Affordability matters most

This year’s Cityscape Global Exhibition and Conference is forecast to be the largest yet and comes at a time when Dubai’s Real Estate industry is expected to start entering a cyclical growth phase in the lead up to the World Expo 2020.

The importance of Cityscape Global cannot be overstated. As with many exhibitions, it provides a concentrated and focused forum which allows the industry to showcase its vision and capabilities and demonstrate what shape Dubai will take in the future. But Cityscape is much more than that.

Cityscape Global is an open invitation for all stake-holders to understand, evaluate, participate and prosper in an industry that continues to literally change the shape of Dubai. It is a meeting place of some of the biggest and brightest minds representing all stakeholders in the industry and a confluence of opinions, ideas and opportunities which are shared, debated and developed. It allows stakeholders to gain a macro sense of in-dusty direction and a micro understanding of the various elements that will shape the industry going forward.

For buyers and investors, there is no better place to gain an appreciation of the myriad of opportunities that are on offer, but the sheer scale of the exhibition can become a little overwhelming, especially when you are looking to invest.

As a general theme for this year’s Cityscape, I will be advising most of my investors to look for value opportunities in the affordable housing segment, particularly in the Dubai South areas, as this segment in this location is likely to be the subject of some very attractive easy payment plans to further enhance affordability and, to some extent, mitigate risk.

This segment has outperformed its more luxurious alternatives for some time now and continues to show lots of potential, even though the recent cyclical correction. Affordable properties will continue to be on high demand as Dubai’s population growth gains momentum during a period of expected strong economic growth leading up to the end of the decade. And while the value is irrefutable, the risks associated with investing in the affordable segments of the industry as opposed to the luxury segments are much lower. Demand for affordable accommodation will continue to grow as Dubai’s population swells in the run up to the Expo. As Dubai continues to grow, so does the need for affordable housing.

Yet, although I see great value in investing in the affordable segment, it doesn’t mean some interesting opportunities won’t appear in other segments as well.

So, while you might focus on identifying opportunities in the affordable segment, you need to keep an open mind and be wary of unique opportunities that may be present.

I always advise my clients that the best way to get the most out of the event, is to canvass all the interesting opportunities on display and gradually yet efficiently establish a short list of the best opportunities.

Establishing such a list from an exhibition as huge as Cityscape is not easy and requires a disciplined approach. This is where a property asset management professional can assist…

Why? It’s important to understand what factors are going determine the potential of any investment. For property, these factors include everything from macro level influences such as global economic performance and policies, geopolitical issues, currency rates and oil prices to more regional or local factors such as industry supply I demand levels, consumer confidence, government policy and regulatory framework, industry cycles and liquidity in the marketplace.

So, in reality, a lot of the work in ensuring that investors and potential buyers make the most of their Cityscape experience is actually done beforehand in preparing an understanding of what the overall investment environment looks like. This enables a more efficient and focused assessment of all that is on offer.

But in addition to understanding the invest environment, it’s important for the investor to understand why he or she wants to invest in property and what the investment objectives are. Too many investors formulate the answers to these questions “on the run”, once they are traipsing around the exhibition. This lack of preparation just leads to confusion and ultimately, poor decision making.

Every industry has its shows, whether it’s the myriad of motor shows held around the world, film festivals, fashion events, airshows and the property industry is no different. What many don’t understand is that Dubai’s Cityscape Global has established itself as one of the best Real Estate and Property events globally… and its right on our very own doorstep!

So, for those of us with a passion for the industry, it is going to be an exciting 3 days. It always seems to end too early!

lifetime_opportunity

A lifetime Opportunity

With the 2020 Dubai Global Expo just around the corner, the expected flood of expats moving to Dubai to participate in preparing the event for the world to see is expected to gain momentum as we head towards the end of the decade.

It’s not hard to see why expats choose Dubai. It has a lot of attractions… beaches, restaurants, shopping, outdoor activities, rich diverse culture … even snow skiing! Dubai boasts a modern infrastructure and is regarded by many as one of the safest and happiest places for families to live in the world and is located advantageously for excursions to Europe, Asia and the African continent.

As the Emirate has grown and matured, the average tenure of expats living in the emirate has been on the increase. This is due to a number of reasons however principal among them is the recognition of employers that 3 year employee tenures are inefficient and the recognition by expats that Dubai is actually a very good place to live.

With so many expats now considering living in Dubai for longer, an increasing number are contemplating purchasing a home instead of renting. The likelihood that the UAE Dirham is going to strengthen against expat home currencies over the foreseeable future only further whets the appetite for potential home owners.

Nevertheless, for many, making this commitment can be a daunting prospect and decision-making will often become clouded. There are many things for the uninitiated to consider such as budgeting and finance, asset type, area, fair values and timings to mention just a few.

So, as an expat, why buy your home instead of renting it? 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 home is a positive step towards establishing your financial security by building your equity or “net worth”. Owning property allows you to change the application of your hard earned dirhams from covering an expense which offers you no financial return to investing in an asset which does. In a way, it’s a forced form of saving which will reap benefits for you in the future.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money for no financial gain, 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. This allows you to build your individual net worth through capital appreciation of your property.

The fundamentals of buying Real Estate in Dubai are no different from those elsewhere in the world. As an expat in a new country, you may be even more anxious regarding the decision to buy which is all the more reason to stick to some tried and true principles.

