AN AMUSING STORY… IF IT WASN’T SO SERIOUS!

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute

When it comes to amusement, I have always thought that Dubai has a definite competitive advantage in that it is uniquely placed. With its geographic location, infrastructure, stability, cultural diversity and existing reputation as a leisure destination of note, development as the destination of choice by, not only GCC families and youth, but visitors from all over the world who desire amusement, adventure and unique experiences, will play an increasingly important role in building a strong, vibrant and resilient economy and, of course, property industry.

So, it was with excitement, not amusement, which I read about the latest addition to a city already swelling with entertainment and activity alternatives – the IMG Worlds of Adventure. This amusement park took three years to build and cost more than 3.6 billion dirhams. To be labelled “the world’s largest indoor theme park” is no idle boast, with the complex covering over 1.5 million square feet or around 20 times the size of the pitch at Emirates Stadium in London.

And, wait for it… there is more to come…

The next six months should see an even bigger development which, built at a cost approaching 10 billion dirhams, will include such entertainment icons as LEGOLAND and Bollywood, and a giant water park.

The new theme parks will play a key role in ensuring the emirate’s target of 20 million visitors will be visiting the emirate annually from 2021 will be achieved. Very impressive stuff!

But the reason why I love these latest theme parks is not because I enjoy rollercoaster rides … I will leave that for the more adventurous. I am excited at the effect these fantastic initiatives will have on the economy and, more specifically, the property industry that is so close to my heart.

From an economic point of view, this is very serious business indeed!

Aside from the obvious direct benefits of tens of billions of dirhams being invested into the economy, few people realize the enormous economic contribution theme parks make to the overall economy post launch. It is a cliché, but the world is a small place and the war for providing entrepreneurial and employment opportunities is waged on a global battleground and a successful entertainment and amusement industry is just one economic weapon that Dubai can employ to great effect.

And being a global growth industry, participation cannot be ignored.  Consider the following which was sourced from the TEA/AECOM 2015 Theme Index and Museum Index:

In 2015, there were …

…420 million visits to attractions run by the top 10 global theme park groups, up by 7.2 percent.
…236 million visits to the top 25 amusement/theme parks worldwide, up by 5.4 percent.
…146 million visits to the top 20 amusement/theme parks in North America, up by 5.9 percent.
…131 million visits to the top 20 amusement/theme parks in Asia-Pacific, up by 6.9 percent.
…61 million visits to the top 20 amusement/theme parks in Europe, Middle East and Africa, up by 2.8 percent.
… 29 million visits to the top 20 water parks worldwide, up by 3.7 percent.

In a world that is struggling to generate any form of impressive economic growth, the growth within this industry is truly impressive.

Without doubt, the current world leader with regards to amusement parks is the southern US state of Florida. It’s a fact that theme parks are a major reason why people visit this American state. Here are the top theme parks in Florida and the number of annual visitors they attracted in 2014 according to the TEA/AECOM Theme and Museum Index…

… Magic Kingdom – 19.3 million
… Epcot -11.5 million
… Disney’s Animal Kingdom – 10.4 million
… Disney Hollywood Studios – 10.3 million
… Universal Studios – 8.2 million
… Islands of Adventure at Universal Studios – 8.1 million
… SeaWorld – 4.7 million
… Busch Gardens Tampa Bay – 4.1 million

Truly impressive numbers which only highlight that the economic advantages created by having such a robust entertainment industry are staggering. The state estimates tourism brings in a whopping $82 billion in visitor spending while the State Department of Economic Opportunity says that of the approximately 9.1 million workers in Florida, 1.1 million of them hold jobs directly attributed to tourism. That’s better than 1 worker in 10!

Obviously, the job creation potential of this industry, both direct and indirect is staggering… which is why amusement parks are such serious business. The true long-term value of these projects lies in the long-term economic advantages of employing people and creating commercial activities in order to develop a unique capability to entertain the families and youth of the region and beyond.

And job growth fosters population growth which is critical to any property / real estate Industry. It is the undisputed catalyst to industry growth and the population growth generated by the substantial increase in investment and employment opportunities that a successful foray into the entertainment industry would generate would be and have huge and long-lasting benefits for the property / real estate industry downstream.

Ask the Agent

By Mohanad Alwadiya
Published: Gulfnews
Dated: November, 2016

Can you please share some details on how rental increases are determined
in Dubai?

Initially, your landlord needs to give you the notice of increase at least 90 days prior to the expiration of your current contract. You should familiarise yourself with Law No. 43 which
introduced the following restrictions (summarised) with regard to legally allowable rental increases:
• There should not be any rent increase if the rent for the real estate unit is no more than 10% below the average rent that a similar property commands within a neighbourhood
• The annual rent increases can range from 5 up to 20 per cent according to how much the current rent is less than the market average
• The market average rates are to be determined by the RERA rental index

The implementation of Law No. 43 is necessary to safeguard consumer interest, the overall industry and the economy at large from rampant and unjustifiable rental increases on existing rental contracts.

