Equilibrium now further away for Dubai market

Developers in Dubai will be happy with their 2017 results, with over 70% of all transactions in Dubai in 2017 being in the off-plan space, their efforts have been well rewarded.

In a year where over 69,000 real estate transactions were recorded, with a total value exceeding Dh285 billion, real estate transactions in 2017 eclipsed the 41,776 deals achieved in 2016 which represented a total value of Dh259 billion.

Winning the hearts and minds of real estate investors has never been easy. In recent years, certainly post 2008, buying off-plan would have been viewed with more circumspection as the prospect of buying finished property that would able to yield cash flow in the form of rental income virtually immediately would have been considered a less risky prospect than relying on developer platitudes regarding construction timelines.

In addition, attracting the buyers in the affordable segment has always been challenging as the purchaser tends to be more pragmatic, governed more by fiscal realities than emotion or ego. Developers needed to broaden and deepen their customer understandings and develop greater empathy for a segment that had really been neglected in the past.

So, the foray by developers into the affordable segment was accompanied by an increasingly attractive array of successfully marketed financing offers which were designed to garner an increasing proportion of available investor capital into the off-plan property space. After all, new customers have different needs requiring new strategies and tactics.

While these new tactics may have been treated with suspicion in the past, the industry has matured from the heady days of flipping, speculation, false promises and minimal accountability with the regulatory changes imposed on developers to ensure the rights of investors are protected making offerings in the off-plan space appear less risky in nature.

So, faced with a market nervous about global and regional geo-political and economic events, the imposition of a VAT, the distraction of alternative “new world” investments such as cryptocurrencies, along with burgeoning oversupply in the highly competitive and lower margin per unit affordable segment, developers, requiring greater sales volumes to achieve financial viability, needed to get financially creative to make their affordable offerings even more affordable and accessible for end users and financially more attractive for investors.

Inevitably, the amount of capital shifting from the traditional secondary market to the off-plan market created in a capital allocation imbalance, resulting in declining demand for finished properties. Interestingly, capital allocation was really the issue, as supply was quite healthy in 2017, with mortgages financing over 50% of transactions. It wasn’t that long ago that mortgages made up less than 30% of total transactions, extremely low by global standards.

So, as we enter 2018, we are faced with a familiar situation. The market is, once again, is moving further away from the equilibrium that we are all seeking.

The focus of developers to satisfy the requirements of an emerging affordable segment has been overdone, putting pressure on prices, yields and growth in across the industry.

To suggest a reversal or redirection of capital to the more expansive segments is likely in the short term is mere wishful thinking. The only way to address the issues facing todays market is to ensure that the long awaited and much speculated upon Expo inspired surge in demand transpires or to find other ways to expand the capital pool.

One initiative to do just that is in its final stages of planning. Looking to attract an even greater number of overseas investors, a series of roadshows will be held targeting key overseas markets such as India, China, Russia and the USA with the sole purpose of making investors in these countries to understand the benefits of investing in Dubai.

The schedule for the events is close to completion with events in Amman and Kuwait scheduled for late March to be followed by Cairo in April, Beijing in May, and Moscow in July before visiting London in September, Chicago and Dallas in October and wrapping up the tour in Mumbai does in December.

The importance of initiatives such as these cannot be overstated and The Dubai Land Department, realising the importance of increasing industry demand is pushing hard with this initiative.

Despite UAE investors leading the 2017 nationality rankings of investors in Dubai real estate, Indian investors continue hold second place and remain extremely important to the industry. Saudis came in third place followed by the British, who have dropped down the rankings in recent years due to uncertainty around Brexit and a decline in value of the British Pound. The Chinese are emerging rapidly as active investors in Dubai and still hold the greatest potential for foreign investment.

Foreign investors, almost 23,000 in number made approximately 30,000 transactions worth Dh56 billion in 2017. The local market’s reliance on foreign investment continues and, outside the Gulf region, there are huge opportunities to increase the awareness of what benefits the Dubai market continues to offer, not least of which, is the potential yields of 7-11 percent which are unheard of in much of the developed world.

So, the race continues … to win the hearts and minds of the global investment community.

Factors to Consider in 2018

With the advent of globalization, the number of factors that can affect local economies and the industries and markets that operate within those economies has increased dramatically in both number and complexity. Here are some of the more salient influential factors that we at Harbor Real Estate have been considering as we advise our Dubai focused clients in 2018.

