Ask the Agent

Ask the agent

Should I assign my property to a leasing broker or a property manager?

You enter into a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments and facilitate the signing of the tenancy agreement, leaving you to assume the responsibility of managing the tenants and all aspects of the property thereafter. A property management agreement includes more. It provides an assessment, strategy and activity plan designed to harness the financial potential of your property. Considerations include history; current market, economic and risk factors; regulations; finance; and market dynamics. An activity plan covers pricing and marketing, customer relationship and tenant management, and policy and cost management. These will be performed under a property management agreement. A good property manager will make your investment work harder for you and the returns you receive will outweigh any fees.

I wish to sell my villa, but the garden needs a little bit of work. Is it worth investing in improving the garden? Am I likely to get my money back?

For your garden to become a selling point, you need to establish a low-maintenance and functional landscape that is highly appealing to the potential buyer. Resist the temptation to clutter the landscape with every species of flora known to man. Plants grow and you need to keep that growth in check as your garden can look unkempt and create a negative impression. Ensure that all landscaping elements must be coordinated carefully. If you don’t know or understand the differing qualities of certain soils, it’s time to call your landscape gardener and have him produce an impressive garden for you. Even if you don’t plan on selling your home for another five or 10 years, now is a good time to lay the foundation for a great landscape design that will win over your future homebuyers.

I am planning to invest in Dubai. As this would be my first investment, can you give any useful tips.
First of all, know why you want to invest in property. You must have a clear understanding of what you are trying to achieve. Then you must set your financial objectives carefully. Success in property investment can only be attained when (and if) those objectives have been realised. Always think long term for your greatest success. Those who have had the greatest success possess the ability to think long term, make rational, well-researched and carefully thought-out decisions with the end objectives in mind and understand that every real estate industry globally will go through cycles of growth and contraction. Make sure you know your stuff by being able to communicate knowledgeably with the experts. Always strive to eliminate risks. Plan your finances, cash flows, capital requirements and debt levels carefully.

With many new projects and off-plan opportunities, I am nervous about the quality of end products. Can we expect an improvement in quality?

During the global financial crisis, many developers realised that properties of poor quality were dealt the harshest of value declines. As a result, many developers did not survive. Having said that, the old caveat of “buyer beware” still applies. Deal with a reputable developer. Ask around or seek professional guidance. Ask what proactive measures are taken to ensure the end product has been built to an acceptable standard. Warranties and any quality assurance policies should be discussed in detail, and have the sales and purchase agreement reviewed by a professional. Engage an expert to inspect (snag) your property and report any legitimate issues to the developer for rectification. Remember, once you have taken ownership of the apartment, the developer is still obliged to fix any issues that may arise during the full 12 months following the transfer of ownership.

Question of the Week

I am buying an off-plan property. Can you explain the principle of escrow.

An escrow can be described as a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party (bank) providing the escrow service until it receives the formal advice that certain previously agreed obligations of the seller have been fulfilled upon which time, the seller can receive funds to the amount specified in the agreement between the seller and buyer.

The use of escrow accounts by Dubai developers has now been mandated by law for the purpose of protecting the prepayments made by buyers. This limits developers from gaining access to funds until certain construction milestones are completed, helping ensure developers are not misappropriating funds provided in advance for purposes other than which they are intended.

Anybody can open an escrow account, but not anybody can open one for the purposes of property development in Dubai. The developer must first be registered as a bona fide developer with RERA which involves providing documents including details of its officers and solvency, title deeds proving ownership of the land to be developed, NOC from relevant parties to performance guarantees.

