Making sound choices for your business

A slightly risky move can eventually pay handsome dividends

After the onslaught of the last global financial crisis, everyone, businessmen and entrepreneurs included, have become more wary of stepping into the unknown, especially when they feel their undertaking involves more than the usual amount of risk.

However, any business man worth his salt, and who has done his home work, also knows that a “Who Dares, Wins” attitude helps distinguish those who are successful from visionaries whose influence lasts way beyond their generation. A smart decision-maker will, anyway, ensure he has got all the facts right and has  made his own independent analyses before arriving at a business decision that can have long-term effects on the enterprise he has so carefully built.

Way back in August of 2012, I convinced one of our valued clients to consider a simple ‘lease versus buy analysis’ that I had prepared. Now, I have to mention that during that period, a lot of businesses were still considering rentals over outright purchases as memories of . the recent local property collapse coinciding with the GFC remained fresh in their minds.

However, the carefully prepared presentation resulted in this client’s decision to purchase the premises from which he can conduct his business as opposed to simply leasing them.

Happily (for both of us) what seemed to be a slightly risky move at the time eventually paid handsome dividends, effectively eliminating a Dh2.5million rental expense, and replacing it with an estimated Dh2.1million worth of capital gain. Obviously, this is excellent news, but it only leaves me to ponder why more businesses have not made the same move.

We have always advocated for several years now that, cash flow permitting, businesses acquire their own premises.

The case for purchasing your premises can be quite simple yet compelling, particularly if your business has benefitted from cost reductions resulting from restructuring during the global financial crisis, and the subsequent accumulation of cash as a result of Dubai’s resurgent economy in the past couple of years.

If you are a business committed to operating for the long term in Dubai, it makes sense to own your office space, particularly if it is a well negotiated purchase. There is no tax advantage in leasing in Dubai and, as long as your office space is appreciating, your balance sheet can look a whole lot better.

And the opportunities to buy true value have never been better. However, you will need to hurry. Office space over the past five
years has never been so plentiful, affordable or negotiable, and is unlikely to be so again.

But beware, things are starting to’ change, and with office prices increasing by up to 20 per cent YoY in some areas, now is the time to knuckle down and, at least, consider the opportunity to own your business premises.

Obviously, careful planning is essential with considerations not being solely based upon cost per square foot. Location, proximity to clients, building quality, peer proximity and logistics are just some of the factors which need to be assessed.

With the continuation of the ongoing economic recovery, and the expected increase in commercial activities resulting from the Expo 2020 event, superior or even optimal solutions will only become harder to identify and, if you are currently renting your premises, it is only a matter of time before your landlord gives you a call to initiate a discussion about raising your rent.

This opportunity may not arise again for some time, that is, if it ever will at all.

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 at -free ROI of at least 5% net. These locations are more 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 baildings 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 I 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 0f 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.

The IMF recently stated that Dubai requires additional measures to prevent another real estate crisis developing. Do you agree?

No. Additional measures are not required at this stage. The rapid price growth of the past year had already started to slow some time before the IMF statement was made. Various estimates of quarter over quarter price growth for January to March 2014 for apartments range between averages of 2.7% and 3.4%, with price growth in established areas such as Dubai Marina, JBR, The Palm and Downtown slowing to low single- digit growth, while secondary areas such as JLT and properties in Dubailand have also slowed to exhibit growth in the 7 to 9% range.

A similar story exists for villas, with quarter-on- quarter price growth slowing considerably in more established locations such as Arabian Ranches and The Palm, while secondary locations are still enjoying healthy, albeit slowing, growth rates in the 7% to 13% range.

Office space is showing a long awaited rebound, with quarter-on-quarter increases’ of anywhere between 7% and 15% depending on the location. While this may seem excessive, remember the office segment was decimated by the global financial crisis and languishing with inventory supply at double demand and rock bottom prices for half a decade. So, given what we know about the current trajectory of price growth rates, additional measures to further cool the market may seem a little premature.

