Expert Eye – Minding the interest rate trap

The mortgage supposed to make things easier for you should not become a burden

I read an interesting advertisement some time ago which I couldn’t forget. On offer was a mortgage with an interest rate of 3.99% fixed for two years, no exit fees, no bank arranging fees and, not surprisingly, claiming to be the best deal in the market. From the looks of it, it was a good deal indeed.

However, it begs the question that every prospective mortgagor needs to ask, that is, what type of interest rate will they be paying in the future? There is no doubt
that paying 3.99% interest for two years is an attractive proposition, but given
that most mortgagors will be paying off their home for at least 20 years, careful
thought must be given as to the effects of rising interest rates, inflation, lifestyle changes, and changing personal expenditure patterns.

It is not a question of whether or not interest rates will rise, but when. As the world slowly returns to a semblance of reasonable economic growth, inflation, important for economic growth and sought by every economy, will become a factor. A modicum of inflation is desirable (the US Federal Reserve is targeting 2%); however, as inflationary momentum accelerates,interest rates also increase to keep inflation under control as excessive inflation is highly undesirable for all of us.

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 two years’ time, requiring increased mortgage payments to cover the interest rate hike.

Consider the following simple example. A 20-year mortgage for Dh2 million with an interest rate of 3.99% will require a monthly payment of Dh12,109. An increase in interest rates to 5.99% on the same mortgage would require a significant increase of approximately 18% on the monthly payment. For the purpose of reflection, this is what happened to many mortgages in the United States leading up to 2008. The inevitable rapid growth in mortgagor defaults became a major factor in the bursting of their real estate bubble that had developed over the preceding six years, and the eventual onset of the global financial crisis.

So careful analysis is required by the mortgagor who needs to envisage his or her economic circumstances at least two years into the future. The question to be answered is: “Given my projected earning capability and desired lifestyle, what mortgage payment increase will be financially feasible and acceptable to me in two years’ time?”

There are several factors at play here. First of all, estimating a projected earning capability can be a little daunting. We all hope to progress rapidly in our professional (a.k.a. financial) pursuits, but there are generally more people disappointed than delighted with their achievements. And as history has shown, salary increases generally tend to lag behind cost of living increases so conservatism in estimating future cash flow is a must.

Then there is lifestyle. Is there a new baby planned in the near future? A new car perhaps? What effect will significant family or lifestyle events have on disposable income? Are there existing children who will need to start school in that time frame? All these events will have an effect on disposable income and, thereby,will decrease one’s financial flexibility to address interest rate shocks.

And finally, what is financially feasible may not be acceptable. How much sacrifice are you and your partner willing to make to service your mortgage? What are you willing to do without, and what lifestyle changes are you prepared to make? Once again, being honest with oneself is paramount.

So, notwithstanding economic recoveries and resurgent markets, cautious financial planning based upon realism and honest self reflection is key when planning the purchase of your dream home. Your future depends on it.

I am looking at investing in a flat in Dubai for the long term. Can you advise me on the factors I should be concerned with?

As always, we must be thinking location, quality of the building and the completion status and quality of infrastructure and building amenities.

Anything which is close to the beach (especially with a sea view), a golf course view or situated somewhere close downtown is a good place to start. If you can also have close access to the metro, even better, and you will virtually be assured of renting your new property relatively easily at a rate which will provide a tax-free ROI of at least 5% net. These locations are mot likely to provide superior appreciation in capital value as well.

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

With a lot of new developments being offered, what do you think about buying off-plan vs.completed properties?

By buying off-plan, you can benefit from capital appreciation exceeding the market average in the period just prior to launch, and over the ensuing 12 months. However, remember that in purchasing a completed property, you will benefit
from the cash flow immediately providing you with an immediate yield on your investment.

To help you estimate which option will work best for you, seek the advice of a reputable real estate professional. They should be able to help you define your investment objectives, identify suitable investments and conduct a complete financial analysis.

Look for certain property types which you believe will be keenly sought in the future, and try to buy properties from developers who have a strong and stable track record.