Gulf News Saturday, June 10,2017
FREEHOLD

Ask the Agent

By Mohanad Alwadiya
Published: Gulfnews
Dated: November, 2016

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

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

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

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

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

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

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

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

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

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

Question of the Week

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

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

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

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

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

WHY I LOVE AMUSEMENT PARKS…

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

Theme parks have a huge impact on a country’s economy and property sector
The latest addition to a city swelling with activity alternatives is the IMG Worlds of Adventure. It cost more than Dh3.6 billion. Tobe labelled “the world’s largest indoor theme park” is no idle boast with the complex covering over 1.5 million square feet, around 20 times the size of the pitch at London’s Emirates Stadium.
The next months will see an even bigger development which, built at a cost nearing Dh10 billion, will include LEGOLAND.
Dubai has always considered tourism a lucrative pillar to the economy, but the latest additions to its suite of attractions is taking its capability to satisfy the appetite of those seeking world-class entertainment to a whole new level.
The new theme parks will play a key role in ensuring the emirate’s target of 20 million visitors by 2020 will be achieved.
The reason why I love the latest theme parks is because I am excited at the effect these initiatives will have on the economy and more specifically, the property industry.
The true value of amusement projects lies in the long-term advantages of employing people and creating commercial activities
Theme parks make an enormous contribution to the economy. The war for providing entrepreneurial and job opportunities is waged on a global battleground, and the amusement industry is one weapon Dubai can employ.
Being a global growth industry, participation cannot be ignored. Consider the data from the TEA / AECOM 2015 Theme Index and Museum Index: In 2015, there were 420 million visits to attractions run by the Top 10 global theme park groups, up by 7.2 percent; 236 million visits to the Top 25 amusement/ theme parks worldwide, up by 5.4 percent; 146 million visits to the Top 20 amusement/theme parks in North America, up by 5.9 percent; 131 million visits to the Top 20 amusement/ theme parks in Asia-Pacific, up by 6.9 percent; 61 million visits to the Top 20 amusement/theme parks in Europe, Middle East and Africa, up by 2.8 percent; 29 million visits to the Top 20 waterparks worldwide, up by 3.7 percent.
In a world struggling to generate any form of impressive economic growth, the growth within this industry is laudable. Obviously, its job creation potential is staggering.
The true value of amusement projects lies in the long-term advantages of employing people and creating commercial activities to develop a unique capability to entertain the families and youth of the region and beyond.
The local market offers significant opportunity. The GCC has one of the youngest populations in the world. Approximately 50 per cent of its population is below 25 years. The possibility exists for the construction of the only mega family entertainment destination in over 2,500,000 square kilometres of territory. From an economic point of view, the provision of memorable entertainment experiences must have a multiplier effect on the economy as a whole.
Population growth is critical to any real estate industry, and growth due to an increase in investment and employment opportunities that a successful foray into the entertainment industry generates would be substantial. With an abundance of affordable housing in the coming years, much of it located within easy distance of the theme parks, investment in the amusement industry can have huge benefits for the property downstream.
Dubai has a competitive advantage as it is uniquely placed. With its infrastructure, stability, cultural diversity and reputation as a leisure destination, a development that is a destination of choice by not only GCC families and youth but also visitors from all over the world will play an important role in building a vibrant and resilient economy and, of course, property industry.
belgie pillen

Ask the agent

ask-the-agent-oct-16

By Mohanad Alwadiya
Published: Gulf News
Dated: October 2016

What property features should I prioritize in 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 in order to make your property stand out from the rest and be highly marketable. But, just FYI, 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 priced 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, quality and current physical condition, whether or not it is being handled by professional property management, fully paid or financed, etc. Also, make sure you mention any improvements done, e.g. upgrading of original material such as plain ceramic flooring to granite, or changing original fittings purchased locally to Italian-made fittings, and if it has any other special feature such as a nice view, a balcony, closed kitchen, extra storage, being located close to the community center / park, etc.

I want to make some structural changes in my villa. What is the typical procedure I need to follow?

You will need to establish that the amendments that you plan on doing does not threaten the structural integrity or safe habitation status 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 OA, the zoning authorities, the Civil Defense authorities and, in some instances, your project developer. Depending on the extent of your renovations, you may also require NOCs from DEWA regarding electricity supply and water supply.

If renovations are extensive, you may be required to have the work inspected by the Civil Defense department and also the Building Department of Dubai Municipality.

In the majority of cases, your architect or contractor can arrange for all approvals on your behalf and I suggest you engage professionals who can achieve this for you.

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

The first piece of documentation is the provision of proof of identity, usually provided by way of passport identification and/or Emirates ID so we know who we are dealing with.

You should also provide a copy of the original Sales and Purchase Agreement so we can verify with the Dubai Land Department (DLD) that we are dealing with the bona fide current owner of the property, and that there are no third party legal entitlements to the property.

If the property is leased, you should also provide us with all details of the lease agreement including the status of outstanding payments and any information or documentation pertaining to the history with the tenant. You should also provide us with the status of payments of items such as service charges or owners association charges.

We will sit and consult with you as to what your requirements are and prepare for you a letter of engagement which would contain the details of what you require from us as a professional agency and what fees we have mutually agreed upon.

If you are located overseas and you would like us to represent you, we would need you 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.

What are the limits landlords must work within when it comes to increasing the rent to a rate they want in Dubai?

Rental increases are usually a main source of contention between tenants and landlords, especially when there is a failure in the communication process. By law, tenants should be informed of any changes in the rent three months prior to contract renewal. But even then, the rate of increase may also be questioned by the tenant. By now, everyone has probably heard of the RERA Rental Increase Calculator which is a handy tool accessible online (via the Dubai Land Department website) for tenants who wish to check if the rent increase being imposed by their landlord is justified, and for landlords who want to make sure that the rent increase they are asking for is within their rights. Rent caps apply to all property types in the different areas of Dubai whether they be commercial, industrial, staff accommodation, or residential units. Using the rent calculator as a reference helps prevent disputes between landlords and tenants, and has given the Dubai rental market a modicum of order in terms of preventing unabated rent increases.

QUESTION OF THE WEEK

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

Whether you are buying ready property or one that is off-the-plan, market fundamentals still apply, and always make sure that an off-plan purchase is consistent with your property portfolio strategy.

Location is always critical and can never be disregarded. This simply means considerations regarding how close the project is to commercial, educational and leisure hubs, to medical and health facilities, public infrastructure, popular and established communities, and the manifold views one could enjoy all add up to the desirability of a property’s location, add to that the possibility of being neighbor to some celebrity types – the perceived benefits that a location may bring to a prospective buyer can account for up to 90% of a property’s value.

