Gulf News

Why are Mortgages Key to Growth?

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

I read a very pleasing article over my morning coffee.

The article revealed that mortgage transactions, including refinancing, have represented approximately 50 per cent of all apartment sales September last year to date with some months achieving over 60 per cent. This is in stark contrast to what has historically been the case in Dubai, as mortgages rarely represented more than 30 per cent to 35 per cent of property sales for most of the prior decade.

This is great news for several reasons.

First, while this trend highlights the confidence of lenders in the marketplace it also highlights the increasing confidence of consumers, mostly owner occupiers, in the market to the extent that they are prepared to take on the risks associated with committing to a mortgage for the sake of purchasing some property.

This is very important to the development of long term sustainable growth for the industry as the bedrock of any property industry is its owner occupiers. They represent the core of the industry as it is they who view property as an investment in life, not just a way to make a quick buck. And yet, historically, they have attracted focus in a market still undergoing the maturation process which is falling short and not proportionate to their importance.

Owner-occupiers see real estate in a different light. For them, it’s about creating a lifestyle. It’s about creating a home which will provide an environment that is safe and secure within which the individual, couple or family can grow and develop in all aspects whether physical, emotional, social and, of course, financial. In this respect, they have a lot more at stake than those investors with financial interests only.

Typically, they form the core of society, not overly wealthy, who are concerned with providing the family with a future. For some, the purchase of the first family home is the first step towards creating a legacy which hopefully, for the more romantically minded, will turn into a dynasty. These are the dreams which make owning their own home the most important decision they are likely to make. They are in it for the long term; there is a lot at stake, which is why availability of finance through mortgages is critical.

The second reason why this is such good news is because we are witnessing, in real time, the market adapting to legislative changes that were made in early 2014. There is no doubt that the implementation of the mortgage caps earlier in 2014 had affected the demand for many first home buyers who were relying on a mortgage to acquire their dream home. I remember writing an article at the time of the legislative change and observing the following …

“At Harbor, we see 62% of our clients who were considering buying a property prior to the mortgage caps delay their purchase until they can accumulate the down-payment differential while 38% have settled (or compromised) for a cheaper property to get an initial foothold in the market.”

As predicted, “… the new mortgage caps have certainly produced a definite lag in demand as clients adjust to the new financial realities and many of these clients are planning to participate within the next three years.”

I am pleased to say that these observations have essentially been proven correct. The legislative change made by authorities was implemented to help cool what was then, a rampant market. The desired effect was achieved but buyers didn’t simply disappear, they modified their purchasing behavior, another sign of an increasingly resilient and maturing market.

Finally, a growing number of mortgages are being undertaken for properties that are purchased in the more affordable areas of Dubai, which further demonstrates the systemic shift to affordable housing in the Dubai property market is becoming even further entrenched as a long-term characteristic.

A natural occurrence within any economy that is growing rapidly and is formally recognized as maturing and transitioning from being a “frontier” to “emerging” market as Dubai did back in 2013, is that its middle and lower-middle income segments will expand to support the rapid rise in commercial activities and economic initiatives being instigated by entrepreneurs and corporate or government entities. This expansion is unavoidable if the economy is to grow and providing affordable housing to enable this expansion is a critical element to the future growth of Dubai and the development of the Real Estate industry into a mature model that can efficiently cater for a broad and diverse set of people with different incomes, tastes, preferences and requirements.

And demand is set to grow very rapidly. A case in point… the World Expo is predicted by independent analysts to create over 270,000 jobs. The vast majority of these jobs will not be for people occupying senior executive positions. They will be for people in middle management or lower positions, many with families, who will be seeking affordable accommodation.

The importance of maintaining affordability for the average buyer is critical and the availability of affordable finance in the form of mortgages is vital to enable many to gain access to this lucrative market going forward.

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.
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The confluence of global shifts and market demand

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute
Published: Expert Eye, Freehold, Gulf News

The phenomenon of globalization has been around for a while, and all economies, regardless of scale and location, are subject to forces that continue to shape and reshape them.

Real estate markets globally are feeling the effects of a general decline in global economic growth. The world is still, after some eight years, trying to shake off the effects of the global financial crisis and while some economies such as the US have fared reasonably, other major economies in Europe and Asia are still struggling with systemic issues.

In addition, the ongoing issues associated with geo-political upheavals, politically inspired sanctions and major restructurings such as Brexit, simply add to the overall pall of gloom that seems to hang over virtually every headline that we read these days.

