I am considering buying property to offer for rent. I am looking at two similar offers, one of which is located within 150 meters of a metro station, and offered at a premium of around 8 percent. Is this reasonable?

Let’s first look at why property situated close to the Metro can command a premium.

It’s all about convenience. cost and lifestyle efficiency. Your prospective tenants can enjoya cost effective. fast. comfortable and reliable mode of transport to either travel to work. visit friends or even do some light shopping. No traffic hassles. road works. parking. and wear and tear on the family car while the requirement for a secound family car is diminished. Many tenants are prepared to pay a rental premium for property which allows them to enjoy these benefits.

Our studies have shown that properties located within a.5 kilometer radius of the Metro in Dubai can command between a 6 percent to 11 percent premium when compared to similar  properties with no feasible ambulatory access to a metro station.

I was impressed with the Mohammed Bin Rashid City display during my last visit to Cityscape in Dubai. Do you have a point of view regarding the likely success of this development?

You are not the only overseas visitor to express interest in this amazing development. It is easy to be impressed with the concept. scale and enormous potential of the development. The concept is centered on family tourism. courtesy of the largest family leisure and entertainment complex in the Middle East. Africa and Indian Subcontinent. developed in collaboration with the Universal Studios. and supported by more than 100 new hotels.

There will be an extensive retail and cultural presence along with special focus being provided to entrepreneurship and innovation. and it is located within convenient proximity to three ofthe four BRIC economies. and on a major tourist route between the East and West. and the Northern Hemisphere and Southern Hemisphere. The market for such a wonderful attraction is enormous and. as recent ‘ears have shown. Dubai knows how to do tourism .

With prices increasing rapidly in Dubai, does it still make sense to invest or wait until things cool down a little?

A property investment requires the same approach and set of considerations regardless of the state of the mnarket. Be very clear as to what your investment expectations are and be sure to plan for the long term.

Know what you can afford. If you have the cash. I suggest you pay for it outright; however. don’t be afraid to take out a mortgage if need be.

Finding the right property can be a challenge.Think carefully about location. surrounding infrastructure. construction quality. developer reputation and building amenities. Properties which are close to the beach. with a sea view. a golf course view or part of an iconic development such as Downtown Dubai usually provide good returns. If you have close access to the Metro. even better.

You also need to consider the effectiveness of the owners association. service charges and the quality of maintenance services as these will have an effect on the long-term value of your investment.

A lot has been made of the Investor Protection Law. I am considering buying a property but I’m still nervous that, as an expat, my legal rights aren’t what they should be. Are expat investors well-protected by the law?

Lawmakers in Dubai have been working very hard to introduce laws that better protect investor rights. and standardize and clarify the relationship between developers and investors.

There has been a lot of progress made in providing protection to investors in a variety of areas including the introduction of escrow accounts. Strata Law governing the introduction and operation of owners associations. stipulations regarding recourse where delays in the handing over of projects changes specifications of properties. defects and any material departure from the contractual provisions has occurred.

Investor protection is one of the fundamental critical factors in driving sustainable profitable growth for the industry.

Question of the Week

With recent increase in property values , I am considering selling my 2 BR apartment in JLT . Do you think I should sell now or will my apartment continue to increase in value?  

I am assuming that your unit is in a good building in Jumeirah Lakes Towers. and that it is well- maintained with a good tenant.

JLT has performed well over the last 18 months with value increases of around 25 percent not unusual. Rents have been rising also so your cash income should have also risen over that period.

However. I wouldn’t rush into selling just yet despite the recent upswing! Real estate is a long-term game which revolves around cycles of approximately seven to nine years.

In our company. we believe that the market has at least another two years of solid growth. and I believe the property still has a bit left to offer you financially.

If you have identified an alternative investment give you a better income stream and capital return than what you expect to receive  in the next two years. then the right decision may be to sell.

However. if you haven’t identified a better alternative. I recommend that you hold on to the property as I believe that you will receive at leas a 6 to 7 percent net rental return. and achieve at least a 7 percent per annum capital growth in the next two years.

Making sound choices for your business

A slightly risky move can eventually pay handsome dividends

After the onslaught of the last global financial crisis, everyone, businessmen and entrepreneurs included, have become more wary of stepping into the unknown, especially when they feel their undertaking involves more than the usual amount of risk.

However, any business man worth his salt, and who has done his home work, also knows that a “Who Dares, Wins” attitude helps distinguish those who are successful from visionaries whose influence lasts way beyond their generation. A smart decision-maker will, anyway, ensure he has got all the facts right and has  made his own independent analyses before arriving at a business decision that can have long-term effects on the enterprise he has so carefully built.

Way back in August of 2012, I convinced one of our valued clients to consider a simple ‘lease versus buy analysis’ that I had prepared. Now, I have to mention that during that period, a lot of businesses were still considering rentals over outright purchases as memories of . the recent local property collapse coinciding with the GFC remained fresh in their minds.