The asset type is also important. What type of asset will be in demand in the future: affordable apartments? Townhouses? 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 which can ensure your limit your capital exposure before completion and you need to be conversant with financial concepts such as net present value (NPV) and internal rate of return (IRR) to guide you in your decision-making when assessing your alternatives.

ASK THE AGENT

By: Mohanad Alwadiya
Published: Gulf News
Dated: 06 August 2016

Question: As a new investor venturing into the UAE property market, how do I know if my property consultant is giving me correct information and the best advice?

If you have the feeling that your property consultant is not representing your best interest, I suggest you have a meeting with him and request a justification and rationale for all of his recommendations and advice. But in order to ascertain whether his justifications and rationale make sense, you should conduct your own research so you are able to verify the veracity of his claims and assertions. If you are still nervous about the quality of his advice, then seek an alternative as there are plenty of property consultants who are hungry for your business.

And whether or not you are a newbie to the real estate industry, you should take upon yourself the responsibility of getting to know the property industry in-depth as you wouldn’t want to risk your wealth or life savings by carelessly venturing into something strange and unfamiliar.

Question: Given that the market is still going through a down cycle, would now be a good time to invest in a REIT? 

Yes, there can definitely be some benefits in investing in a well-managed REIT during cyclical downturns such as the one being experienced at the moment.

As you would be aware REIT is an acronym for “Real Estate Investment Trust” which, as a trust company, accumulates a pool of money through an initial public offering (IPO) and buys, develops, manages and sells real estate assets. REITS allow both small and large investors the ability to invest in real estate without investing large amounts of capital or devoting a lot of time in directly managing a property portfolio.

Investors have the opportunity to buy a unit in a REIT which is actually a portion of a managed pool of real estate. This pool of real estate then generates income through the renting, leasing, selling and financing of property, and distributes it directly to the REIT investors on a regular basis.

A REIT can provide portfolio diversification because of the large amounts of pooled funds available to the REIT management team enables the accumulation and operation of different types of property assets in different locales. This provides the REIT management greater flexibility to minimize the effects of any cyclical downturn by enabling them to focus on opportunities that always exist and emerge from any correctional period to provide superior returns.

Question: It has been my plan to work as a real estate broker in Dubai, but I don’t know which company to join. Any ideas?

Have you ever worked in the industry before? To gain the greatest advantage, I suggest you join a company that will enable you to fast track your learning because, believe me, you have a lot to learn.

Find a full service company so that you gain a greater understanding of what the real estate business is all about, especially here in Dubai, because it sure is not just about buying and selling property.

The company you choose should value you as an individual and remunerate you appropriately. But they should also be prepared to invest in you by providing the types of learning experiences that come with formal training (mandatory to become a licensed agent in Dubai), in-house training as well such as being assigned a mentor, being placed on an internal rotation scheme to enable a broader knowledge of the business to be developed, or being given special projects that will facilitate your learning by encouraging you to seek answers and solutions yourself. Those companies that invest in high-potential people are typically the ones that succeed.

Surround yourself with people who are passionate about the industry because passion is contagious and it is what sets champions apart. Best of luck.

Question: In Dubai, what types of training are mandatory for new real estate agents?

The Real Estate Regulatory Agency (RERA) and the Dubai Real Estate Institute (DREI) have set a mandatory certification program for new and experienced agents who wish to work in a real estate brokerage in Dubai. The Dubai Real Estate Institute also organizes license renewal courses and exams along with a very rich variety of career development programs designed to help elevate the standards of professionalism and effectiveness of brokers in Dubai.

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, we recommend you have a proficient broker or legal representative draft the MOU for you.

You will also need to sign a “Form F” which is, in essence, a contract between buyer and seller. As part of this step you should ensure that the buyer and / or all the relevant representatives such as a POA holder with original documents) have their respective identification and/or authorizations in order that payments such as the down payment and/or balance amounts, payable by either by manager’s cheque or payment from bank due at transfer, have been satisfactorily arranged.

Step 2 will require the receipt of a “No Objection Certificate” from the developer. This is usually straightforward and a simple procedure.

Step 3 is to pay and 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 / 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

Question: In spite of the ongoing market slowdown, rents in our building are said to have increased according to new tenants. Our rent contract renewal is due in the last quarter of this year, do you think we will also be hit with a rent increase?

Unabated rent increases have been a common occurrence in the UAE; however, with the intervention of the authorities, tenants now have some added protection.

According to the law, your landlord needs to give you at least 90 days’ notice prior to the expiration of your current contract if he intends to increase your rent.

It will also greatly help you if you familiarize yourself with Law No. 43 issued on 22 December 2013 which replaced Decree No. 2 of 2011. Law No. 43 introduced the following restrictions (summarized) to take immediate effect with regard to the calculation and implementation of legally allowable rental increases:

  • There should not be any rent increase, if the rent for the real estate unit is no more than 10% below the average rent that a similar property commands within a neighborhood
  • The annual rent increases, as specified by the decree, can range from 5% up 20% according to how much the current rent is less than the market average
  • The market average rates are to be determined by the RERA Rental Index (RERA Rent Calculator)

The implementation of Law No. 43 is necessary to safeguard consumer’s interests, the overall industry and the economy at large from rampant and unjustifiable rental increases on existing rental contracts. It does not set out to control the rental value of new contracts and where a property is to be let for the first time or to a new tenant, it is up to the owner and prospective tenant to agree as to how much rent should be charged for the property.