I have a 2-bedroom flat at the Queue Point development in Dubailand. Can you advise me on whether I should sell or rent it out?

At  the moment, apartments in Queue Point are generally being valued between Dh 700 and 750 per as  marked improvement from the Dh450 to 500 per sq.ft. being offered during the recession. We expect values to continue to increase over the coming five years at a sustainable 7-10% average.  I suggest you retain the apartment for at least the next 5 years as I am confident you will benefit from  Superior capital growth and enjoy at least a 7-8% net annual rental return in the meantime.

Given the recent performance of finished properties, are there any advantages now by buying off-plan?

Purchasing a property off-the-plan can provide you with superior capital gains by the time of completion providing the market will continue to exhibit price increases beyond the completion date for the particular property that you are considering. This, of course, will depend on an estimation of economic growth, population expansion, the number of competing projects in the pipeline and the eventual industry inventory position.

Be smart about the “product” that you buy. Look for certain property types complete with amenities and facilities in locations which you believe will be keenly sought in the future.

Do not assume that all property types in all locations will improve their values homogeneously. No market works this way. Also check the latest Dubai Metro route planning.

Can we expect an improvement in construction quality in this current era of resurgence, or is it more like before?

During the GFC, many developers realized that properties of poor quality were dealt the harshest of value declines. Having said that. the old caveat of “buyer beware” still applies.

Deal only with a reputable developer. Ask around or seek professional guidance, as those in the industry have a good appreciation of who the reputable developers are, and inspect buildings already completed by the developer. Ask what proactive measures are taken to ensure the end product has been built to an acceptable standard. Warranties and any quality assurance policies should be discussed in detail and have the Sales and Purchase Agreement reviewed by a professional, to ensure you have legal recourse should any quality issues arise.

Engage a professional to inspect (snag) your property, and report any legitimate issues to the developer for rectification.

Question of the Week

Recent reports have shown the Dubai market cooling somewhat . Why ?

A combination of factors have had an effect. The implementation of the 4% transfer fee along with developers’ proactive attempts to limit speculative practices; the implementation of new mortgage laws limiting the availability of credit to prevent individuals  “overstretching” their finances, or providing the finance for the practice of flipping; and new laws governing rental price increases have also had an effect. with investors now recalibrating rental returns which are essentially determined by a well- publicized and transparent formula backed by law.

In addition, there are other investment opportunities competing with real estate. For example, the Dubai Stock Market. which had posted gains of l07% in 2013, having grown 61% YTD. Apart from non- property linked stocks performing well, property developers have shown strong growth in valuations. Emaar stocks have more than doubled in value since August last year, providing investors interested in benefitting from Dubai’s property resurgence to directly invest in developers rather than properties.

And developer practices have also come under scrutiny. Regulations and rtstrictions for off-plan sales regarding minimum capital requirements,the establishment of escrow accounts, 100% land ownership, authorization procedures, regular audits and investor protection legislation have all resulted in a significant decline in speculative development practices.

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 some difficulties 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 om 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 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 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 is 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 in Dubai 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 CBO/DIFC area are still quite high. In developments such as Business Bay, many buildings are suffering from fragmented ownership and configuration 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 want a professional to inspect my unit , the developer said that they had already completed their inspection , and you 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,l 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 “lit may arise for a full twelve months following the transfer of ownership.

It is in your best interest 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.

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 “quipped 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 a available in floor plates of 25,000 sqft, or more is not readily available. Many multinational companies will pay a premium o 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 per 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 6.5% 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 maybe 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!

Never make the same mistake twice

Past leanings can reduce or eliminate the possibility of repeat problems

As my investment banker constantly reminds me, past performance or occurrences may not to be true indicators of future events. However, learning from the past can reduce or eliminate the possibility of a repetition of mistakes. And adhering to this principle has proven advantageous when it comes to the current state of the Dubai real estate industry.

There have recently been comparisons drawn in the media between current real estate values in some areas of Dubai and the values reached in the heady days of 2007 and 2008.