Oil. Despite the amount of diversification that has occurred in the Dubai economy and the small proportion of Dubai’s GDP that oil represents, the price of oil still affects liquidity levels throughout the UAE and investor confidence, both essential elements for property market growth.
In December, prices averaged $64/barrel, the highest monthly average since 2014 following an OPEC meeting where members agreed to keep production cuts through 2018 and there is no doubt that maintaining oil at or above the $60/barrel for the duration of 2018 will assist in creating market stability and that is what is being predicted by the U.S. Energy Information Administration in its Short-Term Energy Outlook.

Currency rates. With anywhere between 40% and 50% of investment in Dubai property coming from investors who usually deal in currencies that are not pegged to the US dollar, any strengthening of the US dollar makes it more difficult to invest in Dubai. The USD is likely to strengthen in 2018 as we see the first signs of inflation appear in the US economy.

However, a strengthening dollar is actually a double-edged sword. For the UAE economies overall, it just makes every barrel of oil more valuable and, for those investors who have invested or intend to invest in currencies pegged to the US dollar, a strengthening of the currency increases the value of the investment and any resulting cashflows in terms of other currencies that aren’t pegged to the USD.
Mortgages and market regulations. Historically, mortgages have represented no more than 30%-35% of property sales in the emirate. This ratio has now climbed to well over 50% during 2017 and, in some months, levels of 60+% were achieved. This is great news for several reasons.

First, this trend highlights both confidence of lenders and consumers, mostly owner occupiers, in the market. Most of these new buyers were taking advantage of the abundance of affordable properties on offer that, in addition to the onslaught of attractive payment plans, offered by developers, defined the market in 2017.

The second reason why this is such good news is because we have witnessed, in real time, the market adapting to legislative changes regarding mortgages 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, but the dream remained and, for many in 2017, became a reality.

Political instability: The levels of political instability in the world in 2017 seemed unprecedented and is likely to continue through 2018. From Middle East conflicts, North Korean nuclear ambitions, US distrust and threats towards Iran, continuing angst over Brexit a seemingly dysfunctional and increasingly partisan US government certainly portrays a world that is very unsettled place which leads to investor nervousness. Unfortunately, there are no signs that political instability is going to ease any time soon.

Demand and supply: As always, economic fundamental will always play a role in any industry performance. 2018 will commence with a market that moving further away from the equilibrium that we are all seeking.
The focus of developers to satisfy the legitimate and long forgotten requirements of an emerging affordable segment has been overdone during 2016 and 2017, putting pressure on prices, yields and growth across the industry.

The amount of capital shifting from the traditional secondary market to the off-plan market created in a capital allocation imbalance, resulting in declining demand for finished properties. Interestingly, capital allocation was really the issue, as supply was quite healthy in 2017, with mortgages financing over 50% of transactions. It wasn’t that long ago that mortgages made up less than 30% of total transactions, extremely low by global standards.

To suggest a reversal or redirection of capital to the more expansive segments is likely in the short term is mere wishful thinking. The only way to address the issues facing today’s market is to ensure that the long awaited and much speculated upon Expo inspired surge in demand transpires so as to increase absorption, that the predicted 15,000 units expected to be delivered during 2018 is not exceeded or to find other ways to expand the capital pool.

One initiative to do just that is in its final stages of planning: Looking to attract an even greater number of overseas investors, a series of roadshows will be held targeting key overseas markets such as India, China, Russia and the USA with the sole purpose of making investors in these countries to understand the benefits of investing in Dubai.

Infrastructure development / government spending. Dubai’s infrastructural spending continues with a total budget of Dh56.6 billion being announced for 2018. Heavily focused on infrastructure projects led by Expo 2020 the budget comes in line with Dubai Strategic Plan 2021’s targets and future commitments. The budget features a rise in infrastructure spending, which makes up 21 per cent of the total government expenditure. This reflects the directives of Sheikh Mohammed to raise infrastructure efficiency in Dubai for the emirate to become the preferred destination for living, tourism, and businesses across all sectors. The budget’s overall spending represents a 19.5 per cent increase over 2017.

Taxes and transaction costs (registration and transfer fees, commissions, NOC fees): The UAE implemented VAT at the rate of five percent in January 2018. 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 to invest, innovate, develop infrastructure and provide services that are required for sustainable economic growth. The IMF has predicted that the UAE 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 without detriment to their property Industries. Yet. Some investors remained concerned and, as has been shown in other economies that have introduced VAT, those concerns will prove baseless with time.