Question: I am a landlord still relatively new in the business and I want to give my tenant one year’s notice to vacate an apartment I own. I already sent him a notice through a courier company but he (tenant) said it is not valid. What is the correct procedure? 

First of all, for the notice to hold up legally, you must have a valid reason for requesting the tenant to vacate the premises. Has the tenant committed any breach in respect of the tenancy agreement? Has there been any illegal activity in the premises? Do you need the unit for yourself? Do you intend to sell the apartment?

If your tenant is in breach of the tenancy agreement or has broken the law in some way you must serve a 30-day notary public notice to the tenant. The notice must clearly state why the tenant is being given 30 days’ notice to fix the matter and the details of the matter itself.  If the tenant does not respond in accordance to the request, then you can go to the Rental Dispute Settlement Center and ask for the issuance of an eviction order.

If you want to sell the property or use it yourself, you will need to provide a 12-month’ notice to the tenant through the notary public stating your intentions. You may then refuse to renew any lease for a period that extends more than 12 months past the date of notification.

The notice must be delivered by courier, and it is essential you keep a record of the delivery report as evidence of receipt (by the tenant) in case the tenant refutes receiving your notice in future proceedings.

Question: I have a mortgage on the flat I live in. Recently, I received an unexpected inheritance so I now have a substantial amount of cash. Should I pay off my mortgage or invest my money elsewhere?

Congratulations on your financial windfall! Your decision will depend on what interest rate you are paying on your mortgage, and on the expected returns in the investment you are considering.

If you can achieve a return greater than your mortgage interest rate then you should invest the cash elsewhere and take advantage of your low mortgage rate.

There are some very attractive mortgage products in the marketplace with a few mortgage providers offering rates as low as 3.99% or even 3.49%. If you have a mortgage with such a low interest rate it would not be too difficult to find an investment that will yield in excess of your mortgage rate.

For example, you may consider investing in an investment property such as an apartment  which will yield you a nett annual cash-flow of 5% and, over a period of 5 years, an annual capital appreciation of anywhere between 5% and 7%. This would be a more lucrative allocation of your cash.

If, however, you are not confident in achieving a return on your cash that exceeds your mortgage rate then I suggest you pay down your mortgage outright as you will save the interest costs.

Question: I have a mortgage on an apartment that I live in and I happen to have some cash currently. Should I settle my loan or invest the cash elsewhere?

It all depends on what interest rate you are paying on your mortgage. And what return you could expect if you invested elsewhere.

If you can achieve a return greater than your mortgage interest rate then you should invest the cash elsewhere and take advantage of your low mortgage rates.

There are some very attractive mortgage products in the marketplace with a few mortgage providers offering rates as low as 2.99%. If you have a mortgage with such a low interest rate it would not be too difficult to find an investment that will yield in excess of your mortgage rate.

For example, you may consider investing in an investment property such as an apartment  which will yield you a net annual cash flow of 5% and, over a period of 5 years, an annual capital appreciation of anywhere between 5% and 7%. This would be a more lucrative allocation of your cash.

If, however, you are not confident in achieving a return on your cash that exceeds your mortgage rate then I suggest you pay down your mortgage outright as you will save on the total cost of interest payments.

QUESTION:  I live in a freehold apartment and have some concerns regarding the service charges I am paying for. We do have an existing owners association, should I direct my queries to them? Is it their responsibility to answer such concerns?

Based on the info you provided, it is assumed that you have a fully operational and registered interim owners association board that currently represents you and all apartment owners in your building.

The first thing you should do is to attend OA meetings, get involved and address your queries directly including details on service charges. The OA itself is composed of unit owners and is mandated to represent all the owners of the jointly-owned property development in question, i.e. your apartment building, and is registered as an official entity with RERA.

An OA’s primary purpose is to manage, operate and maintain common areas such as hallways, lifts, stairwells, recreational areas, building systems – virtually all of the owner-shared elements of the building on behalf of all the other owners within the building. They do this by appointing contractors with the expertise to carry out the required tasks and set a service charge that all owners must pay to cover the cost of the contractor services.

The OA is a not-for-profit business entity which elects a board whose role is to action “motions” carried by the OA in addition to managing contractors, managing budgets and capital provisions, enforcing rules for the common good and organizing items such as insurance. As a member, you can always request and view the financial statements of the association to ensure that the service charges you are paying for are justified and correct.

Stalling will get you nowhere; invest today

stalling_will_get_you_nowhere

STALLING WILL GET YOU NOWHERE ; INVEST TODAY

The  opportunities currently available  will certainly  never come again
By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute
 

Stalling  will get  you nowhere invest today“opportunity knocks only once” is an oft-quoted proverb in life, and it rings even truer when it comes to real estate. Others may argue that other opportunities will present themselves in the future; true, but will they be the exact-same opportunities?