Do you think that there are too many new projects being introduced too soon?

There have been projects unveiled with an estimated value of at least US$40 billion in the recent past. They include the world’s biggest Ferris wheel, a new “city within a city” , and a range of theme parks.

These types of developments are a little different to the random, unfettered developments of the pre-recession era in that they are tapping into what actually drives Dubai’s economic growth.

One reason why the economy is growing at a very healthy rate is because of a booming tourism industry. If you add to that a location which is one of the best cities for young professionals globally, you’ll see why investment in developing, and expanding an economic capability to satisfy a growing demand for tourism and entertainment makes sense.

It is ideal for the real estate industry to grow as a result of population growth driven by economic development. Many of the newly announced projects are aimed at doing just that.

With the recent uptick in prices, is real estate still providing real value?

Definitely. Remember, regardless of where the capital comes from, the market ultimately determines a broadly representative perception of value, and we believe that there is some way to go before the Dubai real estate industry is considered overpriced.

Of course, it varies by asset type. For example, the reason areas such as Emirates Living, The Villa Project, Arabian Ranches and the Palm Jumeirah have been appreciating so strongly is because of the superior value they are providing prospective owner-occupiers and investors to whatever exists elsewhere.

There are different types of buyers driving the demand. The first buyer type is taking the opportunity to upgrade from apartment-style to villa-style living. The second buyer type is upgrading villa type, style, size and location, and from a pure investment point of view.

Whether owning or renting. value will always attract interest and activity.

Question of the Week

There has been a lot written about the new investor Protection Law. Is it a case of too little too late , and how will people who have been disadvantaged during the financial crisis benefit from its implementation ?

In essence, The Real Estate Investor Protection Law is yet another step in the maturation of the Dubai Real Estate industry. We have always said that a viable and robust real estate industry requires three important elements which we call the 3Cs: Confidence, Capital and Clarity.

The law will go a long way to boosting the level of confidence of investors by protecting them from contract breaches or fraudulent activities by developers, and add clarity as to what legal protection they may draw upon’ if needed. In addition,it is expected that owners’ associations will be further strengthened by strengthening their legal status. All this is good news for the industry, going forward.

However, the degree to which the law may be applied retrospectively is likely to be limited. Already, those investors who have been disadvantaged by developers cancelling projects can take their case to a special committee set up specifically to handle these matters; while it is still not clear as to whether those investors experiencing delays in projects commenced prior to the new law’s introduction will be entitled to relief under its provisions.

I own a third of a floor of office space in Business Bay, with two other parties sharing the balance of the floor space. We are having difficulty in finding reputable tenants at a reasonable lease rate. Can you offer any advice?

The issue of multi-strata ownerships, particularly when looking at office space, would be a concern as prospective tenants do not want to negotiate or deal with multiple owners.

One solution requires the willingness and commitment of all owners to form a type of cooperative or rental body. Under this concept, the owners would commit their space to a “rental pool” to offer to prospective tenants. This pool would be managed  by a third party appointed by the owners so that tenants requiring space owned by more than one person would be dealing with one central body representing those owners, and all owners benefit from the rental receipts garnered from leasing “pool” space.

This concept requires commitment, discipline,participation and cooperation from the owners, but if implemented with full owner support, will provide superior returns in an office market that is currently extremely competitive.

 
Would an asset bubble be reappearing in the Dubai real estate industry?

The recovery has been created by a number of market factors and catalytic events, the Expo 2020 bid win notwithstanding.

Confidence has returned to the emirate as solutions to debt issues have been identified, we have a booming tourism industry, and a geo-political position which has been a prime attraction to capital fleeing troubled regimes around the region. Seeing this, you will understand why demand would be accelerating in a post-recession world as these fundamentals all add up to a compelling case for investment.

Do you think more affordable segments of the market offer any investment opportunities?

Definitely. While the greatest growth in the Dubai real estate recovery has been seen in the middle to high-end villa and apartment segments, there will be an increasing requirement for housing at the affordable end of the spectrum.