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

مطالبات بقانون جديد لضبط سوق التأمين العقاري

مطالبات بقانون جديد لضبط سوق التأمين العقاري

فادت مصادر عاملة في قطاعي العقار والتأمين في السوق المحلي، أن «التأمين العقاري» ما يزال يفتقد إلى مجموعة من الضوابط واللوائح التنظيمية، التي تساهم في توضيح آليات التعاقد بين مختلف الأطراف، وتطبيق وتحديد الأسعار، إضافة إلى منع التلاعب بالبوليصات المتعلقة به.

وأضافت المصادر أنه بات من الضروري تشريع قانون واضح يحدد كل جوانب العلاقة بين شركات التأمين من جهة، والمستفيدين من جهة ثانية، ورفده بلوائح تنظيمية تغطي الجوانب العملية وشمولية التأمين، ليكون قادراً على تغطية مختلف أركان العقار الخارجية والداخلية.

وقالت: «لا بد من خطوات جريئة وسريعة لوضع منظومة متكاملة للتأمين العقاري، تشمل مرافقه ومستخدميه ومحتوياته، مع التركيز على محور بنود وأسعار بوليصات التأمين، لمنع أي محاولات للتلاعب بها على حساب المستفيدين منها».

وأكدت أيضاً أهمية التوعية بأهمية التأمين العقاري على المدى الطويل، وشن الحملات التثقيفية لتحقيق الهدف الأساسي منه في صون وحماية أملاك وحقوق المستفيدين، وهذا يتطلب التعاون والتنسيق بين الجهات والشركات المعنية في القطاعين العام والخاص.
ولفت مهند الوادية، الخبير العقاري، والمدير الإداري في شركة هاربور العقارية، إلى أن التأمين على العقار بشتى أنواعه وأشكاله ما يزال غير مطبق من الناحية العملية والقانونية في السوق المحلي، لكن العاملين في القطاع اجتهدوا جزئياً بهذا الشأن، من حيث إرفاقه ضمن ميزانية جمعيات الملاك للمشاريع التي تنطبق عليها شروط التملك الحر فقط.

وأضاف الوادية أنه من هذا المنطلق، تظهر مجموعة من المطالب التي تقع مسؤولية دراسة آليات تطبيقها على أرض الواقع وتوضيحها، على الجهات الحكومية المعنية بالتعاون مع القطاع الخاص، في سوقي العقار والتأمين، وربطها بلوائح تنظيمية وقوانين تشريعية، تكون واضحة وإلزامية من جهة، ونشر التوعية بأهميته بين الأفراد ذوي الشأن من جهة أخرى.

وأشار إلى أن التأمين على العقار يتجزأ إلى عدة أقسام أو أنواع، وهي أولاً: التأمين على المبنى والمرافق العامة التي يشملها، ثانياً: التأمين على محتويات العقار وما بداخله، ثالثاً: التأمين على دفعات العقار التي ترتبط بجداول سداد مرنة وطويلة الأجل، تتراوح بين 3 و5 و10 سنوات، والتي باتت رائجة في الوقت الراهن بين شركات التطوير العاملة في السوق المحلي.

وأوضح الخبير العقاري والمدير الإداري في شركة هاربور العقارية، أن قاعدة «أرخص تأمين هو أفضل تأمين» المتعارف عليها في سوق السيارات لا تنطبق على العقار؛ لذلك لا بد من خطوات جريئة وسريعة لوضع منظومة متكاملة للتأمين العقاري، تشمل مرافقه ومستخدميه ومحتوياته، مع التركيز على محور بنود وأسعار بوليصات التأمين، لمنع أي محاولات التلاعب بها على حساب المستفيدين منها.
وأكد أيمن خميس، المدير العام في شركة الشارقة للتأمين، أهمية تفعيل سوق التأمين العقاري بشكل أوسع وأكثر وضوحاً، من خلال شن حملات توعية لمختلف الأفراد المعنيين به، خاصة الملاك والمشترين، إلى جانب المستخدمين النهائيين، ولنجاح هذا التوجه لا بد من الانتقال إلى الجانب الإلزامي من حيث سن القوانين واللوائح التنظيمية، لحقيق الهدف الأساسي منه، وهو صون مصالح وحقوق جميع الأطراف.