However, the carefully prepared presentation resulted in this client’s decision to purchase the premises from which he can conduct his business as opposed to simply leasing them.

Happily (for both of us) what seemed to be a slightly risky move at the time eventually paid handsome dividends, effectively eliminating a Dh2.5million rental expense, and replacing it with an estimated Dh2.1million worth of capital gain. Obviously, this is excellent news, but it only leaves me to ponder why more businesses have not made the same move.

We have always advocated for several years now that, cash flow permitting, businesses acquire their own premises.

The case for purchasing your premises can be quite simple yet compelling, particularly if your business has benefitted from cost reductions resulting from restructuring during the global financial crisis, and the subsequent accumulation of cash as a result of Dubai’s resurgent economy in the past couple of years.

If you are a business committed to operating for the long term in Dubai, it makes sense to own your office space, particularly if it is a well negotiated purchase. There is no tax advantage in leasing in Dubai and, as long as your office space is appreciating, your balance sheet can look a whole lot better.

And the opportunities to buy true value have never been better. However, you will need to hurry. Office space over the past five
years has never been so plentiful, affordable or negotiable, and is unlikely to be so again.

But beware, things are starting to’ change, and with office prices increasing by up to 20 per cent YoY in some areas, now is the time to knuckle down and, at least, consider the opportunity to own your business premises.

Obviously, careful planning is essential with considerations not being solely based upon cost per square foot. Location, proximity to clients, building quality, peer proximity and logistics are just some of the factors which need to be assessed.

With the continuation of the ongoing economic recovery, and the expected increase in commercial activities resulting from the Expo 2020 event, superior or even optimal solutions will only become harder to identify and, if you are currently renting your premises, it is only a matter of time before your landlord gives you a call to initiate a discussion about raising your rent.

This opportunity may not arise again for some time, that is, if it ever will at all.

I am looking at investing in a flat In Dubai for the long term. Can you advise me on the factors I should be concerned with?

As always, we must be thinking location, quality of the building and the completion status and quality of infrastructure and building amenities.

Anything which is close to the beach (especially with a sea view), a golf course view or situated somewhere close downtown is a good place to start. If you can also have close access to the metro, even better, and you will virtually be assured of renting your new property relatively easily at a rate which will provide at -free ROI of at least 5% net. These locations are more likely to provide superior appreciation in capital value as well.

You also need to consider the effectiveness of the owners association (OA), service charges and the quality of maintenance services. Facility management is becoming increasingly more important to determining the value of baildings as it will have an effect on the long-term value of your investment.

With a lot of new developments being offered, what do you think about buying off-plan vs. completed properties?

By buying off-plan, you can benefit from capital appreciation exceeding the market average in the period just prior to launch, and over the ensuing 12 months. However, remember that in purchasing a completed property, you will benefit from the cash flow immediately providing you with an immediate yield on your investment.

To help you estimate which option will work best for you, seek the advice of a reputable real estate professional. They should be able to help you define your investment objectives, identify suitable investments and conduct a complete financial analysis.

look for certain property types which you believe I be keenly sought in the future, and try to buy properties from developers who have a strong and stable track record.

Do you think that there are too many new projects being introduced too soon?

There have been projects unveiled with an estimated value of at least US$40 billion in the recent past. They include the world’s biggest Ferris wheel, a new “city within a city” ,and a range of theme parks.

These types of developments are a little different to the random, unfettered developments of the pre-recession era in that they are tapping into what actually drives Dubai’s economic growth. One reason why the economy is growing at a very healthy rate is because of a booming tourism industry. If you add to that a location which is one of the best cities for young professionals globally, you’ll see why investment in developing, and expanding an economic capability to satisfy a growing demand for tourism and entertainment makes sense.

It is ideal for the real estate industry to grow as a result of population growth driven by economic development. Many of the newly-announced projects are aimed at doing just that.

With the recent uptick in prices, is real estate still providing real value?
Definitely. Remember, regardless of where the capital comes from, the market ultimately determines a broadly representative perception of value, and we believe that there is some way to go before the Dubai real estate industry is considered overpriced.

Of course, it varies by asset type. For example, the reason areas such as Emirates Living, The Villa Project, Arabian Ranches and the Palm Jumeirah have been appreciating so strongly is because of the superior value they are providing prospective owner-occupiers and investors to whatever exists elsewhere. There are different types of buyers driving the demand. The first buyer type is taking the opportunity to upgrade from apartment -style to villa-style living. The second buyer type is upgrading villa type, style, size and location, and from a pure investment point of view.

Whether owning or renting, value will always attract interest and activity.

Question 0f the Week

There has been a lot written about the new investor Protection Law . Is it a case of too little too late , and how will people who have been disadvantaged during the financial crisis benefit from its implementation?

