2019: The year of the brave

2019: The year of the brave

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” Warren Buffet.

2018 was a fearful time for most investors. If not fearful, it was certainly a time of significant concern

We learnt that in 2018, the world is now even much more complex, smaller, more intricate with ever increasing interdependencies between nations, cultures, societies, sciences, industries and economies. With 2018 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.

In the face of such global disruption and uncertainty that was experienced in 2018, there is only so much that policy makers in each respective country can achieve. The major global players, once aligned in policy and viewpoint when tackling the global financial crisis, have now disbanded, focusing more on satisfying nationalistic interests at the expense of the global good. This is unfortunate and one only hopes that those with longer term and broader perspectives will eventually prevail.

Dubai, with an economy that has tourism, trade, construction and financial services as primary drivers of economic and population growth, will continue to be affected by global machinations, whether they be political, diplomatic, financial or otherwise. Local industries will be affected by global events. Its inescapable and something that we all, as diligent investors, need to understand.

So, the Real Estate industry in Dubai in 2019 will be shaped by any event or occurrence which affects Dubai’s population growth through its ability to provide opportunities for business and individuals alike; such as the disposable income of its residents and visitors, the affordability of the UAE dirham, the levels of available liquidity to its local and foreign investors, its governments revenues, its relationships with other countries or its commercial infrastructure will have an effect on our industry. It’s a fact that, as professionals within the industry, we all have to contend with.

So, we need to look at those variables that will drive the industry.

Our first consideration is population growth. A growing population is the fuel of any property industry and it will be Dubai’s population growth that enables that bodes well for the market within the next 3 years, particularly as a spike in population growth is expected as the Expo effect takes hold closer to 2020.

It may come as a surprise to some that Dubai’s population has exceeded 3 million by end of 2018. This is up almost 331% since the turn of this century. This amazing growth has been consistent during this period and is expected to continue at a rate of between 6.5% and 9% over the next 10 years. This is fantastic news for Dubai’s property industry and the economy overall especially when other nations are facing stagnating population growth or, in the case of countries like Japan, falling populations.

The composition of the growth is also impressive as it will continue to be predominantly driven by people seeking to immediately benefit from and contribute to an economy that is expected to grow by a healthy and sustained 3.5% in 2019 and beyond, as those who are seeking to progress and improve their economic well-being take advantage of the superior opportunities that Dubai will continue to offer going forward courtesy of such major initiatives as the 2020 Global Expo in addition to the time proven economic pillars of trade, finance and tourism. So, the opportunities are there to capitalize on this population growth and resurgence in demand for property during 2019.
Our second consideration is disposable income of residents and visitors. 2018 saw property values and rents decline significantly. Put simply, these changes make effectively increase, not only the purchasing power of the individual, but also the disposable income that the individual enjoys. First home buyers will not have it so good since 2009. The decline in property values, combined with the slew of developer purchasing plans, have created value propositions that will not be repeated for quite some time.

And, as our friend My Warren Buffet is so fond of saying, “Price is what you pay. Value is what you get”, and values in 2019 are unlikely to be bettered any time soon.

Our third consideration is the affordability of the UAE Dirham. There is no doubt that the strengthening UAE Dirham has contributed to the dampening of foreign buyers. Being coupled to a US dollar, being strengthened on the back of interest rate increases in the United States, has caused some to pause.

However, the US Federal Reserve is increasingly likely to slow its interest rate increase agenda. The recent concern in world markets about the effect that an overly hawkish US monetary policy might have on US and global economic growth is causing the Fed to exhibit a more dovish tone when talking about interest rates increases in 2019.

In addition, the recent fall in oil prices, while reducing the revenues of oil producing nations, has had a positive effect in helping the Indian rupee to stabilize, essentially stopping its freefall in value. By October of 2018, the Indian rupee had fallen to an historic low, taking over 20 Indian rupees to buy 1 UAE Dirham. Investing in Dubai suddenly became expensive for one of the UAE’s most important investor groups. In addition, repatriating Dubai’s currency back home was becoming a far better proposition than spending in Dubai.
But already, the rupee has strengthened by over 5 percent and is expected to continue strengthening through 2019, thereby increasing the attractiveness of investing in Dubai.

Similarly, the Chinese economy, markets and its currency, the yuan, have been in decline since the US inspired trade issues emerged. China is becoming an important source of investment for the UAE economy and the possibility of a full-blown trade war between China and the United States would, in addition to adversely affecting oil prices, may slow the rate of Chinese investment in the UAE.