وأضاف خميس أنه لا بد من التعاون والتنسيق بين القطاعين الحكومي والخاص، لتحريك بوصلة نشاط التأمين العقاري، ورفده بالضوابط لمنع التلاعب بالبوليصات وأسعارها، التي تختلف فيما بينها حسب أنواعها وبنودها، وحجم الإضافات التي تغطيها، ومحاولة الالتفاف على المستفيدين. وبيّن أن التأمين العقاري يبدأ من المبنى الرئيسي والمرافق التابعة له، ثم على العقار نفسه سواء أكان شقة أو منزلاً أو مكتباً، كما يمكن أيضاً التأمين على المحتويات الداخلية للعقار نفسه، وهو سوق ضخم بدأنا بالتركيز عليه وطرح بوليصات خاصة به.

http://www.alkhaleej.ae/economics/page/8700160c-4ca4-4c40-a076-68a15bc17c1b

Mortgage trend continues this year

There has been a very pleasing trend that we first noticed in 2016 which is yet another demonstration of the development and maturation of Dubai’s Real Estate industry.

The marked increase in the utilization of mortgages to purchase properties in the emirate demonstrates a market that has undergone a structural shift to supply more affordable properties and the maturation of buyers in structuring their financial affairs to obtain a mortgage and buy the home of their dreams.

Historically, mortgages have represented no more than 30%-35% of property sales in the emirate. This ratio has now climbed to over 50%, in some months, levels of 60+% have been achieved.

This is great news for several reasons.

First, while this trend highlights 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 this lucrative market going forward.

Understanding value-added tax (VAT)

Understanding value-added tax (VAT)

The UAE will implement VAT at the rate of five percent in January 2018. This is not breaking news but still many people are concerned as to how the VAT will affect them personally. The VAT will affect every individual and every institution in the UAE in some way.

The easy way to understand a Value Added Tax is to consider it to be a “consumption” tax. Put simply, for most goods and services, every time somebody sells a good or service to a customer, regardless of where they are in the supply chain, 5% will be added to the price which is collected by the seller and remitted to the governments tax department.

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.

For businesses, there are procedural and systems that need to be implemented to ensure that compliance with is achieved in the most resource efficient way possible.  Usually, this requires the implementation of an appropriate accounting solution package. Non-compliance could be expensive, with heavy penalties expected to be imposed for those businesses who do not comply.

Those businesses who are unsure of how the VAT works or will affect them, need to seek expert legal advice as to their obligations under the VAT regulations and engage accounting experts to ensure their systems and procedures are correctly recognising, applying, recording and remitting VAT.

Individuals, meanwhile, will be impacted in their everyday life. For example, Electricity and water services will be subject to VAT, so will most of the food that you buy and the purchase of that new car and any subsequent maintenance that it will require and private education will also attract the VAT.

Fittings and furniture for your new home will also attract VAT, as will services such as housekeeping, dry cleaning or laundering.

There are some goods and services that will be VAT exempt. Items such as fuel for your car, essential healthcare items, public education, air travel and taxis. It is important that, when a VAT is being applied, that the poorer segments of the population are not disadvantaged by taxing the necessities of life.

Technically, the VAT will not apply to your rental expense however landlords will be subject to VAT on items such service charges and maintenance, indirectly driving up the cost of rentals over time.

If you decide to purchase a new home, there will not be VAT applied directly to the purchase but it will be applied to the real estate agents’ fees. Of course, as a purchaser of a new home, your purchase price will certainly cover for the VAT that has already been paid on the charges for materials, labor, marketing and other services etc. that the developer had to incur to bring the project to market.

If you are selling your current house in the secondary market, the sale itself will be exempt from VAT, however, you will need to pay VAT on any Real Estate Agents fees, marketing fees, and maintenance or staging fees that you might incur.

For developers, VAT will affect virtually every supply and construction contract that exists. This will have an inflationary effect on the industry as the additional cost burden of the VAT will be passed on to the consumer. Developers need to ensure that they have the systems to recover the VAT cost and ensure that future planning considers the inflationary effect so that any possible drop in demand due to the rise in prices is comprehended with minimal effect on margins.

VAT is not something to be feared, but it is something to be understood, particularly by the business community. The only cost to business is the administration required and the expense of ensuring compliance while the consumer will only notice the effects at the cash register.

5 KEY QUESTIONS You MUST ASK YOURSELF BEFORE INVESTING!

 

I always recommend that clients consult with a financial advisor prior to embarking upon the purchase of a property. Investing in property requires careful planning and a clear understanding of what it will entail.

How much do you really know about property as an investment?