It would, of course, be great if these future opportunities actually materialize; excellent, if they turn out to be better opportunities. But then, what if they don’t – which is usually the case as far as opportunity in real estate is concerned. After all, land is not unlimited and a building or unit, once sold, won’t likely change hands several times in the course when it is perceived to be at its peak value.

Expertise derived from hindsight has no place at the table of successful people, and regret is a fruitless and pointless emotion. Successful people thrive on opportunities, not lost opportunities. If they cannot make one opportunity work to their satisfaction, they move on and find another opportunity. Regret simply diverts energy and focus from the effective pursuit of the next great opportunity.

For those still currently on the fence about real estate investment, resolve to buy TODAY. After all, oil prices aren’t expected to go anywhere soon, the decline of the Russian ruble and the Euro versus the US dollar has effectively made offshore investing appear too expensive for many, there are reports of a growing oversupply and the inevitable interest rate increases on the US dollar, and its AED cousin, will only further hamper overseas investment and overall market liquidity.

While these considerations are valid and worthy harbingers of the dreaded procrastination, we need to put our positive hat on for a while, and consider the following…

Put simply, Dubai needs people to support an economy that is expected to grow at an estimated 5 percent percent-plus annually for the remainder of the decade and to deliver initiatives such as the 2020 World Expo. The Expo alone is expected to generate an additional 277,000 jobs and drive demand for housing and commercial facilities that, by and large, don’t currently exist. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4million people by 2020, a 7 percent annual increase from today’s population of 2.25million.

While the price of oil is a big issue for the region’s economies, with oil representing only about 4 percent of Dubai’s GDP, the effect of the decline in oil prices is not as drastic as some may think. Dubai’s economy is being driven by fundamentals such as tourism and trade and a slew of new projects to grow these important revenue-generating economic segments. Dubai welcomed 4.1 million overnight visitors in the first three months of 2016, which represented a 5.1 percent increase over the same period last year continuing a growth trend of approximately 10 percent per annum since 2010.

But those visitor numbers will seem paltry once the 2020 Expo kicks off. And the 277,000 extra jobs that will be generated to ensure the estimated 20 million visitors of the Expo see Dubai in its most favorable light cannot be underrated in terms of generating significant demand for real estate assets.

And though the ongoing speculation surrounding the US Federal Reserve’s intention to raise interest rates is making many people nervous, we can be sure that interest rates in the US will eventually rise and the AED will continue to get stronger. To invest in a market that is undergoing a 10 percent to 20 percent correction in a currency that certain to appreciate only makes sense, especially when financing is still cheap and will remain so for quite some time.

While on the topic of certainty, there is no doubt that a stabilized real estate market will provide a much better launch pad for what will be a period of significant economic and commercial activity over the next 5 to 7 years. The structural shift towards more affordable housing will not only serve to accommodate the expected rapid population growth associated with the 2020 Expo, but also serve as an important factor in the development of the Dubai economy overall.

Still unconvinced or undecided?

Remember the opportunities that have come with 2015 and 2016 – the period of opportunity for the astute investor – will most certainly never come again. Ask around for expert advice, conduct your own research, make the calculations and decide now, today, so you won’t find yourself scratching your head in disappointment five years hence.

 

Ask the agent

ask the agent

Mohanad Alwadiya
Published: Gulf News Free Hold
Dated: 14th May, 2016

Question: I have an apartment I wish to rent out. Which would be a more practical approach, getting a rental agent or a property manager? I heard that property managers usually charge more, why is that?

If you are going to engage the services of a realtor, you would enter a leasing agreement assigning the real estate agency to locate suitable tenants for your apartments, facilitate the signing of the tenancy agreement, and 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 designed to harness the true financial potential of your property. Considerations include history, current market factors and risk factors, whether they be global, regional or local in nature requiring a good understanding of economic 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.

A professional property manager will make your investment work harder for you and the additional returns you receive will outweigh any fees he/she might charge, which means less headaches for you.

 

Question: I am 52 and planning for my retirement with Dubai in mind as a future part-time retirement destination. Right now, I want to invest in a property I can rent out, then use personally in the future during retirement. Is this a good strategy?

Including property as part of your retirement plan is a sound investment decision and a safe bet to ensure you maximize whatever you savings or wealth you possess at this time. The key to choosing your property is determining the right balance between the amount to be invested, the returns you require in the interim period before you retire, and what type of property you want to enjoy in your retirement.

As the property will eventually be for your own use, you need to determine what you will enjoy in your retirement. The good news is, your tastes are likely to be shared by your tenants in the interim so renting should not be a problem.

Quality properties are available starting from AED 700 per sq.ft., but if you want to purchase in the prime areas of Dubai such as Downtown Burj Khalifa, somewhere close to the beach or with a golf course view, you can easily double or triple that amount. The choices are varied, and getting what works for you is certainly achievable.

You can expect a minimum net rental return of around 5% to 7% which, given the cheap financing available at the moment, makes for a solid investment in preparation for outright ownership and retirement. But be careful with fluctuations in exchange rates.