However, as at the time of writing, it appeared that tensions may be easing and the beginning of productive and positive negotiations are foreseeable. Needless to say, a resolution would be significantly beneficial to world economic growth, investor confidence and renewed investor activity.

The real remaining concern is Brexit. This continuing saga appears to be headed for an outcome which, in the short term at least, will see a further weakening of the British pound, thereby making investment in Dubai a more expensive proposition for the British. The jury is still out on the timing of recovery of the British pound.

Meanwhile, the UAE banking sector is liquid and strong, with the central bank forecasting credit growth to the private sector to increase by 6.5 per cent in the first nine months of 2019. In addition, Islamic banking is growing at a rate of 9 per cent annually leading the Governor of the UAE Central Bank to state that “… the banking sector is in a very good position to excel and support economic growth” and that the banking sector is not being impacted by the correction in real estate values with banks continuing to provide credit to the industry. “The property market is in a good position, more than before, and lending continues,” the governor said.

Dubai’s infrastructural spending continues with a total budget of Dh56.8 billion being announced for 2019. 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.
And finally, notwithstanding some inflationary effect on consumer prices, the concerns that were being opined about any significantly negative effect of the newly introduced VAT do not appear to have materialized. 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 were concerned and, as has been shown in other economies that have introduced VAT, those concerns eventually proved baseless with time.

So, the picture is not as bleak as some may surmise. Quite the contrary. Taking a broader perspective and looking at all the major influences individually and logically, the picture suggests beckoning opportunities, particularly when taking a medium to long-term view.
There is no doubt that the market is nervous, but I believe that 2019 will be viewed as the year of the brave investors as they take advantage of a market that has achieved almost full correction, that is offering fantastic value and that will benefit from an economy that looks primed for sustainable long-term growth.

Complex, it may be, but unfathomable it is not.

Mohanad Alwadiya – Jan 2019

2018 – Lessons Learned

2018 – Lessons Learned

There is no doubt that 2018 was a challenging year for almost anybody in pursuit of growing their personal wealth. Some of the financial statistics and headlines from around the world provide some uncomfortable reading.

In America the Dow Jones Index fell 5.6%, The S&P 500 was down 6.2% and the Nasdaq fell 4%. It was the worst year for US stocks since 2008 and only the second year the Dow and S&P 500 fell in the past decade. December really capped off a terrible year. The S&P 500 was down 9% and the Dow was down 8.7% which made the month the worst December since 1931.

Apart from the marked decline in fortunes, 2018 will also be remembered for its nerve jangling volatility. The Dow has swung 1,000 points in a single session only eight times in its history, and five of those took place in 2018. Meanwhile, the S&P 500 was up or down more than 1% nine times in December alone, compared to eight times in all of 2017. It moved that much 64 times during the year.

And the damage wasn’t limited to the United States … China, feeling the effects of a looming trade war with the United States, saw its Shanghai Composite fall nearly 25% since the start of the year while the Shenzhen Composite, which includes many of the country’s tech firms, dropped by more than 33% over the same period. Meanwhile, in Hong Kong, the Hang Seng fell 14%.

Closer to home, Dubai’s stock market ended 2018 with a 25 percent annual loss, the worst year since the global financial crisis a decade ago, as the real estate and tourism sectors have struggled. In general terms, Real Estate values, depending on the asset type, have dropped year on year by as much as 11% while rent declines in some areas have reached 15% while many believe that tourists are delaying their visits until the Expo 2020 opens.

So why the distress? Much of it has been driven by an expectation of a global economic slowdown which has been heightened by US trade policies, monetary policy and political mayhem, a breakdown in relations between the super powers, the continuing Brexit soap opera, regional geo-political issues and concerns about the future direction of the major tech companies.

The resulting fear of an economic slowdown saw oil prices drop 24.9% to $45 a barrel after having closed as high as $77 a barrel in the middle of the year falling 41% from that price point.

So, why did all of this affect the Dubai’s Real Estate Industry in 2018? In a single word, globalization.

The world is now much more complex, but it is smaller with ever increasing interdependencies developing between nations, cultures, societies, sciences, industries and economies. 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.