The resulting effect on consumer and investor confidence is quite negative, and we all know that confidence is a key prerequisite for growth in the industry. World events are definitely affecting, not just Dubai, but global sentiment overall.

Yet the market is still developing… it is not stagnant. It is always a very promising sign when an industry demonstrates the flexibility and resilience to undertake a structural shift when market requirements change or develop. This is exactly what we are witnessing in the Dubai real estate industry.

It came as no surprise to those that take a broader view of the industry that calls from a variety of industry participants including the government, banks and the more visionary industry observers for more affordable housing in Dubai gathered volume and intensity. In so doing, there was a recognition that the most important investor in Dubai’s real estate market had been forgotten all too often by developers and brokers, and that a refocusing on building affordable, robust and sustainable communities to be inhabited by the average family living frugally on an average salary was of irrefutable importance if Dubai’s economy was to develop and grow to the next level.

So the news that total value of real estate transactions in Dubai at AED 113 billion in the first half of 2016 represented a decline of around 12 percent from the first six months of 2015 may have disappointed some, but did not tell the whole story. The fact that this total figure was generated by 28,251 transactions, almost 25 percent higher than the same period last year, is very good news indeed. It clearly demonstrates a market that in growing in health, because it can provide more affordable solutions to a broader spectrum of owner occupiers and investors.

Just about everybody who plays a role in our industry has a role in providing affordable housing but, more significantly, the government, the financiers and the developers. And given the results of the first half of 2016, they are to be congratulated for initiating the structural shifts that we are witnessing.

As proven in the recently concluded Cityscape Global 2016 event held at the Dubai World Trade Centre early this month, the level of interest in Dubai real estate projects and in the UAE as a whole, as well as in world-class developments being marketed overseas, remains high.

However, a lot of work still needs to be done for the demand for more affordable housing to be fully satisfied. If the emirate is able to realistically supplement the clamor for affordable housing, perhaps even those renting in nearby emirates would be persuaded to make Dubai their permanent home.

Ask the agent

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.

The impact of Brexit on UAE real estate

Published by Expert Eye
By Mohanad Alwadiya

June 23, 2016 will forever be remembered in history as the day the British, all 52 percent of the 71.8 percent referendum turnout versus the 48 percent who elected to stay, voted to leave the European Union (EU).

However, with the United Kingdom being one of the world’s largest economies, the so-called “Brexit” which is yet to be finalized in the next two years depending on when UK leadership will actually “trigger” Article 50 of the Lisbon Treaty is expected to send ripples around the global business community, not to mention the political ramifications of said move.

The effects of Brexit are as diverse as they are far-reaching, with experts considering how the decision made by the majority of Brits will affect everything from the European geopolitical and socio-economic landscape, the strength and resilience of the European Union in the face of further discontent within its member states, the social and economic ramifications to a newly “independent” United Kingdom and the inevitable question as to whether the United Kingdom can remain united given the Scottish and Northern Island wishes to continue as part of the EU.

In addition, the whole strategic alliance framework of the West has been weakened somewhat as a robust and strongly united European Union was always considered to be a cornerstone to an effective defence to an aggressive Russia and China on both economic and security fronts.

Understandably, the whole world is worried because all the financial and trade mechanisms, agreements, communication channels, policies, protocols and security arrangements that have taken over four decades to build will soon be set to zero for renegotiation.
No wonder the world is nervous and understandably uncertain as to what the future might hold.

And it’s that uncertainty which will have an effect on the UAE property scene. As we all know, investors and potential homeowners alike do not handle uncertainty, especially of this scale, well.

And it’s uncertainty that now lies around the effect of the Brexit on world growth and the possibility of European and UK recessions in the coming year that will make most investors move to less risky assets and safe haven currencies such as the Yen and the US dollar.

Of course, uncertainty regarding world growth has also negatively affected oil prices so many investors will be more reticent to invest in those economies that rely on its revenue. While we all know that Dubai is much less reliant on oil than its neighbouring emirates and countries, it will still be affected by investor nervousness by way of association which is unfortunate yet a reality. Just look at the Dubai Financial Market. It lost 3.3 percent, the biggest decline since January, as Emaar Properties PJSC fell 4.7 percent, mirroring the Brexit effect on many other markets around the world. Hardly rational, in my view.