Factors such as location, the developer’s track record, building quality, service fees, building management and the existence of a functioning owner’s association will require a reputable local real estate professional to help you minimize any risks with your investment, whether during the procurement stage or managing your investment until you are ready to assume occupancy during retirement.

 

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

An old adage in real estate says “location, location, location” – as it is the first factor to consider and can drive up to 90% of any property’s value. The more established and prestigious locations such as The Palm, Downtown, Dubai Marina and JBR fared extremely well in the post-GFC period, and secondary, more affordable areas such as JLT, The Greens, Sports City, Discovery Gardens and International City followed suit.

But there are other factors as well. The quality of the end-product and maintenance services, and the extent of completion and quality of infrastructure should also be part of any investment consideration. With so much upcoming supply, buyers can demand, seek out and purchase the best of what is on offer.

Value for money and superior ROI must be considered very closely especially if you are an investment buyer. In the post-recession era, the chase for yield along with an increase in the level of critical assessment of true values has meant that properties that offer more in way of physical product and potential rental returns are attracting the greatest attention.

Current and future supply levels of various asset types need to be examined so consulting a reputable property broker to assist you is a must. For example, villas as an asset type, across-the-board, have outperformed other asset types because of supply shortages. However, when looking at the inventory pipeline, this may not be the case always as more affordable properties are likely to be in higher demand – a trend we are already experiencing.

But one thing is certain, it is the fundamental drivers of market values which remain, i.e. location, product features and benefits, product quality and demand and supply.

 

QUESTION: Can you please share some information on Dubai property management fees?

Like most services, property management fees would vary depending on the service provider. It may be anywhere between 3% and 6% of the rental receipts, and some will charge an administrative fee as well.

You need to know and understand what you can expect from your property manager as the depth and breadth of services provided by them in Dubai can vary greatly.

You can negotiate a fee structure based upon your actual requirements. We have had many clients who went with the cheapest on offer, with an ill-defined scope of services and, sadly but almost predictably, had very poor experience, resulting in all sorts of tenant problems, maintenance deficiencies, missed revenue, and generally poor advice with regard to marketing and obtaining the best returns from their property.

A competent property manager will provide an assessment, strategy and activity plan designed to harness the true financial potential of your property.

Depending on the size and complexity of your portfolio, you should have, as a minimum, a rolling 5-year activity plan which covers pricing and marketing, tenant management and policy, cost management and maintenance schedules. A competent property manager will also provide you with communications and review schedules, status reporting formats and regular financial reporting.

Ask for referrals and make sure you follow up with some existing clients to get an appreciation of levels of efficiency and professionalism.

 

Question: What would be the consequences if we hire a property manager who does not have the relevant property management license?

The property management practice has risen in importance since the last GFC made it harder for real estate brokerages to generate revenue from transactional services alone. In addition, demand for property management expertise grew rapidly as investors started to realise that investing in property is not a “set and forget” proposition, and requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

You need professional help to manage your property investment, particularly during times when yield is harder to generate. Your property manager must ensure that you maximize returns from your property portfolio while operating within the law.

Your property manager should be licensed, experienced and have a strong history of successfully managing properties. If you knowingly engage a person or organization who does not possess the correct license to manage properties, you are essentially aiding that person or organization to operate outside the law which places you in an awkward position should something go wrong.

In addition, if you have a legal dispute of any kind regarding your investment properties, any involvement of the non-licensed party that you have managed to manage your property will place your legal position in jeopardy.

It takes only a little effort to check on the licensing status of any organisation by referring your query to RERA, the regulatory authority for real estate professionals in Dubai. Remember, it is better to be certain than shoot arrows in the dark – especially when it involves investing your trust and hard-earned money in any business venture.

Ask the agent

Question: I have been in the UAE for a long time, and accumulated a portfolio of 17 apartments and a couple of villas located all over Dubai. Everyone knows that the market is on a slowdown so is there still a way to make any profit during this period?

There are too many investors who are under the illusion that investing in property is almost a “set and forget” proposition, but nothing could be further from the truth. The property industry is incredibly dynamic and requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

Investing in property is no different to investing in any other asset. Its purpose is to create wealth but, in order to do that, it needs to be nurtured, maintained and managed just like any other investment. Ask yourself a question: Would you create a share portfolio without monitoring and managing its health and performance? Of course not, and having a property portfolio is no different.

With a portfolio this large, you need professional help to manage your property investment, particularly during times when yield is harder to generate.  It requires careful thinking about what the true earnings potential of the portfolio really is, and what is the most efficient and effective way to go about realizing that potential. You need a good property manager who will ensure that you maximize returns from your property portfolio and enable your long term portfolio strategy to be realized.

Essentially your property manager should be capable of managing your business which just so happens to be a property portfolio. Remember, it’s your investment, and you need to ensure it’s in good hands providing you with the returns you expect with as little hassle as possible.

Choose wisely as once you appoint a property manager, your ultimate return on investment is largely in his hands.

QUESTION: I have a well-maintained 1-bedroom apartment in Queue Point, Liwan. When I purchased it, the selling rate was at AED 550 per sq.ft. Should I continue to rent it out or sell it now?

