There seems to be no doubt that real estate in Dubai is slowing. Do you see this as an opportunity or a long-term trend?
I do believe there is a price correction underway but we are far removed from experiencing a long- term trend. The pace of growth is falling back to what We might describe as being sustainable, not slipping into a period of across-the-board price contraction. We expect the market to achieve an average price growth of around 7% for the remainder of 2014 and maintain this average growth rate through to the end of 2015. The market in the first six months was still 4′.6% higher than the corresponding period a year earlier, despite the Dh52 billion worth of transactions conducted in Q2 being 15 down on the Dh61 billion that was written in Q1. There will definitely be value opportunities arising from this. faking a five-year view, executing a purchase during this period will provide greater ROI.
I am planning to invest in apartments to provide me with an income stream in the next 10 years.! have become aware of a lot of tenant-landlord disputes which make me reconsider. What are your thoughts?
As with all contractual relationships, the operation of the contract will always be effective if each party understands and accepts both parties’ rights and obligations according to the wording, provisions and clauses included in the lease agreement. All parties should also have a fundamental understanding of the law. The rental laws of Dubai are succinct and straightforward a d are difficult to be misinterpreted. Then there is what I call the “doctrine of reason.” A commitment or willingness to resolve disputes ugh arbitration and reconciliation will resolve issues before they escalate to a point where they require official intervention. Finally, I recommend you to have a professional manage your portfolio. He will handle issues and make your investment work harder for you.
There are a lot of opportunities to buy off-plan at the moment. How can I protect myself against buying an apartment of inferior quality?
Make sure you deal with a reputable developer. One positive effect of the 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 know what proactive measures are taken to ensure the end product has been built to acceptable standards, and take the time to inspect buildings already completed. 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 have the right to inspect (snag) your apartment and report any legitimate issues.
I have been looking for an apartment around the Dubailand area where! think we can get more value for money. How do the properties there stack up?
As the Dubai real estate has moved through the recovery phase of its cycle, demand for more affordable developments has been rising rapidly due to a strong “trickle down” effect. This is because areas that were leading the recovery have become too expensive and people began seeking more affordable accommodation. This has resulted in developments such as Skycourts and now Queue Point overtaking the more established areas in terms of rental yield and capital appreciation. Apartments in Skycourts have seen excellent capital growth with some apartments growing by 15 to 20% over the past year. Demand for this type of affordable accommodation has been growing steadily and we expect Queue Point to benefit as well, especially as Dubai’s population swells in the run- up to the Expo and the demand for affordable housing increases.
Question of the Week
I own an apartment in Dubai Marina bought in 2012. i increased the rent six months ago with a new tenant. According to the RERA rent index, I cannot raise it any further. The market seems to have peaked. Should I sell it ?
Real estate anywhere is cyclical and Dubai Marina has performed very well since you purchased the property.
While the market may appear to have peaked, we believe it is part of the normal cyclical pattern of real estate markets.
Looking over the next five years, we expect the market to achieve an average price growth of around 7%. Bear in the mind that we are talking averages here, and Dubai Marina has a habit of outperforming the average.
So, it really comes down to alternatives. 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 five years from your apartment. then the right decision may be to sell.
However, if you have not identified a better alternative, I recommend you hold on to the property as I believe that you will continue to receive at least a 5 to 7% net rental return and achieve around 7% P.A. capital growth for the foreseeable future. These types of returns are not easy to find.
A matter of success in real estate
The world of real estate, simplified through board games like Monopoly, does have real winners and losers – a truth overwhelmingly evinced during periods of economic turmoil. But what differentiates-those who ultimately succeed from those who don’t? How does one prepare for the risks? Can one prepare at all? Mohanad Alwadiya of Harbor Real Estate ells us how even neophytes in real estate investment can prepare themselves to enter the property world.
Long-term success in property investment
Success in property investment can only be attained when (and if) the objectives of the investor have been realized. It’s as simple as that.
A vital component of your property portfolio investment strategy is the careful setting of financial objectives. These objectives, which would be reviewed on an annual basis, must include such elements as total return capital appreciation, revenue streams, net results eventual divestment valued all wrapped up in a time frame deemed strategically optimal for the investor. If objectives of the investor been met, then the investment can be considered a success.
However, many investors suffer from what I call the “should have, could have, would have” syndrome. This occurs when the investor feels that his investment did not outperform the market and, therefore, under performed, leading him to depart from his initial strategy’ reverting to short-term thinking horizons and making poor decisions regarding his portfolio.
A recent example springs to mind. We all know that the Dubai real estate market returned to an average capital appreciation of around 30% in 2013. In the same period, we estimated that the portfolio of one of our investors appreciated around 24%. Infrastructural issues that contributed to the constraints on capital appreciation. The investor felt that his investment had under preformed, despite the fact that he had set an objective of 21% capital appreciation for the portfolio when first determining the strategy.In actuality, the investment had been a significant success with an enviable over achievement in excess of 14% versus original objectives. The investor, whose first reaction was to liquidate part of the portfolio, required some convincing to retain all his assets and stick to the original strategy.
The above example illustrates why the key determinant to long-term success in the market is the ability to develop a comprehensive, realistic and flexible strategy that encompasses at least five (preferably seven) years duration and which is reviewed at least once, but preferably twice, every year.