In essence, The Real Estate Investor Protection Law is yet another step in the maturation of the Dubai Real Estate industry. We have always said that a viable and robust real estate industry requires three important elements which we call the 3Cs: Confidence, Capital and Clarity.

The law will go a long way to boosting the level of confidence of investors by protecting them from contract breaches or fraudulent activities by developers, and add clarity as to what legal protection they may draw upon if needed. In addition, it is expected that owners’ associations will be further strengthened by strengthening their legal status. All this is good news for the industry, going forward.

However, the degree to which the law may’ be applied retrospectively is likely to be limited. Already, those investors who have been disadvantaged by developers cancelling projects can take their case to a special committee set up specifically to handle these matters; while it is still not clear as to whether those investors experiencing delays in projects commenced prior to the new law’s introduction will be entitled to relief under its provisions.

The IMF recently stated that Dubai requires additional measures to prevent another real estate crisis developing. Do you agree?

No. Additional measures are not required at this stage. The rapid price growth of the past year had already started to slow some time before the IMF statement was made. Various estimates of quarter over quarter price growth for January to March 2014 for apartments range between averages of 2.7% and 3.4%, with price growth in established areas such as Dubai Marina, JBR, The Palm and Downtown slowing to low single- digit growth, while secondary areas such as JLT and properties in Dubailand have also slowed to exhibit growth in the 7 to 9% range.

A similar story exists for villas, with quarter-on- quarter price growth slowing considerably in more established locations such as Arabian Ranches and The Palm, while secondary locations are still enjoying healthy, albeit slowing, growth rates in the 7% to 13% range.

Office space is showing a long awaited rebound, with quarter-on-quarter increases’ of anywhere between 7% and 15% depending on the location. While this may seem excessive, remember the office segment was decimated by the global financial crisis and languishing with inventory supply at double demand and rock bottom prices for half a decade. So, given what we know about the current trajectory of price growth rates, additional measures to further cool the market may seem a little premature.

I have a 2-bedroom flat at the Queue Point development in Dubailand. Can you advise me on whether I should sell or rent it out?

At  the moment, apartments in Queue Point are generally being valued between Dh 700 and 750 per as  marked improvement from the Dh450 to 500 per sq.ft. being offered during the recession. We expect values to continue to increase over the coming five years at a sustainable 7-10% average.  I suggest you retain the apartment for at least the next 5 years as I am confident you will benefit from  Superior capital growth and enjoy at least a 7-8% net annual rental return in the meantime.

Given the recent performance of finished properties, are there any advantages now by buying off-plan?

Purchasing a property off-the-plan can provide you with superior capital gains by the time of completion providing the market will continue to exhibit price increases beyond the completion date for the particular property that you are considering. This, of course, will depend on an estimation of economic growth, population expansion, the number of competing projects in the pipeline and the eventual industry inventory position.

Be smart about the “product” that you buy. Look for certain property types complete with amenities and facilities in locations which you believe will be keenly sought in the future.

Do not assume that all property types in all locations will improve their values homogeneously. No market works this way. Also check the latest Dubai Metro route planning.

Can we expect an improvement in construction quality in this current era of resurgence, or is it more like before?

During the GFC, many developers realized that properties of poor quality were dealt the harshest of value declines. Having said that. the old caveat of “buyer beware” still applies.

Deal only with a reputable developer. Ask around or seek professional guidance, as those in the industry have a good appreciation of who the reputable developers are, and inspect buildings already completed by the developer. Ask what proactive measures are taken to ensure the end product has been built to an acceptable standard. Warranties and any quality assurance policies should be discussed in detail and have the Sales and Purchase Agreement reviewed by a professional, to ensure you have legal recourse should any quality issues arise.

Engage a professional to inspect (snag) your property, and report any legitimate issues to the developer for rectification.

Question of the Week

Recent reports have shown the Dubai market cooling somewhat . Why ?

A combination of factors have had an effect. The implementation of the 4% transfer fee along with developers’ proactive attempts to limit speculative practices; the implementation of new mortgage laws limiting the availability of credit to prevent individuals  “overstretching” their finances, or providing the finance for the practice of flipping; and new laws governing rental price increases have also had an effect. with investors now recalibrating rental returns which are essentially determined by a well- publicized and transparent formula backed by law.

In addition, there are other investment opportunities competing with real estate. For example, the Dubai Stock Market. which had posted gains of l07% in 2013, having grown 61% YTD. Apart from non- property linked stocks performing well, property developers have shown strong growth in valuations. Emaar stocks have more than doubled in value since August last year, providing investors interested in benefitting from Dubai’s property resurgence to directly invest in developers rather than properties.

And developer practices have also come under scrutiny. Regulations and rtstrictions for off-plan sales regarding minimum capital requirements,the establishment of escrow accounts, 100% land ownership, authorization procedures, regular audits and investor protection legislation have all resulted in a significant decline in speculative development practices.