For some investors, the news comes as a relief as they see value returning to their real estate investment; while for others,
the feeling that the same irrational exuberance experienced in 2008 which had such an inflationary effect on asset values, has returned.

It is safe to say that the Dubai real estate industry is now a significantly different space from what existed in 2008.

For a start, confidence in the market, which is what is driving the recent high demand for participation’ is now being driven
on more circumspect and critical analyses versus unbridled and sometimes blind optimism.

Compared to how it was before, we can say the industry has matured significantly. While values have been increasing rapidly, with some areas increasing 30 percent in 12 months, the environment this time around is not one of excessive speculation or irresponsible abandon.

For many investors, it is the increasing levels of governance, oversight and scrutiny of the industry which are actually under-
pinning their increasing confidence in the market.

The development of the industry in terms of its regulatory framework, laws and regulations to help protect both consumer and investor interests has been laudable.

In addition, the well publicized and appropriate measures to safeguard the market against irresponsible, speculative, predatory or unethical practices characteristic of the industry just before the last market crash reveals a mature and balanced approach to shaping an industry with a view to ensuring sustainable growth over the long term. In review, we can say that much has indeed changed in six years.

And developers, while confident and increasingly aggressive, have also learnt from the past. While real estate transactions in
Dubai exceeded Dh61 billion for the first quarter of 2014 (up by 38 percent YoY) , land transactions made up over 67%of all
transactions recorded. Land transactions which refer to land mortgages and  land sales transactions make up the bulk of the total figure.

Developers are really on the move, conceptualizing new developments and marketing them effectively. However, this time, developers’ plans are based upon realistic fundamentals such as Dubai’s non-real estate economic growth, population growth and the current inventory pipeline. This needs-based approach will help ensure that supply will be much more synchronized to realistic demand projections going forward.

There is no doubt that Expo 2020 has provided many with that added reassurance of demand longevity; however, it has
been the other sectors of the economy such as tourism and trade that have really initiated and strengthened the momentum of
renewed confidence.

So the leanings have been many but, more significantly, the introduction of initiatives and implementation of changes by all stakeholders have been broad and comprehensive. Are we looking at a repeat of 2008? I don’t think so.Based upon what we have learnt, the world is now a different place.

I would like to invest in apartments in Dubai, and I need advice as to where the best rental yields may be found.

If it’s yield you are after, it will be hard to ignore the more affordable areas of Dubai which are performing extremely well.

Properties in Dubai’s Skycourts, International City, Dubai Sports City, Discovery Gardens and JLT are all benefitting  from Dubai’s recovering economy and toe associated internal migration, as people are now seeking more affordable accommodation as areas such as Dubai Marina, Downtown Dubai, The Greens and JBR have become more expensive. You can expect a rental return in the more affordable areas of at least 7% with 10% rental yields not uncommon.

Demand is being driven mainly by first home buyers and investors such as you seeking the increasing yields on offer, and both rental yields and property values are expected to continue increasing further as the year progresses.

Given the relatively low cost of entry, the opportunities that reside in the more affordable, end of the market are becoming more lucrative everyday .

Given the lingering office oversupply situation, do you expect prices in this sector to increase significantly?

The benefits to be generated for the UAE economy by hosting the World Expo 2020 will be enormous, with 7 billion dollars worth of infrastructural investment. over 270,000 jobs and a massive increase in tourist revenues – all sure to attract new businesses and drive an upsurge in demand for office or commercial space as existing businesses expand and new business entities set up operations to support the conduct of the event or service the bevy of new business operators or the millions of additional visitors.

Demand will grow more as the event approaches especially for space located close to the Expo 2020 site in Jebel AIL However, demand will eventually spread to other areas of the city as businesses look to cash in on the massive increase in tourist dollars that will accompany the actual conduct of the event.

 Can you comment on the introduction of new real estate contracts? Are they mandatory;how will they help?