Properties located in non-prime areas such as Dubailand have been doing very well even in the current market scenario. Even in the recent past, we have witnessed the more affordable properties in the market, including those in Dubailand, doing quite well in terms of significant value growth and ongoing sales activity as there remains a supply gap in the truly “affordable” property segment.

As mid to upmarket property in prime locations have become unaffordable for some homebuyers and investors, people have turned to more reasonably-priced projects like Remraam, Skycourts, Queue Point, etc., which promise capital appreciation even in the current market climate. These developments are still young, and more growth and infrastructure development is still in the offing.

There is no doubt that you would still make some profit if you sold today; however, we expect values to still improve, especially as the infrastructure and landscaping around the development gets completed. I suggest you retain the apartment for at least the next 5 years as you will continue to benefit from superior capital growth and enjoy at least 8 percent net annual rental returns in the meantime.

Question: Am I right in thinking that rental rates are not as affected by the market slowdown as sale prices? I was expecting a big reduction in my rent but our landlord told us it will remain the same.

Yes, you are partly right. The current industry climate has affected sale prices more although rents have also fallen in certain areas which only means the market slowdown has varying effects on different areas and property types. Regarding your rent, what will determine whether the landlord can raise your rent or not is how your rental levels compare with the new and updated index.

You should familiarize yourself with Law 43 which was issued on 22/12/2013 and replaced Decree # 2 of 2011. It introduced certain restrictions with regard to the calculation and implementation of legally allowable rental increases.

Having said that, it does not set out to control the rental value of new contracts and where a property is to be let for the first time or to a new tenant, it is up to the owner and prospective tenant to agree as to how much rent should be charged for the property.

However, for your peace of mind, you can compare your rental rate to the current market rate by using the RERA rental increase calculator online by visiting: http://www.dubailand.gov.ae/English/Pages/Rental-Increase-calculator.aspx

While it has its limitations, it is a useful tool that is also being used by landlords as a reference point for determining rental rates.

Question: I have just received an offer from a bank representative to refinance my property. Is this an opportunity I should avail of or not?

Very easily, I can say the answer is YES, but only if it makes financial sense! In short, you need to make some quick but careful calculations.

There are some very attractive mortgage products in the marketplace with a few mortgage providers offering rates as low as 3.99% or even 3.49% which signals that competition among UAE banks for higher market share of the mortgage market is getting pretty intense.

There are a number of things you need to consider such as, is there an early payment penalty for your current mortgage? It may well be that you will need to pay a hefty fee to exit the existing contract.

While 3.99% is an attractive rate, how long are you guaranteed this attractive rate? Interest rates will eventually rise and this eventuality needs to be understood by mortgagors as the attractive 3.99% interest rate enjoyed today will, in all probability, be replaced with a significantly higher rate in 2 years’ time, requiring increased mortgage payments to cover the interest rate hike. You need to factor this into your financial planning.

Will you need to pay any establishment fees for your new mortgage contract? With the mortgage market becoming so competitive, you should be able to have any fees waived.

Finally, make sure you can pay out your new mortgage contract at a future point in time without any penalty. This is an unnecessary expense that you should not be burdened with.

Additional:

Question: I am coming from overseas and looking to rent a home. I heard about this thing called “district cooling.” What, exactly, does it mean?

District cooling for the provision of chilled water has emerged globally as a way to provide cooling to buildings in a more environmentally sensitive way. It is considered to provide great benefits in the long run and, in addition, helps in saving on the costs of electricity which will be reflected in lower DEWA bills of tenants.

You will find that most of the units which are serviced by chilled water district cooling are offered at slightly lower rental rates. However, you should enquire as to how your cooling charges will be calculated and enquire as to all the charges which are included in the cost. You may even ask existing tenants how much they are paying currently before you commit to a tenancy contract.

With regard to consumption charges, I am assuming you will have a BTU meter installed in your future apartment? If so, you will be billed directly by the cooling services provider based upon what you actually consume in terms of cooling. The more you use, the more you pay.

Having said that, the DEWA savings will be offset somewhat as you may incur an additional utility charge as some owners of units that are equipped with chilled water district cooling will be passed on the slightly higher utility charges that they incur which involves the remuneration of the capital costs of providing the infrastructure that delivers the chilled water to the unit. This charge will, in all likelihood, be calculated as a pro-rata of the actual consumption charges.

Nevertheless, in most cases, developers have managed to offer better value for money while helping protect the environment.

 By Mohanad Alwadiya
CEO, Harbor Real Estate
Advisor & Instructor, Dubai Real Estate Institute (DREI)
Published in Freehold – Gulf News
Dated: 30 April, 2016

Ask the agent

ask the agent

ask the agent

By Mohanad Alwadiya
CEO, Harbor Real Estate
Advisor & Instructor, Dubai Real Estate Institute (DREI)
Published in Freehold – Gulf News
Dated: 9 April, 2016

Question: We’re a successful startup company and currently looking for office space with the best value? Should we rent or buy?

Congratulations on your successful venture! AT this stage, however, you would still be looking at keeping costs to a minimum until such time you become fully established in the market.