Is there a state of oversupply in Dubai real estate? How does one know for sure?

It depends on an accurate estimation of construction timelines which are invariably fluid, and the demand for real estate assets due to Dubai’s growing population that is largely driven by overall economic growth going forward. In addition, it needs to comprehend a lag effect from the time that conditions conducive to development are identified by developers and when properties are finally released onto the market.

Given that the economy of the emirate of Dubai is expected to grow at an estimated 5+ per cent annually for the remainder of the decade, and initiatives such as the Expo 2020 are expected to generate an additional 270,000 jobs, the demand for housing and commercial
facilities is expected to grow significantly. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4 million by 2020, a 7 per cent annual increase from today’s population of 2.25 million.

How is the Dubai real estate market? Is now the best time to buy, or should I wait for prices to fall further?

The real estate market is an industry full of surprises. The Dubai market has been correcting for several months and is picking up again, as the next five years
are expected to see a strong economic growth in Dubai. My recommendation is for you to start your property search immediately in the places you like as proper due diligence can take time. If you have the cash, we suggest you pay for it outright; however, don’t be afraid to take out a mortgage with varied easy payment plans that will save you considerable amounts of money.The location, surrounding infrastructure, construction quality and developer reputation as well as building amenities or properties close to an iconic development, such as Downtown Dubai or those with close access to the Dubai Metro or Tram usually provide good returns. Finally, be purposeful, persistent, patient and pragmatic, and you are well on the way to making a very sound business decision.

I have just joined the market as a property investor. Can you please help me in determining an optimal rental rate to attract my first tenant?

The simplest way to determine a good rental rate for your property is the sales comparison approach (SCA) which relies on identifying a factor that is homogenous to similar properties. For example, an apartment similar to your planned investment which attracts a monthly rental rate of Dh7 per square foot can indicate the likely cash flow you expect; however, as property managers, we do not advocate this approach.A more comprehensive method is the capital asset pricing model (CAPM) which comprehends levels of risk and opportunity cost as it applies to your investment. It identifies your potential return on investment derived from capital appreciation in addition to net rental income and compares it to other investments that you may be considering. This enables smarter investment decisions and, therefore, is the one that we use as standard procedure.

Question of the Week

I have heard some realtors use certain terms like “GFA,” “BUA” and “NFA.” As an investor, I am left in the dark. What do these terms mean?

Like any industry jargon, there are quite a few confusing acronyms used in real estate but those that you have highlighted relate to the actual dimensions of the property you are buying or leasing. For this reason alone, it is imperative that you understand them and their significance.

The gross floor area (GFA) is the total floor area of a building including any underground saleable or leasable area (such as basement shops), but excluding parking and underground technical areas. Any building used as some form of supporting service plant is excluded from the GFA.

Meanwhile, the built-up area (BUA) is the total area being developed or constructed. It is the gross floor area plus parking plus any service area associated with the subject building or project.

The net floor area (NFA), on the other hand, is the GFA minus the facade of the building (measured from the centre line of glass), plant areas, service risers, building structural core, fire stairs, lifts and lift lobbies, common corridors and common toilets. The individual measurements are used for separate reasons, ranging from purchasing a
building and calculating potential revenues to be derived from selling or leasing a building to estimating cleaning costs.

Theme Parks, Ahoy!

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute

Well, Dubai has done it again!!

The latest addition to a city already swelling with entertainment and activity alternatives is the IMG Worlds of Adventure. This amusement park took three years to build and cost more than 3.6 billion dirhams. To be labelled “the world’s largest indoor theme park” is no idle boast, with the complex covering over 1.5 million square feet or around 20 times the size of the pitch at Emirates Stadium in London.

And, wait for it… there is more to come…

The next six months should see an even bigger development which, built at a cost approaching 10 billion dirhams, will include such entertainment icons as LEGOLAND and Bollywood, and a giant water park.

Dubai has always considered tourism to be a key, increasingly successful and lucrative pillar to the economy, but -the latest additions to its suite of attractions are taking the emirates’ capability to satisfy the appetite of those who pursue world-class entertainment and amusement to a whole new level.

The new theme parks will play a key role in ensuring the emirates’ target of 20 million visitors will be visiting the emirate annually from 2021 will be achieved. Very impressive stuff!

But the reason why I love these latest theme parks is not because I enjoy rollercoaster rides… I will leave that to the more adventurous. I am excited at the effect these fantastic initiatives will have on the economy and, more specifically, the property industry that is so close to my heart.

From an economic point of view, this is very serious business indeed!