An investor taking a long-term view when creating a property portfolio will recognize that there is tremendous value promising extremely healthy returns in the affordable segments as demand will only increase as Dubai’s economy continues to grow.

Already, apartments in developments such as Skycourts, JLT and MotorCity have witnessed substantial capital appreciation, while villas in areas such as Dubai Silicon Oasis have appreciated significantly as well.

While it may be glamorous to invest in the more luxurious or iconic locations, sometimes it’s just as lucrative to invest in the lesser known and more affordable developments.

I have been considering taking advantage of the low office rental rates and relocating my business. Do you believe rates have bottomed out?

The office segment in Dubai has definitely bottomed out, and there are instances of rental growth emerging in some areas such as DIFC and in some space
configurations.

For example, there is a relative shortage of Grade A,large floor- plate, single owner space. This type of space is favored by larger, often multinational companies and, with Dubai’s economy rebounding strongly, demand for this type of office space has been growing rapidly.

Vacancy rates outside the CBD/DIFC area are still quite high. In developments such as Business Bay, many buildings are suffering from fragmented ownership and configurations issues. However, depending on your size requirements, you may still find space that suits your needs at reasonable leasing rates.

Question of the Week

My apartment is finally ready . When I stated that I would like to inspect the apartment , the developer said they had already completed their inspection , and I would be wasting my money as they believed the apartment to be satisfactorily finished . Is this right ?

Technically, once an official Completion Certificate has been issued for the building by the Dubai Land Department (DLD), 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; and remember, once you have taken ownership of the apartment, the developer is obliged to fix any issues that may arise for a full twelve 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. There is a good chance that it will save you a substantial’ amount of money in the long term and provide you with some peace of mind.

Economic recovery, including in UAE, is definitely gathering steam globally

As many of us have gotten into the rhythm of life in 2014, it’s time to look at what opportunities exist to ensure that we continue to improve our financial situation this year.

While financial advisors will have opinions on which equities, funds or fixed income instruments in which markets around the world will offer the best returns, most people need look no further than their own neighborhood to spot some pretty interesting wealth – creating opportunities.

There are a number of reasons .to invest in Dubai real estate in 2014, but I will focus on just five of them.

First: The market is ben­efitting  from a bow wave of demand as the broader economy stages a strong recovery. Granted, prices have been growing generally at around 20 + % YoY, more in some areas, and there is renewed concerns regarding asset values. But remember, some areas lost around 60% of their values from the highs of 2008. The recovery has been underway for two years now, and the market is still around 22%, shy of the highs reached five years ago.This would suggest the market still has some way to go before a broad-based major correction occurs.

Second: it is not just Dubai which is recovering. The global economic recovery is definitely gathering steam bolstered, of course, by ever-increasing confidence that the long-awaited US economic recovery is well underway. One side effect of the inevitable reduction in quantitative easing in the US has been the strengthening of the US dollar and, therefore, the U.A.E dirham. For expat investors, the opportunity of a nice currency hedge emerges while local investors will benefit when looking to invest abroad with a strengthened dirham.

Third: When you invest in real estate, you are really investing into an economy, and the effect of the 2020 Expo on the U.A.E economy cannot be underrated. For real estate, hosting the World Expo will provide additional impetus for the industry to enjoy continued growth. The last city to host a World Expo was Shanghai in 2010. Despite being held during the worst global recession in history, property values grew in excess of 60% in the 12 months before the event was held. While Dubai is unlikely to achieve such stellar value growth, the predictable surge in demand for accommodation and commercial space of all types, from labor camps to offices, to warehouses to apartments to executive villas, is sure to have a significant effect on property values.

Fourth: The increasing levels of governance, oversight and scrutiny that the industry is experiencing are driving confidence back into the industry. The ongoing development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, reveal a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term. The free-for-all days of the past are long gone; and investor, not speculator, confidence has been making a big comeback.

