I am considering buying an off-plan property. How do I determine its potential versus buying an established property with a history of returns?
The fundamentals still apply. Make sure that an off-plan purchase is consistent with your property portfolio strategy. Location is critical and cannot be underestimated. The asset type is also important. Be smart about the “product” that you buy. Look for certain property types in locations which you believe will be keenly sought in the future. You need to do some careful ﬁnancial analysis which will enable you to determine the value of the discount that you anticipate receiving by buying off-plan. Check easy payment plans which can ensure you limit your capital exposure before completion. You also need to be conversant with ﬁnancial concepts such as NPV (Net Present Value) and IRR (internal Rate of Return) to guide you when you make your decision.
I am thinking of adding property to my other investments, but have no prior experience. What advice can you give?
Investing in property is all about recognizing and capitalizing on opportunities that are consistent and supportive to your overall wealth accumulation objectives. You must have some knowledge about the investment you are getting. You may not be an expert, but you need to be able to communicate knowledgeably with the experts. 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 is your source of ﬁnance and where do the greatest risks lie in the event of an economic downturn? How liquid might you need to be? All these questions need to be addressed. Finally, you need to be able to identify, engage and work with a professional in the industry. Selection of the right agency is a skill in itself and it’s up to you to choose wisely.
I know that the market has slowed but is the slowdown being experienced across the board, or do some areas still look promising?
The affordable segment in Dubai still shows a lot of promise as these properties will be in high demand as Dubai’s strong population continues to grow on the back of a strong economic recovery. Properties located in non-prime areas such as Dubailand continue to do very well. With the recovery in real estate going from strength to strength, we have witnessed the more affordable or secondary areas of the market continue to do well where the prime areas have slowed. Examples of affordable projects that provide good rental returns and expected capital appreciation are Skycourts and Queue Point. Skycourts has seen excellent capital growth with some apartments growing by 20% to 25% over the past 18 months with rental premiums of at least 7% not uncommon. Queue Point is also attracting rental yields of 6% to 7%. Demand for this type of housing has been growing steadily as the population swells in the run-up to Expo 2020.
With property now cooling in Dubai, does it still make sense to invest, or wait until the market is showing signs of picking up again?
While the market is cooling a little, there are deﬁnitely opportunities available and advantages to be gained from purchasing now. The market will pick up again as the next ﬁve years are expected to see strong economic growth in Dubai, but picking the exact timing is always difﬁcult. Start your property search immediately as a property investment requires the same approach and considerations regardless of the state of the market. Know what you can afford. If you have the cash, pay for it outright; however, don’t be afraid to take out a mortgage. Think carefully about location, surrounding infrastructure, construction quality, and developer reputation and building amenities. You also need to consider the effectivity of the owners association, service charges and the quality of maintenance services. Finally, be purposeful, persistent, patient and pragmatic in your approach and you are well on the way to making a sound investment decision.
Question of the week
Do you expect the Dubai Tram to have the same effect on property values as the metro did when it commenced operations?
The effect of a metro system on property values can be significant. It’s all about convenience, cost and life style efficiency that a fast, comfortable and reliable mode of transport to travel to work, visit, friends or even do some light shopping can bring.
Hassles with traffic, road works and parking can be eliminated, wear and tear on the family car is kept to a minimum for property which allow them to enjoy these benefits.
In Dubai, the metro definitely become a factor when considering the rental return or sale price of a property located within proximity to stations. Dubai properties located within a five-kilometer radius of the metro can command between a 6% and 11% premium compared to similar properties with no feasible ambulatory access to the metro.
We would expect to see similar moves in values of properties resulting from the new tram, providing the effect of the system addresses one of the issues confronting residents in Marina and JLT areas: traffic congestion. If the Tram is successful in reducing it, then the value will increase. We will all be watched closely as only time will tell.