In the face of such global disruption and uncertainty, there is only so much that policy makers in each respective country can achieve. The major global players, once aligned in policy and viewpoint when tackling the global financial crisis, have now disbanded, focusing more on satisfying nationalistic interests at the expense of the global good. This is unfortunate and one only hopes that those with longer term and broader perspectives will eventually prevail.

With an economy that has tourism, trade, construction and financial services as primary drivers of economic and population growth, it stands to reason that global machinations, whether they be political, diplomatic, financial or otherwise, will affect local industries. Its inescapable and something that we all, as diligent investors, need to understand.

Any event or occurrence which affects Dubai’s population growth through its ability to provide opportunities for business and individuals alike; such as the disposable income of its residents and visitors, the affordability of the UAE dirham, the levels of available liquidity to its local and foreign investors, its governments revenues, its relationships with other countries or its commercial infrastructure will have an effect on our industry. It’s a fact that, as professionals within the industry, we all have to contend with.

No longer is the purchase of a family home a simple milestone in life. No longer is the acquisition of an investment property a relatively simple exercise in mathematics or basic finance. No longer is the relationship between landlord and tenant based on a nod and a handshake. No longer is the inheritance that we build for our children easily established and secured.

The year of 2018 has showed us how it has all become very complicated very quickly and, as we look forward to the end of this decade, there is an increasing number of global factors that we at Harbor Real Estate will be considering as we advise our clients.

As I always love to say, complex it may be, but unfathomable it is not.

Mohanad Alwadiya – Jan 2019

جريدة الخليج: 53 % حصة البيع على الخريطة في دبي خلال ثلاثة أشهر

سجل السوق العقاري المحلي في دبي بيع نحو 6350 وحدة سكنية خلال الربع الثالث من العام الجاري 2018، واستحوذت المبيعات على الخريطة على أكثر من النصف بواقع 53% (3366 وحدة)، وتصدرت كل من «الخليج التجاري» و«مدينة محمد بن راشد» و«دائرة قرية الجميرا» مبيعات الشقق على الخريطة خلال هذه الفترة.
وتصدرت «المدينة العالمية» و«مارينا دبي» و«دائرة قرية الجميرا» مبيعات الشقق الجاهزة بنسبة 32 % من مجموع مبيعات الشقق الجاهزة خلال الربع الثالث لعام 2018
أما مبيعات الفلل والمنازل الفردية الجاهزة فقد تجاوزت المبيعات على الخريطة في الربع الثالث من عام 2018 والتي تصدرتها «روعة الإمارات» (اميريتس ليفينج (و«المرابع العربية» و«داماك هيلز» والتي بلغت مجتمعة نسبة 30% من مجموع مبيعات الفلل والمنازل الفردية الجاهزة خلال الربع الثالث

استقرار سعري

ولفت التقرير المشترك بين «هاربور العقارية» و«بروبرتي مونيتور» إلى أن الأسعار التي تم تداولها للفلل والمنازل الفردية قد استقرت خلال الربع الثالث من عام 2018 على أقل من متوسط أسعار عام 2017، وضاقت فجوة السعر بين الشقق والمنازل المستقلة. كما اتجهت أسعار الشقق أيضًا إلى الانخفاض وبلغت في المتوسط نحو 1.2 مليون درهم في الربع الثالث من عام 2018. كما أن تداولات العقارات الجاهزة التي بدأت في منافسة أنشطة البيع على الخريطة للفلل والمنازل الفردية منذ نوفمبر/‏تشرين الثاني 2017، قد استمرت في اتخاذ نفس المنحى خلال هذا الربع

 
في غضون ذلك، وخلال الأشهر التسعة الأولى من عام 2018 استمرت تداولات البيع على الخريطة للشقق في التصدر حيث ركز المطورون اهتمامهم على تزويد خيارات منخفضة الأسعار وخطط الدفع الميسرة والمنافسة
والمنافسة والتنازل عن رسوم  التسجيل وغيرها من الحوافز الأخرى

