Expert-Eye-11Nov17

3 factors that will influence Dubai reality

Cityscape is finished for this year and the headline results are impressive: A record turnout that showed a year on year increase of 25%; over 300 exhibitors requiring 2 extra exhibition halls; a new initiative to allow sales transactions to be completed onsite resulting in a 186 per cent increase in off-plan property transactions being registered with the Dubai Land Department during the period and the reveal of plans for the Expo 2020 site gave this year’s Cityscape some real gravitas.

I walked away from the exhibition with a feeling that Dubai’s property industry has just commenced one of the most important 3 years of its relatively young life since the post Global Financial recession and that this period will have clearly defined bookends, with the recently completed Cityscape at one end and the Dubai Global Expo 2020 at the opposite end.

So, what do we have to look forward to over the next 3 years? The obvious answer is the Dubai 2020 World Expo. The market has been waiting patiently for the positive effects that the Expo generated population growth will bring to the market to eventuate.

But there are other real and pervasive influences that we need to consider and observe, for they will have a significant effect on what happens in our industry leading up to the much anticipated 2020 event.

The first challenge is VAT which has fast become the most popular acronym in the industry today. VAT is not a new phenomenon. It has been implemented in many economies around the world and is considered an efficient and equitable way for governments to collect tax revenue. As oil prices have declined significantly, oil dependent economies require new sources of revenue to continue to invest, innovate, develop infrastructure and provide services that are required for sustainable economic growth. The IMF has predicted that the USE may improve GDP by as much as 1.5% by implementing a 5% VAT. Some countries have applied 20% VAT’s to generate the revenues required by their governments.

But VAT will have an inflationary effect on the economy as most items required for everyday life will be taxed. Salaries and wage increases will likely lag the introduction of the tax which may impact disposable income levels and affect the ability to save for a house deposit.

As a purchaser of a new home, your purchase is exempt from VAT, but the price will certainly be adjusted to cover the VAT that has already been paid on the value for materials, labor, marketing and other services etc. that the developer had to incur to bring the project to market, while, sellers in the secondary market will be exempt from VAT, yet still need to pay VAT on any Real Estate Agents fees, marketing fees, and maintenance or staging fees.

The sale of Commercial properties, however, will attract the VAT, adding to the cost burden of setting up or operating a business. Once again, consumers will eventually be affected.

The second challenge will be a strengthening US dollar. In an industry where at least 40% of purchases are made by investors that hail from countries whose currencies float freely, the postponed yet inevitable interest rate hikes by the US Federal Reserve, the effectiveness of US fiscal policy and the diplomatic, trade and geo-political effects of increasingly nationalistic policies are likely to present challenges in terms of relative value and affordability as property in other markets such as the UK, Asia or Europe become more attractive. This will be compounded somewhat as the on-going saga of the Brexit implementation is likely to carry on for some time, probably leading to a continuance of a weak British pound for the foreseeable future.

A strong US dollar will also impact one of Dubai’s fundamental and burgeoning economic pillars, tourism. A strengthening AED, combined with the application of the VAT, makes visiting the Emirate a more expensive proposition, particularly if currencies of other countries competing for the tourist dollar are weakening.

Finally, there is no denying that oil prices are very important. While the Dubai economy is only minimally reliant on oil for its GDP, the price of oil does have a strong effect on the levels of liquidity available for the property market and greatly influences the confidence levels of overseas investors in the region.

Somewhat conversely, there are those that believe, for variety of reasons, that the historical inverse relationship of oil prices and USD strength has changed. If so, we may be entering a sustained period whereby oil prices rise in sync with the USD. A positive correlation would certainly help offset increasing USD strength, however, it would make a return to a weak USD and strong oil price scenario increasingly unlikely.

We live in very interesting times.

 

 

 

ASK-THE-AGENT-4Nov17

Ask the agent

Gulf News Saturday, November 4, 2017
FREEHOLD
By: Mohanad Alwadiya CEO, Harbor Real Estate

I was advised to hire a property agent to get a better deal. They show what they have and say what others offer are not good. Are they being truthful?

