EXPERT EYE

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This year will see a continuation of policy development and credit controls

The year 2014 could be considered one of the most important periods in Dubai’s real estate history, It demonstrated to the world that the real estate industry in the emirate has achieved a level of maturity that enabled it to successfully manage the significant challenges associated with being the hottest real estate market in the world without succumbing to what would have been an inevitable and resounding crash.

But crash it didn’t. The market in 2014 saw a slowdown which was managed land welcomed by all those who wished to see a market which enjoys healthy and sustainable growth rates.

Given the events of 2014 and the resultant state of play, what is likely to shape industry this year? For a start, the development of the policy, regulatory and legal framework will continue. To achieve this, 2015 will see a continuation of focused oversight, policy development, credit controls, implementation of legislation to protect investors and tenants, and an increasing focus on the professional development and ethical standards of industry participants.

The achievements of 2015 will have a huge bearing on the degree of success enjoyed by the emirate over the next decade

This year will also see increasing levels of investments by the government, corporations and entrepreneurs as the continued focus of economic policy and resources on building the economic pillars of tourism, trade and finance gathers pace. Much of the investment in infrastructure will be in preparation for the Expo 2020 and all its effects. In a sense, 2015 can be seen as a launching pad for the industry as it plays its part in a period of strong economic growth. Having established its resilience and maturity, the event which will most shape the industry going forward is the Expo.

This year will see a more intense focus on the requirements and opportunities that the event will bring the industry and economy as a whole, from new transport systems to waterfront developments, from multi-billion dollar theme parks to affordable housing developments. The event will be the biggest ever to be held in the emirate and one that will play an important role in helping shape world opinion of Brand Dubai.

Economically, the potential benefits are enormous. For real estate, hosting the Expo will provide the impetus for the industry to enjoy continued growth and the predictable surge in demand for accommodation of all types, from labor camps to apartments to executive villas.

This year, investor demand will drive much of the value appreciation on the back of renewed confidence in an economy which has already shown robust growth in 2014. However, initial end-user demand is likely to increase for accommodation, both villas and apartments, in close proximity and easy access to the site itself. The demand for this type of property will continue to increase in the run-up to the event launch and duration.

This year will also see office and commercial units benefit from a rise in demand as operations are commenced for those companies involved in the initial construction or preparatory phases. It is likely that new developments will commence in areas in close proximity to the Expo site, while the area surrounding Dubai World Central is also likely to be in focus for developers as logistics, storage and transport service providers look to set up shop.

The year 2015 will be remembered as the first year of a new era characterized by strong economic growth, major investments in economic initiatives and infrastructural development, a robust and expanding yet sustainable real estate industry and a rapid population growth rate driven by economic opportunity.

In this respect, the achievements of 2015 will have a huge bearing on the degree of success enjoyed by the emirate over the next decade.

Ask The Expert

Ask The Expert1

Retirement home

I am thinking of buying a villa in The Villa project to live in. What do you think of the community and my decision to purchase?

The community is one of the best in Dubai. Amenities include a mosque, nursery, playground, community centre and a new tennis academy. A major supermarket has just been completed and plans are under way for the construction of a new health club. Shopping is easy with Dubai Outlet Mall only ten minutes away, Mirdif City Centre 15 minutes and the Dubai Mall just 20 minutes.

As for purchasing a villa, I would recommend The Andalusia Collection as these villas are renowned for their uniqueness in design, levels of grandeur, quality and value. it boasts some of the biggest plot sizes in The Villa project while the villas themselves have high quality features and fittings from some of the world’s leading brands such as Villeroy and Boch, Grohe and Bosch.

Other features include marble flooring, designer staircases, an overflow swimming pool, decorative fencing, a fully enclosed and air-conditioned central courtyard, and unique Andalusian archways connecting large living areas, some adorned with wooden beams. On offer now are villas with a built up area of 8,400 sq ft and plot sizes ranging from 15,300-30,300 sq ft. All the villas will have provisions for smart home systems with security applications, as well as surveillance and audio distribution systems.

I have a mortgage on an apartment that I live in and I happen to have some cash currently. Should I settle my loan or invest the cash elsewhere?

It all depends on what interest rate you are paying on your mortgage. And what return you could expect if you invested elsewhere.

If you can achieve a return greater than your mortgage interest rate, then you should invest the cash elsewhere and take advantage of your low mortgage rates.

There are some very attractive mortgage products in the marketplace, with a few providers offering rates as low as 3.99 per cent or even 3.49 per cent. If you have a mortgage with such a low interest rate, it will not be too difficult to find an investment that will yield in excess of your mortgage rate.