The introduction of standardized or unified real estate contracts is yet another progressive milestone in the development of the industry.

We have always said that a properly functioning real estate market needs the 3 Cs: Confidence, Clarity and Capital. This initiative by the Dubai Land Department will provide clarity and consistency as to the relationship between the buyer, seller and brokers representing either party while guaranteeing the rights of all parties. This will further enhance the confidence of investors and owner-occupiers alike.

The contracts will be in force from May 2014, and will be mandatory for all transactions involving the buying and selling of property, and are expected to improve processing efficiency as parties will have the option of completing registration procedures without a real estate agent.

As the market continues to grow, the importance of streamlining processes and ensuring ease in effecting transactions is important.

I have a property portfolio of a mix of l BR and 2 BR flats located in JLT and Dubai Marina. With this in mind, how do I capitalize on what I have?

You need to seek professional advice as to how to manage your real estate portfolio, Many landlords across Dubai are bound to miss out on the revenu- generating opportunities that Expo 2020 will bring because of poor or non-existent planning.

A competent property manager will provide you with the best opportunity to maximize your financial gains by providing you with an assessment of the opportunities, and a strategy and activity plan designed to harness the true financial potential of your property.

Do not make the mistake of leaving your planning too late. You will need to comprehend current and likely future market conditions and events, likely risk factors that may enable or inhibit revenue growth, inflation and cost increases, and a complete comprehension of financial modelling and the ever developing area of industry policy and regulation.

Question of the Week

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

Timing will be critical to the decisions that you make regarding the management of your property.

First of all, you need to get professional advice as you require a skilled and knowledgeable property manager to help you harness the true financial potential of your property during this unique period in Dubai’s real estate history. You need to appreciate that there will be some nuances and important considerations when looking at the opportunities that the World Expo 2020 will provide.

For example, overall values will rise but differing asset types and locations will not necessarily move in unison as Expo preparations move from the analytical and planning phases through to implementation and eventual launch and operational phases.

Initially, it is likely that investor demand will drive much of the value appreciation to be followed by an increasing rate of end-user demand for accommodation, both for villas and apartments.Those areas in close proximity and with easy access to the Expo 2020 site itself will attract initial attention. However, as the event draws closer, demand for more centrally located property will also increase. One can expect both the rental return and capital return curve to steepen as we move closer to the event launch.

Since the prices are going up every month, should I continue to rent or should I consider buying a property?

Another way of phrasing your question is this: Am I better off using my money to increase my wealth or somebody else’s?

Owning property allows you to better utilize your hard-earned dirhams from covering an expense which offers you no future financial return to an investment which does. In a way, it’s a forced form of savings which will reap future benefits for you in the form of property ownership. It allows you to build your individual net worth through the capital appreciation of your property.

Paying rent can actually inhibit 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, putting greater pressure on your disposable income.

But as a property owner, inflation is working in your favor, because, in all likelihood, your property is increasing in value and, if kept for years, you will enjoy an inflationary compounding effect on its value.

Is the property market cooling off? Is it still worth investing when the market is losing some of its steam?

we need to reset expectations and understand that high, double-digit capital appreciation is an unsustainable phenomenon that had been driven by a number of ad hoc, unusual or non-recurring events.

With the industry “cooling” somewhat to return to high single digit capital appreciation, we are Witnessing the effect of new regulations and the market’s determination of fair value levels. It’s all part of the maturation process. One of the benefits of a robust, stable, well-regulated industry is the increased predictability and sustainability of price rises as compared to the boom and bust scenarios typical of young. undisciplined, unregulated markets.

If you are taking a long-term perspective, say, seven to 15 years, it is still the right time to buy. Barring any unforeseen shocks, economic or otherwise, and assuming your investment is well-managed, you can confidently predict an average Yo Y capital appreciation of at least 7% over that period, and a net Rental yield of at least 5%.

With prices having moved so quickly in the market, how can you tell whether you are paying a fair price for property?