Investors will be looking closely at the effect on UAE’s tourism. In the first quarter of 2016, Western Europe was the second largest source of tourists to Dubai by region, accounting for 23 per cent, led by the UK’s eight per cent and Germany’s three per cent. With the Euro weakened to $1.10, and with most analysts bearish on its immediate future, it is hard to imagine that level of contribution will continue until the post-Brexit uncertainty dissipates. Now such a strong pillar in the UAE’s burgeoning economy, tourism rates can be affected as nearly every global currency has depreciated versus the AED, making travel to the UAE more expensive for the majority of global travellers while journeying to the UK and Europe for most people has just got a lot cheaper. Hopefully, many will still use the country as a travel hub from and take advantage of what this exciting country has to offer during stopovers.

At the time of writing, the British pound had fallen more than 10% to below $1.34 and still falling as uncertainty continues to cloud everybody’s view as to the future of the UK economy. This is significant as British investors alone injected £1.9 billion into Dubai’s property sector in 2015 purchasing around AED 10 billion worth of UAE property assets, putting them at No.2 with an overall 7 percent of total investments made in the sector in 2015.

Needless to say, with such a currency devaluation and an uncertain outlook, Dubai property has suddenly become a lot more expensive for those wishing to purchase with British pounds, while the London property market has just become a lot more affordable. While a feeding frenzy hasn’t developed as yet, a prolonged weakness in the pound could divert significant levels of investment capital away from a market such as Dubai, especially as British expats, living in the emirate and earning UAE dirhams, take advantage of exchange rate gains to invest back home.

But even in the face of such uncertainty, there is no need to act with undue haste or panic. With or without Brexit, the world of real estate investment has always been riddled with both risks and opportunities. One thing is certain, though, mature and astute investors would know when to grab onto property or let go, making their own calculations and analyses, and seeking further expert advice as events continue to unfold.

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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 ; 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.

Upholding business ethics in real estate

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

While the term “business ethics” is not something alien or new to us, some people with careers outside of the real estate industry may view the term, especially in relation to real estate, with a critical eye, with some perhaps even joking about the incompatible nature of the words “business” and “ethics.”

But we all know that in real estate, a number of professions emerge including, but not limited to: commercial or residential brokerage, appraisal/valuation, property management, real estate counselling, etc. That being said, for a job to be considered a bona fide profession, it would require some commitment to a certain standard of conduct that the general public expects from the practitioner. This is where the real estate code of ethics comes in.

However, some might say: but anyone can become a realtor, so how does this seemingly “open” industry professionalize current practice and regulate the activities of real estate practitioners? What rules or structures are in place to prevent any form of abuse and/or malpractice in an industry where sometimes morally contradictory relationships or grey areas exist such as in the case of open market listings where one seller lists with various agents, and the big question is where would the realtor’s loyalty be – with the seller or the buyer? Or in the case of valuation assignments where the client may indirectly or even expressly makes known to the appraiser the outcome they are expecting.

Another dilemma confronting realtors is their reliance on commission-based remuneration whereby agents’ dependence on said commission may run counter to the best interests of the client. While a good commission structure would evidently motivate realtors to give their best efforts in order to successfully convert a lead and close a deal, the question of whether or not conditions set are for or against the best interests of their client remains – with yes being the answer in some cases, and at other times not so especially in cases of self-dealing in real estate.

Aside from By-law No. 85 “Regulating the Real Estate Brokers Register in the Emirate of Dubai” which expressly states the legal mandate governing the real estate practice, the Real Estate Regulatory Agency (RERA) and the Dubai Real Estate Institute (DREI) established a mandatory certification program for new and experienced agents who wish to work in a real estate brokerage in Dubai. The DREI also organizes license renewal courses and exams along with a very rich variety of career development programs intended to help elevate the standards of professionalism and effectiveness of brokers in Dubai.

All realtors are, therefore, expected to abide by local laws pertaining to the real estate practice as well as to government regulations that are periodically introduced and, at times, go through a series of revisions or reforms in order to address new issues or problems that crop up every once in a while.

But even in the face of such regulation, real estate firms must also take it upon themselves to continuously educate and empower their agents to make the best decisions in order to maintain individual and corporate integrity, professionalism and, ultimately, success in the real estate business.

Investing in training, whether in-house or otherwise, definitely pays a huge dividend. Extensive and tailor-made training programs should include education on the industry and pertinent rules/regulations (especially on current or new legislation), soft skills and specialized training courses that help employees attain a level of mastery in all the macro and micro aspects of their profession.

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, all reveal a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term.

Taken altogether, the laws of the land serve as the primary push for realtors to act in a way that upholds and reflects the greater good while constant education through training, workshops, seminars and the like (whether mandatory or voluntary) help real estate practitioners internalize the values that must inherently pervade the system for the industry to thrive and continue to serve as one of the primary sectors supporting the UAE economy.

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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.