For example, you may consider investing in a property such as an apartment that will yield you a net annual cash flow of 5 per cent and, over a period of five years, an annual capital appreciation of anywhere between 5 and 7 per cent. This would be a more lucrative allocation of your cash.

lf, however, you are not confident about achieving a return on your cash that exceeds your mortgage rate, then I suggest you pay off your mortgage as you will save the interest costs.

I am currently planning my retirement and have been looking at Dubai as a possible part time retirement destination. I would like to purchase a property, rent it out initially but eventually use it myself during my retirement. Do you have any advice?

Many people include property as part of their retirement plan. The key to choosing your property is determining the right balance between the amount to be invested, the returns you require in the interim period before you retire, and what type of property you want to live in after retiring.

As the property will eventually be for your own use, you need to determine what you will enjoy in your retirement. The good news is your tastes are likely to be shared by your tenants in the interim, so renting should not be a problem. Quality properties are available starting at Dh700 per square foot. However, if you want to purchase in the prime areas of Dubai – either downtown, close to the beach, or with a golf course view – you can easily double or triple that amount. The choice is amazing and getting what works for you is certainly achievable.

You can expect a minimum net rental return of around 5-7 per cent, which, given the cheap financing available at the moment, makes for a solid investment in preparation for outright ownership and retirement. Be careful with fluctuations in exchange rates.

You will require a reputable local real estate professional to help you with factors such as location, developer’s record and reputation, quality, service fees, building management and the existence of a functioning owner’s association to minimise any risks connected to your investment during procuring as well as managing it until you are ready to move in.

Can you describe the property characteristics that I must pay close attention to in order to minimise any risk related to my investment decision?

The first factor to consider is location as it can drive up to 90 per cent of the property‘s value. Established and prestigious locations such as The Palm Jumeirah, Downtown Dubai, Dubai Marina and Jumeirah Beach Residence fared extremely well in the post global financial crisis period, and secondary, more affordable areas such as Jumeirah lakes Towers, The Greens, Dubai Sports City, Discovery Gardens and Dubai International City followed suit.

But there are other factors as well. Quality of product, maintenance services and infrastructure, as well as the extent of completion are now playing a big part in investors‘ decisions.

With plenty of supply at the beginning of the recovery, buyers could demand, seek out and purchase the best of what was on offer, and the realisation of the importance of these factors has remained a key learning for most investors.

Value for money and superior return on investment are also some things that you need to consider closely.

In the post-recession era, the chase for yield. Along with an increase in the level of critical assessment of true values, has meant that properties offering more in way of physical product and potential rental returns arc attracting greater attention.

Current and future supply levels of various asset types need to be examined, and you should consult a reputable property broker to assist you in this. For example, villas, as an asset type, across the board have out-performed others because of supply shortages. However, looking at the inventory pipeline, this may not be the case in the future with more affordable properties likely to be in higher demand.

One thing we have learnt from the recovery is that the fundamental drivers of market values remain location, product features and benifits, quality, as well as demand and supply.

I Rents in our building have been rising significantly as new tenants took up residence. We will need to renew our contract soon and are anticipating an Increase. Can you describe the regulations covering this issue?

Authorities have addressed this particular situation, which is fairly common, to give you some protection. For a start, your landlord needs to give you notice of at least 90 days prior to the expiry of your contract if he wishes to increase your rent. You should familiarize yourself with Law 43, which was issued on December 22, 2013 and replaced Decree 2 of 2011. It introduced the following restrictions (summarised) to take immediate effect with regard to the calculation and implementation of legal rental increases:

  1. There should not be any rent increase, if the rent for the real estate unit is no more than 10 per cent below the average rent that a similar property commands within a neighborhood.
  2. The annual rent hikes, as specified by the decree, can range from 5-20 per cent, according to how much the current rent is less than the market average.
  3. The market average rates are to be determined by the Real Estate Regulatory Agency (Rera) Rent Index (Rera Rent Calculator)

The implementation of Law 43 is necessary to safe guard consumers’ interests, the overall industry, and the economy at large from rampant and unjustifiable rental increases on existing contracts. It does not set out to control the rent in new contracts and where a property is to be let for the first time or to a new tenant. It is up to the owner and prospective tenant to agree on the rent.

I’m looking to rent a house but I found that it has district cooling. Coming from overseas, I am not too familiar with this type of cooling. Can you explain the advantages and pit falls please?