You need to determine and locate the type of property that will work best for you. There is no such thing as a fair price for something you don’t want or value! You can contact a reputable real estate brokerage to assist you but make sure you conduct your own research as well.

Remember that. fundamentally, price is determined by the market. Through research, you will be able to ascertain pretty accurately what a property will sell for in any given market. Remember, any significant deviation from your research findings usually means there is something wrong. If it looks too cheap to be true, it probably is! The key word is ‘value’.

Once you have found a property at what you believe to be is at fair market value, negotiations can begin. If you cannot find a property immediately that will satisfy your value expectations, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach so you make a sound business decision.

I want to buy a residential apartment for long-term investment purposes. Should I buy one in Dubai Marina or Skycourts in Dubailand?

Assuming you have two alternatives, both priced at fair market value, cash flows and capital returns as a percentage of funds invested are likely to be greater in Skycourts.

Demand for more affordable developments is rising rapidly due to a strong “trickle down” effect as areas that were leading the recovery, such as Dubai Marina, have become too expensive. This has resulted in developments such as Skycourts overtaking the more established areas in terms of rental yield and capital appreciation.

Some properties located within Skycourts have shown an average 24% increase in gross rental income since the 3rd quarter of 2012, outperforming virtually all of their more expensive peers.

Meanwhile, apartments in the same development achieved YTD average price growth of 28%, with demand being driven mainly by first home buyers and investors seeking the increasing yields on offer.

Question of the Week

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

You would enter a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments, facilitate the signing of the ‘tenancy agreement leaving you to assume the responsibility and devote your time to managing the tenant and all aspects of the property thereafter. A property management agreement includes a lot more.

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

Considerations include history, current market factors and risk factors, whether they be globa , 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.

Rising property prices have people wondering whether to rent or buy 

With the return of confidence to the Dubai property market, an increasing number of people are contemplating the purchase of their first home.

For many, making this commitment can be a daunting prospect, and decision making can get clouded given the significance of the decision and its possible effects on individuals and family lifestyles.

For the uninitiated, there are things to consider such as budgeting and finance, asset type, area, fair market value and timings. The added complication of buying into an appreciating and strengthening market causes many to procrastinate over their ‘rent versus buy’ ‘decision.

So, why buy your first home? Some may re-phrase this question by asking “How do I use my money to increase my wealth instead of the wealth of my landlord?”Buying your. first home is an important step towards establishing your financial security by building your equity or net worth.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money, but you are at the mercy of rental inflation as well. This is a problem because you are consistently being asked to pay more while your salary increases are lagging behind, effectively eroding your ability to build wealth.

By owning your home, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for multiple years, will enjoy an inflation driven compounding effect on its value.

There are a number of reasons to buy your first home in Dubai and start building your wealth. The market is benefitting from a bow wave of demand as the broader economy stages a strong recovery. Prices have been growing at around 20% YoY or more; and while concerns regarding asset values have resurfaced, it is important to remember that 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.

Looking forward, the effect of the 2020 Expo on the UAE economy cannot be underrated. For real estate, hosting the World Expo will provide additional impetus for industry growth. Because of the Expo, the predictable surge in appetite for UAE real estate is sure to have a significant effect on property values.

And it is not just Dubai which is recovering. The global economic recovery is definitely gathering steam bolstered, of course, with ever increasing confidence that the long awaited US economic recovery is well underway.

One side effect of the gradual reduction in quantitative easing in the US has been a strengthening of the US dollar and, therefore, the UAE dirham. This is likely to continue as the program is eventually fully unwound.

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.

Finally, systemic risk has been rapidly declining. The continuously increasing levels of governance, oversight and scrutiny of the industry are significantly decreasing risk, whether perceived or real, associated with buying
into the market.

The ongoing development of the industry’s regulatory framework and-implementation of laws and regulations to safeguard buyer rights and interests, the overall industry and the economy at large from rampant and irresponsible speculative, -predatory or unethical practices, reveals 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.