Highest return on realty investment

By Mohanad Alwadiya

CEO, Harbor Real Estate

Advisor & Instructor, Dubai Real Estate Institute


Do you feel discouraged by the current real estate climate? Are you ready to give up?

A lot of us know that it is the trying times that usually make or break our fortunes. And there is no better time than right now to look inward, think deeply and test your mettle when it comes to property investment.

In every real estate investment journey, I believe that success is attained only when the objectives of the investor have been realized. It’s as simple as that.

A vital component of a property portfolio investment strategy is the careful setting of financial objectives. These objectives must include such elements as total returns, capital appreciation, revenue streams, net results and the eventual divestment values all wrapped up in a timeframe deemed strategically optimal for the investor. If the objectives of the investor have been met, then the investment can be considered a success. Very straightforward.

However, many investors suffer from what I call the “should have, could have, would have” syndrome. It occurs when the investor feels that their investment did not outperform the market and, therefore, underperformed, leading them to depart from their initial strategy and revert to short-term thinking horizons, and making poor decisions regarding their portfolio. Remember, you are in a race with yourself, nobody else.

An example springs to mind.

We all know that the Dubai real estate market returned an average capital appreciation of around 30 percent in 2013. In the same period, we estimated that the portfolio of one of our investors appreciated around 24 percent.

There was a variety of infrastructural issues that contributed to the constraints in capital appreciation. The investor felt that his investment had underperformed, despite the fact that he had set an objective of 21 percent capital appreciation for the portfolio. He was wrong.

In actual fact, the investment had been a significant success with an enviable overachievement in excess of 14 percent versus original objectives. The investor, whose first reaction was to liquidate part of the portfolio, required some convincing to retain all the assets and stick to the original strategy. He is now significantly better off.

Of all my clients, 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 always in mind. They also understand that every real estate industry globally will go through cycles of growth and contraction.

Successful investors don’t panic. They do not get duped into making short-term decisions based on inevitable market fluctuations, and they treat headlines such as oil price deflation as a catalyst for gaining a greater understanding of the underlying events that are shaping the industry, and if any opportunities may conceivably arise.  This is what I like to describe as proactive investing.

As with any investment, 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 knowledge about the industry. The old adage of “Don’t invest in anything you don’t know” applies. This doesn’t mean you have to be an expert, but you need to be able to communicate intelligently and knowledgably with the experts.

The investor fraternity is getting more knowledgeable. More attention is being paid to location, quality of product and maintenance services, and the extent of completion and quality of infrastructure is now playing a big part in investor considerations. With so much supply available at the start of the recovery, astute investors could demand, seek out and purchase the best of what was on offer, and the realization of the importance of these factors has remained a key learning point for most of them.

In the post-recession era, things changed. The chase for yield along with an increase in the level of critical assessment of true values has meant that properties that offer more in way of physical product and potential rental returns are attracting the greatest attention. Successful investors have learnt the meaning of value.

Yet fundamental drivers of market values remain. Location, Product Features and Benefits, Product Quality, and Demand and Supply.

To be successful, 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? What is your source of financing, and where do the greatest risks lie in the event of an economic downturn. How liquid would you need to be?

All these questions (and many more) need to be addressed, and the more skillful you are at conceptualizing your wealth generation schematic, the greater your likelihood of generating successful strategies to grow your wealth.

You need to be able to identify, engage and work with a professional in the industry.

As astute, skillful and knowledgeable you may be, a reputable, experienced and client-focused full service agency will greatly enhance your levels of success. The selection of the right agency is a skill in itself, and it is up to you to choose wisely.

Don’t fall into the trap that the cheapest will be good enough as this is rarely ever the case.

Real estate investment is never a decision made lightly, so stick to your guns and watch as the market continues on its course. Know it deeply, analyze and study it some more. Get reliable, professional advice, and listen.

Remember the words of John Barrymore: A man is not old until regrets take the place of dreams.

The UAE real estate market is still quite young by global standards, and you can accomplish so much more.

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