Fifth: And finally, if it’s superior yield with minimal capital outlay that you are after, it is hard to ignore Dubai real estate. Affordable properties in developments such as Dubai’s Skycourts, International City, Dubai Sports City, Discovery Gar­dens and JLT are all benefit­ting from Dubai’s recovering economy, and you can expect a rental return in these areas of at least 7% with 10°% rental yields not uncommon. Demand is being driven mainly by first home buyers and investors seeking the increasing yields on offer and both rental yields and property values are expected to increase as the 2020 World Expo draws nearer. Given the relatively low cost of entry, the opportunities that reside in the more affordable end of the market are becoming more lucrative every day.

Event expected to provide the impetus for continued growth in all segments

A lot has been said,and much has been written about Dubai’s Expo 2020 bid, and the successful after- math of the long wait after it was announced in November last year that Dubai, indeed, emerged victorious.

Many industry insiders predicted how an Expo win would lead to the escalation of property rates in the emirate, and people waited, with some enthusiasm and excitement, and a tinge of fear, thinking that more spikes In rates would definitely take place even as the industry had begun experiencing a modicum of stability and growth some months before the announcement of the bid win.

Logic dictates that hosting the 2020 World Expo will provide the impetus for continued growth in all segments of the Dubai real estate industry but, as with all extraordinary events, there are many nuances that must be considered.

The residential segment will enjoy a surge in demand for accommodation of all types, from labor camps to apartments to executive villas, for the additional 270,000 or so new jobholders that will enter the market.

However, we expect a gradual rise in rents leading up to and including the period of the event to be more likely than a sudden spike.

This expectation is based upon analyses of existing supply-demand streams,increasing industry regulation and oversight, and the fact that Dubai winning the Expo 2020 bid was already partially priced in by the market.

Values will rise, but differing asset types and locations will not move in unison. As the Expo 2020 preparations move from the analytical  and planning phases through to implementation and eventual launch and operational phases, real estate requirements will differ.

Initially, investor demand will drive much of the value appreciation. However, initial end-user demand is likely to increase for accommodation,both for villa and apartment units, with close proximity and easy access to the Expo 2020 site itself.

The demand for this type of property will continue to increase in the run up to the launch and duration of the Expo, and the capital return curve will steepen as the event approaches.

Meanwhile, office and commercial space in general some located within the Jebel Ali Free Zone, will also benefit from a rise in demand as operations are commenced for those companies involved in the initial construction or preparatory phases.

Developments in close proximity to the Expo site will be in focus as logistics, storage and service providers look to set up
operations. Labor camps will be required from the initial stages as the race to implement the infrastructure required to cater with so many visitors begins in earnest.

Demand for residential, retail and commercial space alike will spread to the more central areas of Dubai at a later stage as retailers, hotels, service providers, and those operations supporting the tourism industry hire additional staff and set up operations to support the event, service the bevy of new business operators, or the millions of additional shoppers.

So, while the World Expo 2020 is great news for the industry, it brings with it a new set of considerations for the prudent investor. Which assets, located where, purchased in which timeframe are likely to provide the best return on the investment dollar and, perhaps, more importantly, what is the likely performance of the asset when the event is over? The 2020 World Expo will provide many opportunities for real estate investors, but maximizing returns will require some very careful planning.

I am an overseas investor and not familiar with district cooling. Can you provide a little background on this? 

District cooling where chilled water is provided to  apartments from a central facility for cooling has emerged globally as a way to provide cooling in a more environmentally sensitive way. It is known to provide  great environmental benefits in the long run by using less energy and, in addition, helps in saving on the cost of electricity which is reflected in lower DEWA bills of  owners or tenants.

Having said that. the DEWA savings will be offset somewhat as the overall utility charges of units that are equipped with chilled water district cooling will be  slightly higher as it involves the remuneration of the fixed operating costs of the chilling unit via a capacity charge, in addition to the application of the appropriate  consumption charges.

The system has benefitted all stakeholders in a high temperature environment such as Dubai. It is more  energy efficient , environmentally friendly and cheaper  for the owner or tenant.

