth to talks that Dubai real estate is heating up once more?
Dubai real estate started its recovery around the start of 2011 when investors, having faced a high degree of uncertainty resulting from the Arab Spring, sought safe harbor for their hard-earned capital.
Dubai, having successfully reached settlements with many of its debtors as it emerged from the global financial crisis, promised greater stability and opportunity and, with its established infrastructure, certainly fit the bill.
There have been other factors at play also. A modicum of global economic recovery / growth, a local economy which is growing at around 4%, a competitively affordable UAE dirham and the fact that Dubai’s property values had fallen by as much as 60% from its glory days all attracted investors from virtually every corner of the globe seeking yield and tax advantages.
Confidence has returned to the industry, demand is representative of a more educated and astute buyer (as compared to speculators), banks are more circumspect with regard to who they lend money to and for what, and equilibrium issues such as oversupply in some sectors are being managed. Add to this the emirate’s Expo 2020 bid success which leads us to believe that long-term recovery has well and truly commenced, and we are in the growth phase of a new cycle.
I own an apartment in Downtown Dubai and have been getting 6.5% net rental returns for the last 18 months. Would selling the unit now be a good idea?
Real estate anywhere is cyclical and Downtown has been on the upswing for last 2 years! We believe that the market has at least another 2 years of solid growth. You have made some impressive capital gains in the last 18 to 24 months, and I believe the property still has bit left to offer you financially.
If you have identified an alternative investment to give you a better income stream and capital return than what you expect
to receive in the next 2 years, then the right decision maybe to sell; however, if not, hold on to the property as I believe that you
will continue to receive at least a 6% to 7% net rental return
Question of the Week
Investors are always advised to find a reputable and professional real estate broker to assist them . How , in your opinion , can this be accomplished?
For you, the investor, there are many considerations to take into account and what follows are just a few things you may want to look for:
- Look for an experienced and passionate team. You want people who really enjoy what they are doing so they do it with dedication
- Find an agency that exhibits a breadth and depth of industry knowledge and expertise
- It is always better to consider getting a full service agency
- Look for a history of innovative solutions that have delivered tangible results
- Longevity is key. Those that survived the recent recession must be doing something right!
- Get an agency with a strong network of corporate and industry partners. An agency that has good relationships with key industry stakeholders such as major developers and government authorities such as the Dubai Land Department, RERA, DEWA or Economic Department will be able to operate more efficiently and effectively
- And finally, employ an agency that has received some form of industry or peer recognition. These are the hardest plaudits to get!
Never make the same mistake twice
Past leanings can reduce or eliminate the possibility of repeat problems
As my investment banker constantly reminds me, past performance or occurrences may not to be true indicators of future events. However, learning from the past can reduce or eliminate the possibility of a repetition of mistakes. And adhering to this principle has proven advantageous when it comes to the current state of the Dubai real estate industry.
There have recently been comparisons drawn in the media between current real estate values in some areas of Dubai and the values reached in the heady days of 2007 and 2008.
For some investors, the news comes as a relief as they see value returning to their real estate investment; while for others,
the feeling that the same irrational exuberance experienced in 2008 which had such an inflationary effect on asset values, has returned.
It is safe to say that the Dubai real estate industry is now a significantly different space from what existed in 2008.
For a start, confidence in the market, which is what is driving the recent high demand for participation’ is now being driven
on more circumspect and critical analyses versus unbridled and sometimes blind optimism.
Compared to how it was before, we can say the industry has matured significantly. While values have been increasing rapidly, with some areas increasing 30 percent in 12 months, the environment this time around is not one of excessive speculation or irresponsible abandon.
For many investors, it is the increasing levels of governance, oversight and scrutiny of the industry which are actually under-
pinning their increasing confidence in the market.
The development of the industry in terms of its regulatory framework, laws and regulations to help protect both consumer and investor interests has been laudable.
In addition, the well publicized and appropriate measures to safeguard the market against irresponsible, speculative, predatory or unethical practices characteristic of the industry just before the last market crash reveals a mature and balanced approach to shaping an industry with a view to ensuring sustainable growth over the long term. In review, we can say that much has indeed changed in six years.
And developers, while confident and increasingly aggressive, have also learnt from the past. While real estate transactions in
Dubai exceeded Dh61 billion for the first quarter of 2014 (up by 38 percent YoY) , land transactions made up over 67%of all
transactions recorded. Land transactions which refer to land mortgages and land sales transactions make up the bulk of the total figure.
Developers are really on the move, conceptualizing new developments and marketing them effectively. However, this time, developers’ plans are based upon realistic fundamentals such as Dubai’s non-real estate economic growth, population growth and the current inventory pipeline. This needs-based approach will help ensure that supply will be much more synchronized to realistic demand projections going forward.