Aside from the obvious direct benefits of tens of billions of dirhams being invested into the economy, few people realize the enormous economic contribution theme parks make to the overall economy post launch. It is a cliché, but the world is a small place and the war for providing entrepreneurial and employment opportunities is waged on a global battleground, and a successful entertainment and amusement industry is just one economic weapon that Dubai can employ to great effect.

And being a global growth industry, participation cannot be ignored. Consider the following figures sourced from the TEA/AECOM 2015 Theme Index and Museum Index:

In 2015, there were…

… 420 million visits to attractions run by the Top 10 global theme park groups, up by 7.2 percent.
… 236 million visits to the Top 25 amusement/theme parks worldwide, up by 5.4 percent.
… 146 million visits to the Top 20 amusement/theme parks in North America, up by 5.9 percent.
… 131 million visits to the Top 20 amusement/theme parks in Asia-Pacific, up by 6.9 percent.
… 61 million visits to the Top 20 amusement/theme parks in Europe, Middle East and Africa, up by 2.8 percent.
… 29 million visits to the Top 20 water parks worldwide, up by 3.7 percent.

In a world that is struggling to generate any form of impressive economic growth, the growth within this industry is truly commendable.

Without a doubt, the current world leader with regard to amusement parks is the southern US state of Florida. It’s a fact that theme parks are a major reason why people visit this American state. Here are the top theme parks in Florida and the number of annual visitors they attracted in 2014 according to the TEA/AECOM Theme and Museum Index:

… Magic Kingdom – 19.3 million
… Epcot -11.5 million
… Disney’s Animal Kingdom – 10.4 million
… Disney Hollywood Studios – 10.3 million
… Universal Studios – 8.2 million
… Islands of Adventure at Universal Studios – 8.1 million
… SeaWorld – 4.7 million
… Busch Gardens Tampa Bay – 4.1 million

Truly impressive numbers which only highlight just how the economic advantages that are created by having such a robust entertainment industry is staggering. The state estimates tourism brings in a whopping $82 billion in visitor spending while the State Department of Economic Opportunity says that of the approximately 9.1 million workers in Florida, 1.1 million of them hold jobs directly attributed to tourism. That’s better than 1 worker in 10!

Obviously, the job creation potential of this industry, both direct and indirect, is staggering… which is why I love amusement parks.

Most commentators would relate to the increased building activity that such projects would create; however, the true long-term value of these projects lies in the long-term economic advantages of employing people and creating commercial activities in order to develop a unique capability to entertain the families and youth of the region and beyond.

The local market offers significant opportunity. The GCC, with a total population of just over 40 million people, has one of the youngest populations in the world. Approximately 50 percent of the population in the Arabian Peninsula is below 25 years of age. What a wonderful opportunity this represents for Dubai! The possibility exists for the construction of the only mega family entertainment destination in over 2,500,000 square kilometres of territory. From an economic point of view, the provision of memorable entertainment experiences for the youth and families of the region will have a multiplier effect on the economy as a whole, including the real estate industry.

Why are Mortgages Key to Growth?

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute (DREI)

I read a very pleasing article over my morning coffee.

The article revealed that mortgage transactions, including refinancing, have represented approximately 50 per cent of all apartment sales September last year to date with some months achieving over 60 per cent. This is in stark contrast to what has historically been the case in Dubai, as mortgages rarely represented more than 30 per cent to 35 per cent of property sales for most of the prior decade.

This is great news for several reasons.

First, while this trend highlights the confidence of lenders in the marketplace it also highlights the increasing confidence of consumers, mostly owner occupiers, in the market to the extent that they are prepared to take on the risks associated with committing to a mortgage for the sake of purchasing some property.

This is very important to the development of long term sustainable growth for the industry as the bedrock of any property industry is its owner occupiers.  They represent the core of the industry as it is they who view property as an investment in life, not just a way to make a quick buck. And yet, historically, they have attracted focus in a market still undergoing the maturation process which is falling short and not proportionate to their importance.

Owner-occupiers see real estate in a different light. For them, it’s about creating a lifestyle. It’s about creating a home which will provide an environment that is safe and secure within which the individual, couple or family can grow and develop in all aspects whether physical, emotional, social and, of course, financial. In this respect, they have a lot more at stake than those investors with financial interests only.

Typically, they form the core of society, not overly wealthy, who are concerned with providing the family with a future. For some, the purchase of the first family home is the first step towards creating a legacy which hopefully, for the more romantically minded, will turn into a dynasty. These are the dreams which make owning their own home the most important decision they are likely to make. They are in it for the long term; there is a lot at stake, which is why availability of finance through mortgages is critical.

The second reason why this is such good news is because we are witnessing, in real time, the market adapting to legislative changes that were made in early 2014. There is no doubt that the implementation of the mortgage caps earlier in 2014 had affected the demand for many first home buyers who were relying on a mortgage to acquire their dream home.  I remember writing an article at the time of the legislative change and observing the following …

“At Harbor, we see 62% of our clients who were considering buying a property prior to the mortgage caps delay their purchase until they can accumulate the down-payment differential while 38% have settled (or compromised) for a cheaper property to get an initial foothold in the market.”