Will the commercial real estate sector witness growth comparable to that of the residential sector? 

While not matching the outstanding performance of the residential sector, commercial real estate performance has improved markedly, and is expected to continue doing so for the foreseeable future.

Demand for commercial space is highly correlated to economic performance and, with the Dubai economy’s growth in 2013, robust growth is also expected in 2014 and 2015; commercial real estate performance,notwithstanding  inventory anomalies, will continue to improve.

Already, there are shortages of certain types of spatial configurations. For example, well located Grade A space available in floor plates of 25,000 sq.ft. or more is not readily available. Many multinational companies will pay a premium
to have their entire operations situated on a single floor.

As with the residential sector, improvement in the commercial sector will be a little two-paced. The issue of fragmented ownership of single floors will continue to hamper the effective marketing and leasing of those units, and this issue may take some time longer to be resolved.

Is there any truth to talks that Dubai real estate is heating up once more? 

Dubai real estate started its recovery around the start of 2011 when investors, having faced a high degree of uncertainty resulting from the Arab Spring, sought safe harbor for their hard-earned capital.

Dubai, having successfully reached settlements with many of its debtors as it emerged from the global financial crisis, promised greater stability and opportunity and, with its established infrastructure, certainly fit the bill.

There have been other factors at play also. A modicum of global economic recovery / growth, a local economy which is growing at around 4%, a competitively affordable UAE dirham and the fact that Dubai’s property
values had fallen by as much as 60% from its glory days all attracted investors from virtually every corner of the  globe seeking yield and tax advantages .

Confidence has returned to the industry, demand is representative of a more educated and astute buyer (as compared to speculators), banks are more circumspect with regard to who they lend money to and for what,and equilibrium issues such as oversupply in some sectors are being managed. Add to this the emirate’s Expo 2020 bid success which leads us to believe that long -term recovery has well and truly commenced, and we are in the growth phase of a new cycle.

I own an apartment in Downtown Dubai and have been getting 6.5⁰/0 net rental returns for the last 18 months. Would selling the unit now be a good idea?

Real estate anywhere is cyclical and Downtown has been on the upswing for last 2 years! We believe that the market has at least another 2 years of solid growth.
You have made some impressive capital gains in the last 18 to 24 months, and I believe the property still has bit left to offer you financially.

If you have identified an alternative investment to give you a better income stream and capital return than what you expect to receive in the next 2 years, then the right decision may be to sell; however, if not. hold on to the property as I believe that you will continue to receive  at least a 6% to 7% net rental return.

Question of the Week

Investors are always advised to find a reputable and professional real estate broker to assist them . How, in your opinion , can this be accomplished  ?

For you, the investor, there are many considerations  to take into account and what follows are just a few things you may want to look for:

• Look for an experienced and passionate team. You want people who really enjoy what they are doing so they do it with dedication
• Find an agency that exhibits a breadth and depth of industry knowledge and expertise
• It is always better to consider getting a full service agency
• Look for a history of innovative solutions that have delivered tangible results
• Longevity is key. Those that survived the recent recession must be doing something right!
• Get an agency with a strong network of corporate and industry partners. An agency that has good relationships with key industry stakeholders such as major developers and government authorities such as the Dubai Land Department. RERA, DEWA or Economic Department will be able to operate more efficiently and effectively
• And finally, employ an agency that has received some form of industry or peer recognition. These are the hardest plaudits to get!

We are currently paying service charges of Dh 15 per sq.ft., and wish to reduce this rate over time. Can you advise us on how we may approach this matter ?

First of all, the rate you are paying for the services being provided to your building may be appropriate for the level of service you are receiving. Generally speaking, Dh15/sq.ft, is not exorbitant; however, it depends on your requirements and the level of service you demand.

I believe you need to concentrate on improving the efficiency of your service provider. Your owners association (DA) should work closely with your service provider, and conduct a detailed and comprehensive review of how services may be improved at the current rate or how the current level of service, if acceptable, can be provided at a lower rate. If you do not receive satisfaction with this approach, you may wish to conduct a competitive bid and see how your current service provider stacks up.