You must have some knowledge about any investment that you might be considering. Property is no different. The old adage of “Don’t invest in anything you don’t know” applies. You may not be an expert, but you need to be able to communicate intelligently and knowledgeably with the experts.

Do some homework on the industry and gain an understanding of where the industry is now, where it is headed and what is driving its direction and development. “Get a feeling of its composition and what it has to offer you in terms of wealth generation opportunities, how you might be able to engage those opportunities and when you envisage starting your foray into the property investing space.”

It’s difficult for anybody to accurately assess opportunities and the risks associated with those opportunities if they have little knowledge of what it is they are investing in.

 

Are your investment objectives clearly defined and well considered?

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.

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 investment portfolio. What proportion of your total investment portfolio is allocated towards property? towards stocks or bonds? towards gold or commodities? Etc.

The only person who can determine what you are trying to achieve is you so be sure you know you’re your objectives are before doing anything.

 

What is your source of finance?

Needless to say, investing in property is often a capital intensive exercise and, depending on your strategy, returns can be subject to relatively long lead times. A sufficient and robust finance plan is essential. What is your source of finance and where do the greatest risks lie in the event of an economic downturn or change in circumstances? How liquid might you need to be? How exposed will you be to interest rate increases and or exchange rate fluctuations? What level of gearing or leverage are you comfortable with? Will you be able to preserve capital invested in your property portfolio during cyclical swings in the market or will you need to move capital among portfolios?

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.

 

Do you have a financial advisor? (That you trust)

I always recommend that clients consult with a financial advisor prior to embarking upon the purchase of a property. Investing in property requires careful planning and a clear understanding of what it will entail; the effects it will have on lifestyle, the risks it may pose, the stresses that may emerge while, at the same time, the benefits of generating wealth in, what can be, a very lucrative industry . A financial advisor can help you understand and assess all these elements by helping you determine what you actually need to do (or do without) to achieve your objectives.

Ask yourself if you know definitively what you can afford, how best to use available finance, how to accurately assess alternative investment options, how best to utilize your current assets and how investing in real estate is going to enable you to grow your wealth in the future. A financial advisor will view your investment as one part of your overall financial landscape and should be able to guide you into committing the right type and the right amount of resources to acquiring that dream home that everybody aspires to.

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.

 

Do you have a team of professionals (that you trust) who can assist you in your quest?

Are you able to identify, engage and work with a professional in the industry? Do you have the skill to select the right agency? Do you know what separates professionals that will provide you with tangible added value rather than simply line their pockets with your money? It’s up to you to choose wisely and remember, cheapest is not always best. Do you know where to find an experienced and passionate team with people who really enjoy what they are doing? An agency that exhibits a breadth and depth of industry knowledge and expertise? This is important. Look for longevity and evidence of good relationships with key industry stakeholders such as the major developers or authorities such as the Dubai Land Department, RERA, DEWA or Economic Department. And finally, look for an agency that has received some form of Industry or peer recognition. These are the hardest plaudits to get! ■

Preparation is the key

The Cityscape Global Conference provides tremendous knowledge-sharing opportunity to investors

As a proud real estate professional, there is no more exciting time for me than when Cityscape Global opens its doors in Dubai and showcases to the world what a fantastic industry we have. And that time is rapidly approaching – Cityscape Global is just around the corner and this year’s edition will be as exciting and informative as those in years past.

For buyers and investors, there is no better place to gain an appreciation of the myriad opportunities on offer. I always advise my clients that the best way to get the most out of the event is to canvas all the interesting opportunities on display and gradually yet efficiently establish a shortlist of the best opportunities.

Establishing such a list from an exhibition as huge as Cityscape is not easy and requires a disciplined approach. This is where a property asset management professional can assist and it’s a role that keeps me extremely busy with my clients over the entire period that Cityscape is open and for some weeks subsequent to its conclusion.

A lot of the work in ensuring that investors and potential buyers make the most of their Cityscape experience is actually done beforehand in preparing an understanding of what the overall investment environment looks like. This enables efficient and focused assessment of all that is on offer.

It’s also important for investors to understand what they want to invest in and what their investment objectives are. Too many investors formulate the answers to these questions “on the run” during the exhibition. This lack of preparation just leads to confusion and ultimately poor decision-making.

As a general theme this year, I am advising most of my investors to look for value opportunities in the affordable housing segment, particularly in Dubai South, as this segment in this location is likely to be the subject of some very attractive easy payment plans to further enhance affordability and, to some extent, mitigate risk.