الرئيسي والثانوي

وطبقًا للبيانات الصادرة عن «بروبرتي مونيتور» فإن 27% من سعر تداولات البيع على الخريطة للشقق خلال الأشهر التسعة الأولى من عام 2018 تراوح بين 1,200 إلى 1,500 درهم للقدم المربعة. وبالمقارنة فإن أعلى سعر في السوق الثانوي للشقق بلغ بين 500 و 800 درهم للقدم المربعة
واستمرت شقق الاستوديو والوحدات ذات غرفة النوم الواحدة في تصدر المشهد الأنشط من حيث التداولات في كل من المبيعات على الخريطة والسوق الثانوي في عام 2018 حتى تاريخه
في الربع الثالث من عام 2018 سجلت أسعار المبيعات في سوق العقارات انخفاضًا ربع سنوي بنسبة 1.4% و 1.3% للفلل والمنازل الفردية والشقق على التوالي. ومن المحتمل أن النشاط الاقتصادي الضعيف وتسليم الوحدات السكنية الجديدة من المطورين لاحقًا هذا العام، أن يفرض مزيدًا من الضغط لخفض أسعار مبيعات المساكن. وفي تلك الأثناء، فإن إعلان حكومة دولة الإمارات في عام 2018 عن لوائح التأشيرة الجديدة لمدة عشر سنوات وتأشيرة الإقامة لمدة خمس سنوات للأجانب المتقاعدين سيكون له تأثير إيجابي على السوق في الأجل القريب

أداء الإيجار

كان انخفاض أسعار إيجارات الوحدات السكنية أكثر وضوحًا في «دبي لاند» و«الروضة – ذا جرينز» وفي «روعة الإمارات» و«موتور سيتي» و«المرابع العربية» و«فيكتوري هايتس» و كان متوسط التغير على مدى 12 شهرًا نحو7%
ومن المتوقع أن يستمر انخفاض الأسعار خلال الربع الأخير من العام الجاري وبداية عام 2019 مع وجود خطط لتسليم مساكن جديدة بكل من الملكية الحرة ومجتمعات الإيجار غير المنتهي بالتمليك في دبي
ومع ذلك، فإن أثر ذلك على بعض المشاريع سيكون أقل وضوحًا إذا استفاد المطورون من محفزات الطلب الفريدة مثل الواجهة البحرية والتشطيبات عالية الجودة والمرافق المجتمعية المتميزة

المعروض القادم

جرى تسليم نحو 6,000 وحدة سكنية في أنحاء دبي في الربع الثالث من عام 2018، وتركزت غالبية عمليات التسليم خلال الربع الثالث لعام 2018 في «دائرة قرية جميرا» و«منطقة برج خليفة» و«تاون سكوير» و«دبي الجنوب». واستحوذت الشقق السكنية على أكثر من 72% الوحدات التي تم تسليمها. أما بالنسبة لباقي السنة، فستتركز غالبية المعروض القادم في مناطق «الخليج التجاري» و«دائرة قرية جميرا» و«مدينة دبي الرياضية» و«واحة دبي للسيليكون» و«تاون سكوير»

مهند الوادية: 1.2 و 1.9 مليون درهم متوسط السعر

قال مهند الوادية، الرئيس التنفيذي لشركة «هاربور العقارية»: «من بين الملاحظات التي برزت في التقرير هذا عن السوق العقاري في دبي للربع الثالث من 2018، هو أن متوسط الأسعار الحالية للمنازل المستقلة والشقق يبلغ 1.9 مليون درهم و1.2 مليون درهم على التوالي، وهي تقريبا نفس أسعار ما رأيناه في الربع الأول من عام 2008 وقبل انهيار السوق المالي العالمي
وأضاف الوادية أن الفرق قبل عشر سنوات أن كنا في طفرة نمو اقتصادية سريعة متسارعة، حيث كان المشترون يلاحقون المكاسب المالية السريعة في ذلك الوقت، لم يتوقع الكثيرون أن السوق كان متجهاًً نحو الانخفاض الحاد، على الرغم من أن بعض العقول المنطقية تنبأت بحدوث هذه الحالة التي كانت وشيكة

محمد عبيدات: مبيعات الجاهز تتحرك للتفوقعلى نظيرتها على الخريطة

من جانبه أشار محمد عبيدات، الرئيس التنفيذي للتكنولوجيا في شركة بوروبرتي مونيتور إلى أن الجميع يدرك الوضع الحالي للسوق العقاري ونملك اليقين بأنه سيتحول قريبا للاتجاه الأعلى. ونرى أنه، بالنسبة للعديد من المشترين، فهذا هو الوقت المثالي لشراء منزل في دبي وأصبح الحلم هذا في متناول اليد حسب أسعار السوق الحالية
وذكر عبيدات أن بيانات نظام بروبرتي مونيتور تشير إلى أن مبيعات المنازل الجاهزة قد تخطت في الآونة الأخيرة مبيعات المنازل قيد الإنشاء في المشاريع المطلقة مؤخرا، وهذا أمر منطقي لأن العائلات المشترية لا تقدر أن تقوم بالدفع والانتظار لبناء منزل وفي نفس الوقت دفع الإيجار أيضًا، فهي تحتاج إلى منازلها الآن، وبالتالي فهي أكثر ميولاً إلى شراء المنازل الجاهزة في نفس الوقت

Ask The Agent

I have a property portfolio of a mix of 1 and 2-bedroom flats in JLT and Dubai Marina. With this in mind, how do I capitalise on what I have?