Consider this to be a “performance audit.‘ You will be armed with the detailed cost data regarding materials, resources, markups and capabilities to enable the negotiation of a productivity improvement and appointment of a more productive supplier.

Can yon recommend the best place to purchase a villa in Dubai?

You can’t go past new locations such as The Villa Project, and well-established developments like Arabian Ranches, and The Springs. The Meadows and The Lakes.

The Villa Project, located in Dubailand, is a great place to start. One can purchase a large, brand new villa here at lower prices than most of the other similar-sized properties in Dubai. If you are trying to get the best value for money from a size/cost ratio point of view, you will not be disappointed.

This project has demonstrated superior value for money for some time now reflected in very healthy capital gains for owners who have bought over the last 18 months to 2 years.

Villas are available in five styles with different plot sizes. You can choose from four bedrooms to six bedrooms, and prices vary from around Dh 3.5 million to a top of the range property which will cost around Dh 7 million.

But you need to hurry as this development is proving very popular.

I am the owner of 25,000 sq.ft. of office space in DIFC which has recently been completed. Do you have any advice with regard to gaining optimum returns from leasing my property?

There is a relative shortage of Grade A, large floor -plate, single owner office space in Dubai, and this type of space, often favored by larger companies is rare.

In addition being located in the DIFC is a real advantage as the development has fared very well when compared to office space in other developments which has been afflicted with chronic oversupply.

First you will need to a full do financial analysis to determine what your breakeven point is on the property.

The second step is to look at what competitors are offering and what you have to offer that others can/do not. It may be location, a view, better access or parking space, partial fit-out, etc

Any advantage versus your competition will increase your chances of leasing your space more profitably, and help you formulate an idea of what lease rate you should be able to offer.

Third step is to engage a reputable real estate broker to assist you. You will need professional advice on different leasing and marketing strategies based upon sound market analyses and experience.

The fact that Dubai’s real estate recovery is becoming increasingly broad-based is testament to the progress that Dubai is making economically, and the increasing confidence in the future prosperity of the emirate, and the depth and strength of Dubai’s economic recovery.

Dubai’s real estate recovery did not start with a broad-based distribution. While increasing in momentum over the past 18 months, it had been focused on particular asset types and areas, typically villas in quality projects such as The Villa Project, Arabian Ranches, Victory Heights, The Springs, The Lakes and The Meadows; while apartments in iconic and well-established locations such as Palm Jumeirah, Downtown, Dubai Marina and The Greens have also been performing well. Availability of these asset types in these popular communities was relatively constricted when compared to other projects and areas resulting in what has been described in the industry as a two-tiered recovery.

This view was supported by the fact that the residential inventory pipeline mainly comprises stock situated on the outskirts of Dubai, with projects in Dubailand, Dubai Sports City, Dubai Silicon Oasis and Al Furjan about to be completed.

However, as predicted, the recovery has broadened significantly to include some of the more affordable areas of Dubai. Investors holding properties in International City, Dubai Sports City, Discovery Gardens and JLT are benefitting from the trickle down effect in the market, as people are now seeking more affordable accommodation as areas such as Dubai Marina, The Greens and JBR have become far too expensive.

Properties under our management and located within International City and Discovery Gardens have shown a 23% and 26% increase, respectively, in rental income since the 3rd quarter of 2012, outperforming virtually all of their more expensive peers. In the vast majority of cases, people were relocating from more expensive areas. Meanwhile, a wide variety of apartments we handle in Dubai Sports City, Skycourts and JLT saw prices achieve YTD average growth of 20.5% , 23% and 21%, respectively, with demand being driven mainly by first home buyers and smaller investors seeking the increasing yields on offer.

I have an apartment due for handover in Dubailand. Will apartments in this development show the same capital growth as what has been experienced in areas like Dubai Marina and Downtown?