This segment has outperformed its more luxurious alternatives for some time now and continues to show potential, even through the recent cyclical correction. And while the value is irrefutable, the risks associated with investing in the afford-able segments of the industry as opposed to the luxury segments are much lower.

But not every Cityscape attendee will have a check book in hand. The Cityscape Global Conference, which is held as a precursor event at the Conrad Hotel on September 10, is a fantastic opportunity to gain a high level of understanding of the factors shaping the industry. This conference always forms part of my preparation for the exhibition and I always recommend that my investor clients avail themselves of this tremendous knowledge sharing opportunity.

The developers who do well out of Cityscape are those who utilize the event as a part of an overall “go to market” strategy. Prior preparation of at least 12 months in will increase the chances of maximizing the returns from participating in the event.

So, for those of us with a passion for the industry, it is going to be an exciting three days. It always seems to end too early!

Affordability matters most

This year’s Cityscape Global Exhibition and Conference is forecast to be the largest yet and comes at a time when Dubai’s Real Estate industry is expected to start entering a cyclical growth phase in the lead up to the World Expo 2020.

The importance of Cityscape Global cannot be overstated. As with many exhibitions, it provides a concentrated and focused forum which allows the industry to showcase its vision and capabilities and demonstrate what shape Dubai will take in the future. But Cityscape is much more than that.

Cityscape Global is an open invitation for all stake-holders to understand, evaluate, participate and prosper in an industry that continues to literally change the shape of Dubai. It is a meeting place of some of the biggest and brightest minds representing all stakeholders in the industry and a confluence of opinions, ideas and opportunities which are shared, debated and developed. It allows stakeholders to gain a macro sense of in-dusty direction and a micro understanding of the various elements that will shape the industry going forward.

For buyers and investors, there is no better place to gain an appreciation of the myriad of opportunities that are on offer, but the sheer scale of the exhibition can become a little overwhelming, especially when you are looking to invest.

As a general theme for this year’s Cityscape, I will be advising most of my investors to look for value opportunities in the affordable housing segment, particularly in the Dubai South areas, as this segment in this location is likely to be the subject of some very attractive easy payment plans to further enhance affordability and, to some extent, mitigate risk.

This segment has outperformed its more luxurious alternatives for some time now and continues to show lots of potential, even though the recent cyclical correction. Affordable properties will continue to be on high demand as Dubai’s population growth gains momentum during a period of expected strong economic growth leading up to the end of the decade. And while the value is irrefutable, the risks associated with investing in the affordable segments of the industry as opposed to the luxury segments are much lower. Demand for affordable accommodation will continue to grow as Dubai’s population swells in the run up to the Expo. As Dubai continues to grow, so does the need for affordable housing.

Yet, although I see great value in investing in the affordable segment, it doesn’t mean some interesting opportunities won’t appear in other segments as well.

So, while you might focus on identifying opportunities in the affordable segment, you need to keep an open mind and be wary of unique opportunities that may be present.

I always advise my clients that the best way to get the most out of the event, is to canvass all the interesting opportunities on display and gradually yet efficiently establish a short list of the best opportunities.

Establishing such a list from an exhibition as huge as Cityscape is not easy and requires a disciplined approach. This is where a property asset management professional can assist…

Why? It’s important to understand what factors are going determine the potential of any investment. For property, these factors include everything from macro level influences such as global economic performance and policies, geopolitical issues, currency rates and oil prices to more regional or local factors such as industry supply I demand levels, consumer confidence, government policy and regulatory framework, industry cycles and liquidity in the marketplace.

So, in reality, a lot of the work in ensuring that investors and potential buyers make the most of their Cityscape experience is actually done beforehand in preparing an understanding of what the overall investment environment looks like. This enables a more efficient and focused assessment of all that is on offer.

But in addition to understanding the invest environment, it’s important for the investor to understand why he or she wants to invest in property and what the investment objectives are. Too many investors formulate the answers to these questions “on the run”, once they are traipsing around the exhibition. This lack of preparation just leads to confusion and ultimately, poor decision making.

Every industry has its shows, whether it’s the myriad of motor shows held around the world, film festivals, fashion events, airshows and the property industry is no different. What many don’t understand is that Dubai’s Cityscape Global has established itself as one of the best Real Estate and Property events globally… and its right on our very own doorstep!

So, for those of us with a passion for the industry, it is going to be an exciting 3 days. It always seems to end too early!