The real estate market, like any sales-oriented industry, is a tough place to operate in since everyone is out to make a sale for themselves. So having observed the behaviour you mentioned, it would benefit you a lot to ensure you are dealing with a reputable agency with qualified professional agents. Since embarking on a real estate investment venture is a major decision you will have to make, it would be worth your while to do a little research, or ask people with some real estate know-how as to which companies have established themselves well in the industry. You may also want to have a look at the Dubai Land Department’s Brokers App, which shows you a ranked list of approved brokers in Dubai and could assist you greatly in picking out the agency that will work with you and for you.

Where can people go and discuss, or lodge a complaint against a property developer?

It is a fact that issues related to property transactions and deals (tenant vs. landlord, buyer vs. developer, buyer vs. broker) cannot be avoided; thus, authorities have come up with platforms where complainants can air their grievances. The Government of Dubai has made a web portal called “eComplain” available on the Dubai Government website.

Through the said portal, customers may lodge a complaint and if the matter involves a specific government department, the complaint is routed to the appropriate government entity for further action and resolution.

But in order to deal with real estate matters directly, any issues or complaints involving property industry stakeholders, in this case, a developer, need to be referred to the Real Estate Regulatory Agency (RERA) if the parties involved have failed to come to an amicable arrangement regarding the issue in question.

Who is responsible for the upkeep of leased premises? Is there no scope for natural wear and tear in lease contracts?

The landlord is responsible for the general maintenance of a leased property unless the parties have agreed otherwise in the contract. The owner is also responsible for taking care of any defects or faults that affect the tenant’s use of the property.

However, sometimes the landlord may also transfer responsibility for maintenance to the tenant as it may happen in the case of some commercial leases (Article 16, Law No. 26 of 2007).

Natural wear and tear is taken into consideration by law (Article 21, Law No. 26 of 2007) though upon the expiry of the lease, it is assumed that the tenant will return the property to the landlord in the condition that the property was in at the beginning of the tenancy.

We are very unhappy with the facilities management services in our building. What recourse do we have when the landlord is unable to offer a solution?

In Article 16 of Law No. 26 of 2007, it states that “Landlord shall, during validity of the tenancy contract, be liable for undertaking maintenance of the property and shall rectify any defects or faults that affect tenant’s intended benefit from the property, unless the two parties agree otherwise.”

The law very clearly states that property upkeep and repair is a responsibility of the landlord. The Rental Dispute Settlement Centre, which is the judiciary arm of the Dubai Land Department (DLD), would be your last recourse in case you have already exerted effort to properly communicate the matter to the landlord and/or the property manager to no avail. It hears complaints and provides solutions in a transparent and efficient manner.

Ensure though that you bring with you the required documents when filing a case.

Question of the Week

Now that protecting the environment and sustainability have become essential considerations across various sectors, are there rules to encourage builders to promote human and environmental health?

The already existing Article 7 of the Dubai Municipality’s Decree No. 66 of 2003 involves the selection of glazing for facades with the objective to minimise solar thermal heat gains. However, the article does not provide for penalties in terms of non-compliance.

A Mandatory Progression programme was introduced in 2008 with an objective to ensure new buildings meet “green” standards.

A more current development, however, is the introduction of the “Al Safat” green building rating system. The rating system applies to all types of buildings including residential, commercial, industrial and others.

The four classifications are platinum, gold, silver and bronze (in descending order), and the system requires new buildings taking permits from September 1, 2016 to meet requirements for bronze certification at a minimum.

Old buildings will have to be retrofitted to meet the minimum requirements.

Meanwhile, buildings that have previously acquired green building certification will need to apply again to be Al Safat certified.

Send in your property issue-related questions to be answered by industry experts, mentioning Ask the Agent’ in the subject line, to: properties@gulfnews.corn