There is no doubt that Expo 2020 has provided many with that added reassurance of demand longevity; however, it has
been the other sectors of the economy such as tourism and trade that have really initiated and strengthened the momentum of
So the leanings have been many but, more significantly, the introduction of initiatives and implementation of changes by all stakeholders have been broad and comprehensive. Are we looking at a repeat of 2008? I don’t think so.Based upon what we have learnt, the world is now a different place.
I would like to invest in apartments in Dubai, and I need advice as to where the best rental yields may be found.
If it’s yield you are after, it will be hard to ignore the more affordable areas of Dubai which are performing extremely well.
Properties in Dubai’s Skycourts, International City, Dubai Sports City, Discovery Gardens and JLT are all benefitting from Dubai’s recovering economy and toe associated internal migration, as people are now seeking more affordable accommodation as areas such as Dubai Marina, Downtown Dubai, The Greens and JBR have become more expensive. You can expect a rental return in the more affordable areas of at least 7% with 10% rental yields not uncommon.
Demand is being driven mainly by first home buyers and investors such as you seeking the increasing yields on offer, and both rental yields and property values are expected to continue increasing further as the year progresses.
Given the relatively low cost of entry, the opportunities that reside in the more affordable, end of the market are becoming more lucrative everyday .
Given the lingering office oversupply situation, do you expect prices in this sector to increase significantly?
The benefits to be generated for the UAE economy by hosting the World Expo 2020 will be enormous, with 7 billion dollars worth of infrastructural investment. over 270,000 jobs and a massive increase in tourist revenues – all sure to attract new businesses and drive an upsurge in demand for office or commercial space as existing businesses expand and new business entities set up operations to support the conduct of the event or service the bevy of new business operators or the millions of additional visitors.
Demand will grow more as the event approaches especially for space located close to the Expo 2020 site in Jebel AIL However, demand will eventually spread to other areas of the city as businesses look to cash in on the massive increase in tourist dollars that will accompany the actual conduct of the event.
Can you comment on the introduction of new real estate contracts? Are they mandatory;how will they help?
The introduction of standardized or unified real estate contracts is yet another progressive milestone in the development of the industry.
We have always said that a properly functioning real estate market needs the 3 Cs: Confidence, Clarity and Capital. This initiative by the Dubai Land Department will provide clarity and consistency as to the relationship between the buyer, seller and brokers representing either party while guaranteeing the rights of all parties. This will further enhance the confidence of investors and owner-occupiers alike.
The contracts will be in force from May 2014, and will be mandatory for all transactions involving the buying and selling of property, and are expected to improve processing efficiency as parties will have the option of completing registration procedures without a real estate agent.
As the market continues to grow, the importance of streamlining processes and ensuring ease in effecting transactions is important.
I have a property portfolio of a mix of l BR and 2 BR flats located in JLT and Dubai Marina. With this in mind, how do I capitalize on what I have?
You need to seek professional advice as to how to manage your real estate portfolio, Many landlords across Dubai are bound to miss out on the revenu- generating opportunities that Expo 2020 will bring because of poor or non-existent planning.
A competent property manager will provide you with the best opportunity to maximize your financial gains by providing you with an assessment of the opportunities, and a strategy and activity plan designed to harness the true financial potential of your property.
Do not make the mistake of leaving your planning too late. You will need to comprehend current and likely future market conditions and events, likely risk factors that may enable or inhibit revenue growth, inflation and cost increases, and a complete comprehension of financial modelling and the ever developing area of industry policy and regulation.
Question of the Week
With Expo 2020 coming , Is there anything I should do differently with my two apartments in Dubai Marina from a leasing point of view ?
Timing will be critical to the decisions that you make regarding the management of your property.
First of all, you need to get professional advice as you require a skilled and knowledgeable property manager to help you harness the true financial potential of your property during this unique period in Dubai’s real estate history. You need to appreciate that there will be some nuances and important considerations when looking at the opportunities that the World Expo 2020 will provide.
For example, overall values will rise but differing asset types and locations will not necessarily move in unison as Expo preparations move from the analytical and planning phases through to implementation and eventual launch and operational phases.
Initially, it is likely that investor demand will drive much of the value appreciation to be followed by an increasing rate of end-user demand for accommodation, both for villas and apartments.Those areas in close proximity and with easy access to the Expo 2020 site itself will attract initial attention. However, as the event draws closer, demand for more centrally located property will also increase. One can expect both the rental return and capital return curve to steepen as we move closer to the event launch.