As you may very well know, the old cliché of “location, location, location” is critical. It’s all about proximity and the convenience and prestige that a well-chosen location can bring to your potential customers, staff and business associates. Currently, you will find great value, very affordable and well-constructed office space in Business Bay, which will cost you anywhere between AED 70 and AED 120 per square foot (higher for fully fitted space), but it will be pointless if the location is a hindrance to conducting your business. You need to choose your preferred location first, and work from there.

Think about purchasing your premises. It’s in your best interest to do a complete analysis to see if this option will work for you. We at Harbor have always advocated that, cash flow permitting, businesses acquire their own premises. If you are a business committed to operating long term in Dubai, it makes sense to own your office space, particularly if it is a well-negotiated purchase. There is no tax advantage in leasing in Dubai and, as long as your office space is appreciating, your balance sheet will look a whole lot better and grow stronger over time.

If you decide to lease your premises, try to get the best deal possible and lock it in for at least 3 to 5 years. Lease rates in Dubai will be on the increase, going forward, so make sure you take advantage of current rates.

Question: I came to the UAE with an objective to join real estate as I have several years of experience overseas under my sleeve. Can you advise me on how I can land myself a realtor’s job in a reputable company?

It is good to know that you plan on joining the local real estate sector with some experience. Nevertheless, each real estate environment is unique so I suggest you join a company that will enable you to fast track your learning.

Look for a full service company so you gain a greater understanding of what the UAE real estate business is all about, beyond the buying and selling of property.

The company you choose should value you as an individual and remunerate you appropriately. But they should also be prepared to invest in you by providing the types of learning experiences that come with formal training (mandatory to become a licensed agent in Dubai), and also in-house training. This may involve being assigned a mentor, be placed on an internal rotation scheme to enable a broader knowledge of the business to be developed or be given special projects that will facilitate your learning by encouraging you to seek answers and solutions yourself to enable you to complete the task at hand. Those companies that invest in hi-potential people, typically are those that succeed.

Finally, surround yourself with people who are passionate about the industry because passion is contagious, and it’s what sets the successful ones apart.

Question: How do I know for sure my property consultant is giving me the right advice?

In any relationship, whether it be personal or professional, trust is key.  So if you have a nagging feeling that your property consultant is not representing your interests, have a meeting with him and request a justification and rationale for his recommendations and advice. To ascertain whether his justifications and rationale make sense, you should do some research yourself so you can verify the veracity of his claims and assertions. If you remain doubtful, seek an alternative as there are plenty of property consultants out there hungry for your business.

Getting a new consultant is not always the solution and you may want to rethink your criteria in choosing one so you develop rapport and trust in the long run.

Look for experience and passion – people who really enjoy what they are doing. The best way to find such professionals is to ask around. Seek out friends or peers who have recently conducted a real estate transaction and ask. Seek out the positive stories as well as the negative ones.

Find a consultant or agency that exhibits a breadth and depth of industry knowledge and expertise. When conducting initial meetings, make sure you assess how much the agency or its brokers actually know.

Look for longevity. Those that survived the recent recession must be good!

Look for a strong network of corporate, government and industry contacts. The consultant or agency that has good relationships with key industry stakeholders such as the major developers or authorities such as the Dubai Land Department, RERA, DEWA or Economic Department will be able to operate more efficiently and effectively.

And finally, look for an agency that has received some form of industry or peer recognition as they lend credence to the name and reputation of the realtor in question.

Question: We purchased a villa in Dubai back in 2009. However, instead of continuing to rent it out, my husband and I have decided that we want to go ahead and sell our property soon. How do we find a good seller’s agent?

There is a large number of licensed real estate brokers in Dubai, and the whole of UAE of course. But finding the right agent to sell your property is something you need to pay close attention to because getting the best person to represent you and your property out there 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 property market, track record of success, an in-depth understanding of market trends, area expertise (especially in the neighborhood where your unit is located), client testimonials, level of commitment, passion, dedication, professionalism and honesty are important, not to mention the fact that he/she should also be a duly licensed 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: I have been looking at Dubai (or the UAE) as a possible part-time destination during my retirement. Hence, I would like to purchase a property here, rent it out initially and later use the property myself during my retirement. Do you have any advice?

Including property acquisition as a part of your retirement plan is a good move, but you must choose wisely. The key to choosing your property is determining the right balance between the amount to be invested, the returns you require in the interim period before you retire, and what type of property you want to enjoy during your retirement. The good news here is your tastes are likely to be shared by your tenants in the interim so renting it out should not be a problem.

Quality properties are available starting from AED 700 per square foot; however if you want to purchase in the prime areas of Dubai, either in Downtown Dubai, or somewhere close to the beach, or with a golf course view, you can easily double or triple that amount.

You can expect a minimum net rental return of around 5 percent to 7 percent which, given the cheap financing available at the moment, makes for a solid investment in preparation for outright ownership and retirement. Be careful with fluctuations in exchange rates.

Factors such as location, the developer’s record and reputation, quality, service fees, building management and the existence of a functioning owner’s association will require a reputable local real estate professional to help you minimize any risks with your investment, whether during the procurement stage or managing your investment until you are ready to assume occupancy once you will have retired.