District cooling for the provision of chilled water has emerged globally as a way to provide cooling to buildings in a more environmentally sensitive way. It is considered to provide great benefits in the long run and, in addition, helps in saving on the costs of electricity, which will be reflected in lower Dewa bills for tenants.

You will find that most of the units that are serviced by chilled water district cooling are offered at slightly lower rental rates. However, you should enquire about all the charges included in the cost as well as how they are calculated. You may even ask current tenants how much they pay before you decide on signing the contract.

With regard to consumption charges, I assume you have a BTU meter installed in your apartment. If so, you will be billed directly by the cooling services provider based on what you actually consume in terms of cooling. The more you use, the more you pay.

However, the Dewa savings will be somewhat offset as you may incur an additional utility charge. Some owners may pass to tenants the slightly higher charges they incur, which involves the remuneration of the capital costs of providing the infrastructure that delivers the chilled water to the unit. This charge will, in all likelihood, be proportional to the actual consumption charges.

Nevertheless, in most cases developers have managed to offer better value for money while being environmentally friendly.

Ask The Agent

Gulf News

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 the infrastructure and building amenities.

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

You also need to consider the effectiveness of the owners association (OA), services charges and the quality of maintenance services. Facility management is becoming increasingly important to determining the value of buildings 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 lunch, and over the ensuing 12 months. However, remember that in purchasing a completed property, you will benefits from the cash flow immediately providing you an-immediate yield on your investment.

To help 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 will be keenly sought in the future, and buy properties from developers who have the 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 values?

Definitely. Remember. Regard less 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 type is taking the opportunity to upgrade from apartment-style to villa-style living. The second 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 of 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 benefits 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 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 boost 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 the status owners’ associations will be further strengthened. 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 entitle to relief under its provisions.

Ask The Agent

AskTheAgent03-01-2015

I own a third of a floor of office space with two other parties sharing the balance. We couldn’t find reputable tenants at a reasonable lease rate. 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 from the rental receipts garnered from leasing “pool” space. This will provide superior returns.

 

How does one become a shrewd property investor? What qualities or skills are important?

Investing in property is all about recognizing and capitalizing on opportunities that are, consistent and supportive to your overall wealth accumulation objectives. In order to do this, you must have some industry knowledge, able to communicate intelligently with the experts.

You must also have a clear understanding of what role your property portfolio will play within a larger diversified portfolio. The more skillful you are at conceptualizing your wealth generation schematic, the greater is your likelihood of generating successful strategies to grow your wealth.

You also need to be able to identify, engage and work with a professional in the industry. As astute, skillful and knowledgeable as you may be. A reputable, experienced and client focused full service agency will greatly enhance your level of success. Choose wisely. Don’t think the cheapest will be good enough as this is rarely the case.

 

 

My apartment is ready. When I stated that I would like to inspect the apartment, the developer said that they had already completed their inspection. 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. 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 that may arise for a full 12 months following the transfer of ownership. I strongly recommend you engage a professional to do this on your behalf.

 

 

Why is it that the cost of renting a good but not-so-new apartment in some areas remains expensive? The rates in these areas didn’t fall as much as in other places during the recession, and when rents increased, they increased in these areas fast. How come?

The value of a particular location is usually derived from the levels of lifestyle convenience, pleasure, harmony, security, future economic value or even status that can be derived from the property. Whether it is an outstanding view or proximity to dining, entertainment, business districts, schools, hospitals or public transport, the perceived benefits that a location may bring to a prospective tenant can account for up to 90%. Locations close to the beach and entertainment areas as well as properties located close to/within Downtown Dubai or the business district will command a location premium. Most potential tenants consider a view as a key feature for their home to be enjoyed.

 

 

Question of the Week


I am considering hiring a new property management team for my mixed-use property as I was receiving a lot of complaints about the old one. What things should I be on the lookout for since this is the first time I am changing property managers?

A proficient and professional property manager will make your investment work harder for you. The property manager should be able to provide you with a complete and realistic property assessment, strategy and activity plan designed to harness the true financial potential of your property. Considerations start with objectives and requirements and will include history, current and projected future market factors and risk factors. The scope of consideration should be global, regional and local in nature and your property manager should have a good understanding of economic factors, societal trends, industry knowledge extending to policy and regulation. finance and market dynamics.

Your property management agreement should stipulate that you receive an extensive range of services including marketing. Vetting tenants, executing rental agreements, etc.

Choose your property manager carefully. Ask for referrals and call some existing clients. Remember, it’s your investment, and you need to ensure it’s in good hands providing you with the best returns.