Seek professional advice as to how to manage your real estate portfolio. Many landlords across Dubai are bound to miss out on the revenue-generating opportunities that Expo 2020 will bring because of poor or non-existent planning. A competent property manager will provide you with the best opportunity to maximise your financial gains by giving you an assessment of the opportunities, and a strategy and activity plan designed to harness the financial potential of your property. Do not make the mistake of leaving your planning too late. You will need to comprehend current and likely future market conditions and events, likely risk factors that may enable or inhibit revenue growth, inflation and cost increases, and a complete comprehension of financial modelling and the ever-developing area of industry policy and regulation.

I am considering buying property to offer for rent. I am looking at two similar offers, one of which is located within 150 meters of a metro station and offered at a premium of around 8 percent. Is this reasonable?

Let us first look at why properties situated close to the Metro can command a premium. It is all about convenience, cost and lifestyle efficiency. Your prospective tenants can enjoy a cost-effective, fast, comfortable and reliable mode of transport to either travel to work, visit friends or even do some light shopping. No traffic hassles, road works, parking, and wear and tear on the family car while the requirement for a second family car is diminished. Many tenants are prepared to pay a rental premium for a property which allows them to enjoy these benefits. Our studies have shown that properties located within a .5-kilometre radius of the Metro in Dubai can command between a 6 percent and 11 percent premium when compared to similar properties with no feasible ambulatory access to a metro station.

My apartment is ready. When I said that I want to inspect it the developer said they already completed their inspection. Is this right?

Technically, once an official Completion Certificate has been issued for the building by the Dubai Land Department, it is deemed ready for handover and your contractual obligations regarding transfer of ownership remain. Nevertheless, I doubt if the developer has your best interests at heart in this instance. 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. 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. It is in your interests to snag your apartment, and I strongly recommend you engage a professional to do this on your behalf.

What is the difference between a leasing agreement and a property management agreement?

You enter into a leasing agreement when you wish your real estateto locate suitable tenants for your apartments, facilitate the signing of the tenancy agreement leaving you to assume the responsibility and devote your time to managing the tenant and all aspects of the property thereafter. A property management agreement includes a lot more. A competent property manager will provide an assessment, strategy and activity plan. Considerations include history, current market and risk factors, industry knowledge extending to policy and regulation, finance and market dynamics. An activity plan will be provided covering pricing and marketing, customer relationship management, tenant management and policy, cost management, maintenance supervision, communications and review schedules, status reporting, financial reporting and resourcing. All of these activities will be performed by the property manager under a property management agreement.

Question of the Week

With Expo 2020 coming, is there anything I should do differently with my two apartments in Dubai Marina from a leasing point of view?

Timing will be critical to the decisions that you make regarding the management of your property. First of all, you need to get professional advice as you require a skilled and knowledgeable property manager to help you harness the true financial potential of your property during this unique period in Dubai’s real estate history. You need to appreciate that there will be some nuances and important considerations when looking at the opportunities that the World Expo 2020 will provide. For example, overall values will change but differing asset types and locations will not necessarily move in unison as Expo preparations move ‘from the analytical and planning phases through to implementation and eventual launch and operational phases. Initially, it is likely that investor demand will drive much of the value appreciation to be followed by an increasing rate of end-user demand for accommodation, both for villas and apartments. Those areas in proximity and with easy access to the Expo 2020 site itself will attract initial attention. However, as the event draws closer, demand for more centrally located property will also increase. One can expect both the rental return and capital return curve to steepen as we move closer to the event launch.

Ask The Agent

Mohanad Alwadiya CEO. Harbor Real Estate

When is the best day to conduct an open house? What preparations do I need to make?