As the industry continues to recover. We expect secondary segments of the market to follow the trend set by the leading segments. A prime example is the Skycourts project. Located along the Dubai Al Ain Road. This project has seen excellent capital growth with some apartments growing by 15% over the past year, and rental premiums of at least 7% are not uncommon.

Looking forward, there will be many influencing factors affecting capital growth in these areas such, as individual segment inventory levels. Project quality and developer reputation in addition to economic growth and population growth.

Much of Dubai’s 2013 new apartment inventory will be located in Dubailand which will stifle capital growth somewhat. However, we see growth accelerating in these areas from mid 2014 onwards, with demand being driven mainly by economically induced population growth – especially in the years leading to Expo 2020, and growing confidence in the industry.

A few of my friends have bought their first apartments recently and I am still undecided as to whether I should continue to rent or buy. Can you provide any insights?

Buying your first property can be a daunting prospect. However, after having done so, the vast majority of people say that, in retrospect, they should have done so a lot earlier. It’s important to start building your equity or “net worth” as an initial step towards financial security.

Paying rent actually detracts from your ability to build net worth. For example, as somebody who pays rent, Inflation is a problem because you are consistently being asked to pay more. Conversely, as a property owner, inflation is working in your favor, because, in all likelihood, your property is increasing in value and, if kept for multiple years, you will enjoy an inflationary compounding effect on your property’s value.

Owning property allows you to change the application of your hard earned dirhams from covering an expense which offers you no financial return to an investment which does, in a way, it’s a forced form of saving which will reap benefits for you in the future.

How has the Dubai real estate Industry improved from a regulatory point of view?

Lawmakers in Dubai have been working very hard to introduce laws that better protect the rights of industry participants. This includes measures to standardize and clarify the relationship between parties to a real estate contract or agreement, and provide recourse where a party has been somehow disadvantaged because of unethical practices.

There has been a lot of progress made in other areas as well, such as the management of investor finances with the introduction of escrow accounts; owner empowerment with the introduction of the
Strata Law, and the introduction/registration of owners associations; investor recourse – where disadvantages caused by delays in the handing over of projects or changes specifications of properties are addressed; or tenant protection with the introduction of regulatory mechanisms to restrict the imposition of ridiculous rent hikes.

In addition, the Dubai Land Department, RERA and the Dubai Real Estate institute are committed to raising the level of professionalism of real estate practitioners by including mandatory training in the required ethical practices, implementation of systems such as Oqood and Ejari, and focusing on the elimination of misleading advertising and people misrepresenting themselves as registered real estate agents.

With Cityscape now a distant memory and all the headlines and hype regarding Dubai’s resurgent real estate scene starting to sound a little repetitive, it’s time to sit back and contemplate where, as a real estate investor, the next untapped opportunity may be.

There is no doubt that most of the focus has been on the residential market, however, despite Dubai’s strengthening economy, investors have been slow to consider office space despite values having bottomed out early in the second quarter of this year. A few points to consider …

• The Dubai economy is doing very well. Economic growth is strong at around 4.5 and is being driven by fundamentals such as tourism and trade, and new projects to expand these important revenue -generating economic sectors are a feature of Dubai’s growth outlook

• Confidence in the emirate is growing rapidly, not only because 6f its regional ‘safe haven’ status, but also because of the regulatory measures and economic framework initiatives that are being implemented

• The amount of infrastructural, development and economic initiatives, culminating in the possible hosting of the World Expo in 2020 are indicative of the government’s determination to compete on the global stage

• Population growth is forecasted to be at least 5 going forward and, by some estimates, is considered to be conservative and the human capital requirements going forward will be enormous

• Business establishment costs, including the cost of capital, have been at their lowest for years, and opportunities exist for real estate investors to benefit accordingly

While office rental returns are in the very early stages of recovery, Dubai office space is still cheap, and with a high, albeit shrinking, vacancy rate of 45 , there are definitely opportunities for value purchases providing strong cash flows increasing with Dubai’s economic momentum over the longer term.

Already, there is a relative shortage of Grade A, large floor plate, single owner space. This type of space is favored by larger, often multinational companies and represents strong investment potential.