Qualities of a shrewd property investor
As with any investment, investing in property is all about recognizing and capitalizing on opportunities that are consistent and supportive to your overall objectives.
To do this, you must have some knowledge about the industry. The old adage of “Don’t invest in anything you don’t know” applies. You must have a clear understanding of what you are trying to achieve and what role your property portfolio will play within a larger diversified portfolio. What proportion of your total investment portfolio is allocated towards property? Towards stocks or bonds, gold or commodities, etc.? What is your source of finance and where do the greatest risks lie? How liquid might you need to be? All these questions (and more) need to be addressed, and the more skillful you are at conceptualizing your wealth generation schematic, the greater your likelihood of successfully growing your wealth.
Services for first-time investors
The professionals serving Dubai’s real estate industry are steadily developing the sophistication seen in more mature markets around the world. Areas including economic and financial analysis, appraisal and real estate evaluation, market analysis and forecasting, marketing and effective brokerage and property management services are improving all time. The skills and strategies mentioned above a hardly rocket science to experienced and professional real estate practitioner, and good work has already bee! done by the DREI and RE in helping build a body professionals who are know edgeable, conversant, p ficient and ethical in the practices
Value of proactive investing
Those who have had the greatest success:
• possess the ability to think long term
• make rational, well-researched and carefully
thought out decisions with the end objectives
• understand that every real estate market globally will go through cycles of growth and contraction
They do not get duped into making short-term decisions based on inevitable market fluctuations, and they treat disturbing headlines as the catalyst for gaining a greater understanding of the underlying events that are shaping the industry, and if any opportunities.
The effectiveness of owners associations (OAs) will vary greatly depending on the commitment and expertise of the owners. I suggest you attend the meetings and see how you can contribute.An OA is comprised of and represents all of the owners of a jointly-owned property development which is registered as an official entity with RERA.
Its purpose is to manage, operate and maintain the common areas. The OA is also empowered to select and appoint suppliers and companies. A functioning OA will go a long way to ensuring that owners get what they pay for. Property owners should actively participate in the operation of their A. Neglecting to do so is to ignore the maintenance of their own property asset and live with the consequences.
We keep hearing that the market is cooling off. Do you think that there will be a major correction or dip in the market?
I believe a minor price correction is underway.
The price/demand correlation is definitely in play as the latest figures from the Dubai Land Department have confirmed what we have all been surmising, that despite being 4.6% higher than the corresponding period in 2013, the property market in Dubai in the first six months of 2014 has been slowing, with the second quarter producing Dh52 billion worth of transactions, down 15% on the Dh61 billion that was written in he first quarter.
However,l must reiterate that the pace of growth s falling back to what we might describe as being sustainable, not slipping into a period of deep, across-the-board price contraction. We expect e market to achieve an average price growth Of around 7% for the remainder of 2014 and maintain this average growth rate through to the end of 2015.
I heard about a new project called Ajmal Sarah which is located at Dubailand Residence. Do you advise me to invest there and why?
The Ajmal Sarah Tower is one of the latest additions to a hive of activity in Dubailand. lt is the flagship real estate project for the renowned Ajmal brand of perfumes. It has been designed and constructed to a very high standard and features high levels of quality and luxury elements from some world-leading luxury brands. It offers spacious units with a choice of studio,l B/R,2 B/R and 3 B/R apartments, and provides state-of-the-art facilities and amenities. Being located in the Dubailand Residence, it enjoys a location surrounded by leisure, shopping and entertainment options. With prices starting from around Dh530K and an in-house payment plan, the property provides excellent value for the astute investor. I would recommend it.
What is the difference between freehold and leasehold?
This is a very important question to resolve when considering the acquisition of a property as it determines whether you own your property outright or whether you have a landlord for the duration of your “leasehold.” If you own a freehold property, you essentially own any buildings or structures and the land it stands on outright.
You are registered as the freehold owner with the Dubai Land Department and you will own the property until you decide to dispose of it. Leasehold, on the other hand, means that you acquire the rights to occupy a property for a fixed period courtesy of a lease contract created with the owner. The leases are usually long term, often 99 years and frequently allow the lease holder to make modifications. However, they must do so recognizant that they do not actually own the property and must vacate eventually if the leasehold is not renewed
Question of the week
What is REIT and do you advise me to invest in one?
A Real Estate Investment Trust (REIT) is a trust company that accumulates a pool of money through an initial public offering (lPO) which is then used to buy, develop, manage and sell assets in real estate. The IPO is identical to any other security offerings with many of the same rules regarding disclosure and reporting requirements and regulations. The investor, instead of purchasing stock in a single company, is buying a unit which is actually a portion of a managed pool of real estate. This pool of real estate then generates income through renting, leasing, selling and financing of property and distributes it directly to the REIT holder on a regular basis.
Units held in a REIT can be bought like a stock on a stock exchange. The REIT invests in real estate directly either by buying, selling or leasing properties or .by investing in property mortgages. Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in REITs that are listed on the stock exchange. Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels.
Investing in REITs is a liquid, dividend-paying means of participating in the real estate market. REITS allow the average investor the ability to invest in real estate without investing large amounts of capital or devoting a lot of time in directly managing a property portfolio.