As predicted, “… the new mortgage caps have certainly produced a definite lag in demand as clients adjust to the new financial realities and many of these clients are planning to participate within the next three years.”

I am pleased to say that these observations have essentially been proven correct. The legislative change made by authorities was implemented to help cool what was then, a rampant market. The desired effect was achieved but buyers didn’t simply disappear, they modified their purchasing behavior, another sign of an increasingly resilient and maturing market.

Finally, a growing number of mortgages are being undertaken for properties that are purchased in the more affordable areas of Dubai, which further demonstrates the systemic shift to affordable housing in the Dubai property market is becoming even further entrenched as a long-term characteristic.

A natural occurrence within any economy that is growing rapidly and is formally recognized as maturing and transitioning from being a “frontier” to “emerging” market as Dubai did back in 2013, is that its middle and lower-middle income segments will expand to support the rapid rise in commercial activities and economic initiatives being instigated by entrepreneurs and corporate or government entities. This expansion is unavoidable if the economy is to grow and providing affordable housing to enable this expansion is a critical element to the future growth of Dubai and the development of the Real Estate industry into a mature model that can efficiently cater for a broad and diverse set of people with different incomes, tastes, preferences and requirements.

And demand is set to grow very rapidly. A case in point… the World Expo is predicted by independent analysts to create over 270,000 jobs. The vast majority of these jobs will not be for people occupying senior executive positions. They will be for people in middle management or lower positions, many with families, who will be seeking affordable accommodation.

The importance of maintaining affordability for the average buyer is critical and the availability of affordable finance in the form of mortgages is vital to enable many to gain access to this lucrative market going forward.

Aspire to be a Property Owner

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate

Among the most fundamental (and practical) dreams people share in common is the dream of owning a home. But why is it that not everyone succeeds in this endeavor? Economics, of course, plays a significant role in the overall scheme of things. So, given the opportunity to purchase a property, or your home, no less, would you not hold on tightly and make sure you own (pun intended) it?

In Dubai, while there has been a correction in rental values, it has essentially lagged behind the correction in property values, and I do not believe that the general rent decline will exceed 10% in most areas. Rents will eventually start to rise from 2017 as preparations for the 2020 Expo start gathering pace.

I have always held a view that owning a property is essential to underpinning the accumulation of wealth and building net worth. Obviously, the accumulation of the property asset itself must be done judiciously and with a high level of diligence and care but, in my experience, the vast majority of people who have taken the step towards property ownership have benefitted significantly.

The essential question to ask is “How do I use my money to increase my wealth instead of the wealth of my landlord?”

Buying your home is a positive step towards establishing your financial security by building your equity or “net worth”. Owning property allows you to change the application of your hard-earned dirhams from covering an expense which offers you no financial return to investing in an asset which does. In a way, it’s a forced form of saving which will reap benefits for you in the future.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money for no financial gain, but you are at the mercy of rental inflation as well. This is a problem because you are consistently being asked to pay more while your salary increases are lagging behind, effectively eroding your ability to build wealth. By owning your home, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for a number of years, will enjoy an inflation-driven compounding effect on its value. This allows you to build your individual net worth through the capital appreciation of your property – something which is very important for your financial future.

The fundamentals of buying real estate in Dubai are no different from those elsewhere in the world. As an expat in a new country, you may be even more anxious regarding the decision to buy which is all the more reason to stick to some tried and true principles.

First of all, you need to be very clear as to why you are investing in real estate. Whether it’s to provide the family with a home, generate a steady stream of income or build equity for the future, make sure you are very clear about what your expectations are and quantify them wherever possible. Plan for the long term as the industry is cyclical yet very rewarding if you ride out one or two cycles.

You also need to ensure that you know what you can afford. If you have the cash to pay for the property that you really want, I suggest you pay for it outright; however, don’t be afraid to take out a mortgage and make the purchase as at least your repayments are building equity, not being lost forever on rent.

Then it’s a case of finding the right property. I suggest you contact a reputable real estate brokerage to assist you in doing this, but make sure that you conduct your own research as well. It’s a big decision you are making, and you need to make sure you take the responsibility and are fully aware of what you are doing.

As always, stick to the basics. Think carefully about location, building quality, developer reputation, completion status and quality of infrastructure and building amenities. Properties which are close to the beach (especially with a sea view), a golf course view or part of an iconic development such as Downtown Dubai is a good place to start. If you can have close access to the Dubai Metro, even better. These locations are more likely to provide superior appreciation in capital value as well as be able to ride out cyclical volatility with less distress.

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

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market.