Weekends, particularly Saturdays. are best because potential tenants and buyers are free then. Be prepared to have your house open for as long as possible to get as many people to see your home in a 24 or 48-hour period. Make sure the outside of the house is neat and tidy and, if required, the paintwork or exterior of the house has been touched up. The garden should be presented in mint condition with lawn areas carefully manicured, trees and shrubs trimmed, patio areas swept clean, and outdoor furniture wiped free of dust and dirt. Treat oil stains in parking areas. The interior of the house must be clean and properly maintained with all defects attended to and be free of any odours. Consider subtle air deodorants to provide a pleasant overall ambience. Make sure that your home is cool, bright and welcoming, and that you have some refreshments available for your guests.

How can I make my property highly marketable? I am trying to rent out some office space.

Think like a prospective business owner by developing a unique selling proposition (USP). Business owners think of their customers, staff and business associates. Location is critical. It is all about proximity, convenience and the prestige that a well-chosen location can bring. It seems logical, but it is amazing how many times owners do not present their leasable assets in mint condition. A little money spent on painting, repair and general cleaning goes a long way. Business operators also think about the initial financial burden of office fit-outs. Think about how you can entice and retain a long-term tenant by offering to assist with fit-out costs. Offer financial inducements for longer-term lease contracts. Retaining a responsible long-term tenant in the best way maximises the potential return on your assets over the long term.

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

Investing in property is all about recognising and capitalising on opportunities that are consistent and supportive to your overall wealth accumulation objectives. 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 conceptualising 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.

What documents do I need to provide so I can arrange for an agency to market and sell my villa?

You need to provide a proof of identity, usually a passport or Emirates ID, so we know who we are dealing with. The original sales and purchase agreement is required so we can verify with the Dubai Land Department that we are dealing with the bonafide current owner. If the property is leased, we need the details of the lease agreement including status of outstanding payments and payments for service charges or owners association. We will consult with you and prepare a letter of engagement containing the details of what you require from us. If you are located overseas and would like us to represent you, you need to provide a power of attorney which will detail the extent to which you would like our representation in the various facets of marketing and selling your property.

Question of the Week

I want to modify and extend my villa. What are the documents required/ procedures to be followed when it comes to making alterations/ additions to the original building construction?

You will need to establish that the amendments that you plan on doing do not threaten the structural integrity or safe habitation of your villa by you or by future owners should you decide to sell it one day. Therefore, you should prepare the architectural and MEP drawings for the proposed concept. These would need to be viewed in conjunction with the architectural and MEP “as built drawings” by a number of different authorities and regulatory bodies to ensure that the proposed designs will be structurally sound and meet all the required building codes and regulations. You will need to obtain NOCs from your owners association, the zoning authorities, Civil Defence authorities and, in some instances, your project developer. You may also require NOCs from DEWA regarding electricity and water supply. If renovations are extensive, you may be required to have the work inspected by the Civil Defence and the Building Department. In the majority of cases, your architect or contractor can arrange for all approvals on your behalf and I suggest you engage the professionals.

Ask The Agent

Mohanad Alwadiya CEO, Harbor Real Estate

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 the conditions conducive to development are identified by developers and when properties are finally released to the market. Given that the economy of the emirate is expected to grow at an estimated 5+ percent 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 percent annual increase from today’s 2.25 million.

What property characteristics should I, as a buyer, pay close attention to in order to minimise any risks associated with my investment decision?

Location is the first factor to consider as it can drive up a property’s value. Prestigious locations like Palm Jumeirah, Downtown Dubai and Dubai Marina fared well in the post-GFC period, and affordable areas such as Jumeirah Lakes Towers, The Greens, Dubai Sports City, Discovery Gardens and International City followed suit. But there are other factors as well. The quality of the end-product and infrastructure, maintenance services, and the extent of completion must also be part of any consideration. Value for money and superior ROl must be considered if you are an investment buyer. Current and future supply levels of various asset types need to be examined. However, it is the fundamental drivers of market values which remain: location, product quality, features and benefits, and demand and supply.

We’re a startup company looking for an office space with the best value. Should we rent or buy?

At this stage, you need to keep costs down until you become fully established in the market. The old cliché “location, location, location” is all about the convenience and prestige it can bring to any business. Great value, affordable and well-constructed office spaces may be found in a particular area, but these may not work for you if the location is a hindrance to your operations. We always advocate businesses acquiring their own premises if they commit to operating long term in Dubai. There is no tax advantage in leasing in the UAE, and as long as your office space is appreciating, your balance sheet will grow stronger over time. If you decide to lease your premises, look for the best deal and lock it in for at least three to five years. Lease rates will soon increase going forward, so make sure you take advantage of current rates.

We purchased a villa in Dubai in 2010. Instead of continuing to rent it out, my husband and I decided to sell it. How do we find a good seller’s agent?

There is a large number of licenced real estate brokers in Dubai and the UAE. Finding the right agent to sell your property is something you need to pay close attention to because getting the best person is crucial to how quickly you can make a sale without compromising on your agreed-upon expectations. Factors such as years of experience in the UAE market, track record of success, in-depth understanding of market trends, area expertise, client testimonials, level of commitment, passion, dedication, professionalism and honesty are important. He/ she should also be a duly licenced RERA-certified real estate broker. Before committing to any realtor, make a list of all the questions you want answered first and see how they respond as doing so will help you gauge whether or not giving him/her your business is the best thing for you and your husband, and your property.

Question of the Week

What sort of documents are required after accepting an offer to buy my property?

The first (and most important) step is to prepare and sign an MOU which contains all the details and timing particulars of the offer. The buyer has to sign the MOU after reviewing its provisions. As with all legal documents, get a proficient broker or legal representative to draft the MOU for you. You also need to sign “Form F,” a contract between the buyer and seller. Ensure that the buyer and/or the relevant representative has their respective identification and/or authorisations so payments have been satisfactorily arranged. Step 2 will require the receipt of a “No Objection Certificate” from the developer. Step 3 is to pay the final utility bills so that the account is cleared and ready to be taken over by the new owner. If there’s a tenant, you will need to sort out any outstanding rent or payment details. Step 4 will require you to go to the Dubai Land Department offices or a trustee registration office together with the buyer and all relevant parties, and conduct the final transfer. Transfer of ownership will take place at the DLD with all monies owed by the buyer to you to be presented as part of the transfer procedure. Although the above procedure appears simple enough, I recommend you engage a professional to handle the transaction process for you. You will be surprised how little issues, many not foreseeable to the inexperienced, can delay the satisfactory settlement of your property sale.

Ask The Agent

Mohanad Alwadiya

CEO, Harbor Real Estate

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

Your landlord needs to give you a notice of increase at least 90 days prior to contract expiry. You should familiarise yourself with Law No. 43 which introduced the following restrictions (summarized) with regard to legally allowable rental increases: There should not be any rent increase if the rent for the real estate alit is no more than 10 percent below the average rent that a similar property commands within a neighborhood; The annual rent increases can range from 5 up to 20 percent according to how much the current rent s 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 unjustifiable rental increases on existing rental contracts.

What documents do I need to provide so I can arrange for an agency to market and sell my villa? Give a proof of identity, usually a passport and/or Emirates ID, and a copy of the original sales and purchase agreement to be verified with the Dubai Land Department (DLD). If the property is leased, provide details of the lease agreement including the status of outstanding payments and any information pertaining to the history with the tenant. Also, provide the status of payments of service and owners association charges. The agency will sit and consult with you as to what your requirements are and prepare for you a letter of engagement which will contain the details of what you require from the agency and what fees have been mutually agreed upon. If you are located overseas and like an agency to represent you, you need to provide a power of attorney detailing the extent to which you would like the agency’s representation in the various facets of marketing and selling your property.

What property features should I prioritise when listing my apartment for sale?

If you have a listing agent or are already working with a realtor, they would know exactly what characteristics of your property should be highlighted to make it stand out from the rest and be highly marketable. But the most important features that will make or break your goal to sell your apartment include the fact that it must be competitively priced or paced just right for the market, its location or proximity to landmarks and important infrastructure such as transportation links and commercial districts, size, building facilities and community amenities, duality and current physical condition, whether or not it is being handled by a professional property management firm, or fully paid or financed. Also, make sure you mention any improvements done, and if it has special features such as a nice view, balcony, closed kitchen or extra storage.

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

With many attractive off-plan offers today, I am tempted to buy an off-plan property. But how do I know if I am buying one with real potential?

Whether you are buying ready or off-plan property, market fundamentals still apply. Make sure that an off-plan purchase is consistent with your property portfolio strategy. Location can never be disregarded. Considerations regarding how close the project is to commercial, educational and leisure hubs, medical and health facilities, public infrastructure, popular and established communities, and the manifold views one can enjoy all add up to the desirability of a property’s location. The asset type is also important. What type of asset will be in demand in the future: affordable apartments, townhouses or villas? Be smart about the “product” that you buy. Look for certain property types in locations which you believe will be keenly sought in the future. You need to do some careful financial analysis which will enable you to determine the value of the discount that you anticipate receiving by buying off-plan. Easy payment plans can ensure you limit your capital exposure before completion. Also, you need to be conversant with financial concepts such as net present value (NPV) and internal rate of return (IRR) to guide you in the decision-making process when assessing your alternatives.

Population growth key to property market success

Dubai demonstrates strong growth in population compared to other economies around the world

The fact that the property industry is typically and notoriously cyclical is widely known yet quite often forgotten as viewpoints become blinkered due to current market performance, whether positive or negative. While some embrace cycles and their sometimes-associated market volatility that enables the opportunistic investor to profit from market fluctuations as they occur, other investors, those with a clear strategy and long-term plan, simply accept, foresee and plan for cycles in the industry. They are looking for longer-term sustainable growth rather than taking additional risks by trying to accumulate wealth by taking advantage of shorter-term spikes or dips. They are true managers of their property portfolios and have a much greater chance to succeed

A growing population is the fuel of any property industry, and it will be Dubai’s population growth that will enable the market to regain its equilibrium within the next three years

Investing in property has a very simple purpose: to create wealth over the long term. However, your property investment portfolio needs to be nurtured, maintained and managed to ensure its wealth-creating potential and capabilities are achieved as it rides the inevitable cycles that will occur in the industry. This, of course, is no different to managing a share portfolio, business venture or any other type of investments. Adopting a short-term vision and narrow perspective will engender reacting unreasonably to inevitable industry slowdowns which will lead to underperformance in the longer term.

The Dubai market is, having seen a period of falling values, rapidly approaching the bottom of its contraction phase, making 2018 a pivotal year for the industry. This contraction has been brought about by increased nervousness and uncertainty about global and regional geopolitical and economic events, the imposition of VAT, the distraction of alternative “new world” investments such as crypto currencies, along with the 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

So, as we enter 2018, we are faced with a familiar situation. The market, despite lower than-promised delivery rates by developers, is in disequilibrium, particularly in the affordable segment. But this is no reason for excessive concern as the market is simply exhibiting the characteristics typical of its current cyclical phase. And while many of the issues that faced the world in 2017 remain, there are positive signs ahead: a growing world economy, rising oil prices and what appears to be an easing of some of the conflicts that have dogged the world in the last five years.

As for Dubai’s property market, its current predicament would be expected to last for quite some time, primarily as supply absorption rates are hindered by weak population growth, delaying the market’s emergence from the current phase. But Dubai has one string to its bow compared to a few other economies as the emirate has consistently demonstrated strong population growth, something many countries around the world have tried and failed to achieve.

A growing population is the fuel of any property industry, and it will be Dubai’s population growth that will enable the market to regain its equilibrium within the next three years, particularly as a spike in population growth is expected as the Expo creates an estimated 277,000 jobs.

It may come as a surprise to some that Dubai’s population is likely to exceed 3 million by end of 2018. This is up almost 331 per cent since the turn of this century. This amazing growth has been consistent during this period and is expected to continue at a rate of between 6.5 and 9 per cent over the next 10 years. This is fantastic news for Dubai’s property industry and the economy overall especially when other nations are facing stagnating population growth or, in the case of countries like Japan, falling populations.

The composition of the growth is also impressive as it will continue to be predominantly driven by people seeking to immediately benefit from and contribute to an economy that is expected to grow by a healthy and sustained 3.5 per cent in 2018 and beyond, as those who are seeking to progress and improve their economic well-being take advantage of the superior opportunities that Dubai will continue to offer going forward, courtesy of such major initiatives as the Expo 2020, in addition to the time-proven economic pillars of trade, finance and tourism.

So, the opportunities are there to capitalise on this population growth and resurgence in demand for property this year. The current situation is reminiscent of 2012 when the market started to emerge from the global financial crisis to foster a strong recovery peaking in 2014. The market has shown it has the capability to respond to favourable economic conditions, and as the absorption rates of properties start to build momentum with new aspirants entering the market, the positive effect on value and prices will see handsome returns being made by those who understood the market’s cyclical position and positioned themselves to capitalise on the imminent growth phase of the cycle.

Expert Eye, Gulf News, Dated: 19-04-2018 by Mohanad Alwadiya

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.