First of all, you need to be very clear as to why you are investing in Real Estate. Whether it’s to provide the family with a home, generate a steady stream of income or build equity for the future, make sure you are very clear about what your expectations are and quantify them wherever possible. Plan for the long term as the industry is cyclical yet very rewarding if you ride out one or two cycles.

You also need to ensure that you know what you can afford. If you have the cash to pay for the property that you really want, I suggest you pay for it outright however don’t be afraid to take out a mortgage as at least your repayments are building equity, not being lost forever on rent.

Then it’s a case of finding the right property.  A reputable Real Estate Brokerage to assist you in doing this but make sure that you conduct your own research as well. It’s a big decision you are making and you need to make sure you take the responsibility.

As always, stick to the basics. Think carefully about location, quality of the building, developer reputation, completion status and quality of infrastructure and building amenities. Properties which are close to the beach (especially with a sea view), a golf course view or part of an iconic development such as Downtown is a good place to start. If you can also have close access to the metro, even better. These locations are more likely to provide a superior appreciation in capital value as well as riding out cyclical volatility with less distress.

You also need to consider the effectivity of the Owners Association, service charges and the quality of maintenance services.  Facility management is becoming increasingly more important to determining the value of buildings and it will have an effect on the long term value of your investment.

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach and you are well on the way to making a very sound decision.

Structural Shift

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 has happened in Dubai’s property and 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 had gathered volume and intensity over the past few years. In so doing, there was a recognition that the most important investor in Dubai’s Real Estate market had been forgotten 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.

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 only recently have they attracted focus in Dubai’s rapidly maturing industry which is more proportionate to their importance.

Owner occupiers see Real Estate in a different light. Typically they are normal people, not overly wealthy, who are concerned with providing the family with a future. For them, it’s about creating a lifestyle. Its 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.

Healthy, vibrant and progressive communities are built around the stability that owner occupiers bring. They are less likely to migrate to another neighborhood and are more concerned with regards to the overall well being of the community that they are part of. They establish relationships that strengthen the fabric of a community which itself can become a powerful voice for progress.

And these communities are now springing into life all over Dubai. Communities such as Skycourts, Q Point and Motor City in Dubailand have shown how rapidly communities can develop and grow to provide a lifestyle that belies their affordability.

So who needs to ensure that this most important consumer segment is catered for in an industry which can be notoriously out of touch with consumer requirements? Well, just about everybody who plays a role in our industry but, more significantly, the government, the financiers and the developers. And given the results of 2016, they are to be congratulated for initiating the structural shifts that we are witnessing.

The dialogue regarding the dual objectives of affordability and profitable sustainable growth for the real estate sector must be ongoing as a continual and constant review of possible initiatives and regulatory actions that will ensure that the considerable progress already made and foundations laid in strengthening and modelling the industry is continually built upon. The health of the industry is too important and the issue of affordability is critical to the broader economy as well. Dubai can ill afford becoming cost uncompetitive in the global market in the lead up to the 2020 World Expo.

For any Real Estate market to function efficiently and effectively, it requires a banking sector which is also functioning efficiently and effectively. Banks play a fundamental role in enabling prospective home owner occupiers own a piece of Real Estate. If you consider that in most global markets, anywhere between 65% and 85% of residential property transactions involve some form of financing, and reflect on the fact that in Dubai the number of residential property purchases financed by mortgages in 2016 was around 50% there appears to be plenty of scope for more growth. This number is actually up from the 33% historically seen in the emirate so it appears that the banks are discovering the formula of providing accessible finance to a broader consumer base without taking on excessive, whether real or perceived, risk.

Developers have come a long way in providing greater supply of affordable housing. To their credit, they now have a deeper understanding of what is required by this segment of the market. They themselves have improved in providing recognizable value, emanating from a greater focus on the customers and their requirements and value expectations. Some have demonstrated innovative approaches to delivering affordable solutions which are valued by the customer, and done so profitably.

Virtually every industry has faced this challenge over the last 5 decades and many have demonstrated that giant strides in the provision of true value while retaining healthy margins is possible. Dubai’s property Industry will continue to follow a similar path in 2017.

Buy, don’t rent!

We are all aware of the huge number of new jobs, estimated at around 277,000 that the Expo is expected to create. Therefore, it is fair to assume that there is going to be a steady stream of expats looking for places to live.

So, if you have recently landed in Dubai with a view to making it your home, you are the latest in a long line of expats who have come to the Emirate with a view to setting up an improved lifestyle for themselves and, where applicable, their families.

Dubai has a lot of attractions in addition to the lure of promising business and lucrative employment opportunities … beaches, restaurants, shopping, outdoor activities … even snow skiing! Dubai boasts a modern infrastructure and is regarded by many as one of the safest places for families to live in the world.  In addition, being located advantageously for excursions to Europe, Asia and the African continent, it’s not hard to see why expats are intrigued as to what Dubai has to offer.

And as the Emirate has grown and matured, the average tenure of expats living in the emirate has been on the increase. This is due to a number of reasons however principal among them is the recognition by employers that 3 year employee tenures are inefficient and the recognition by expats that Dubai, when compared to many other places in the world, is actually a very good place to live.

With so many expats now considering living in Dubai for longer, an increasing number are contemplating purchasing a home instead of renting. For many, making this commitment can be a daunting prospect. There are many considerations such as budgeting and finance, asset type, area, fair values and timings to mention just a few.  The added complication of living in a relatively new country and buying into an appreciating and strengthening market causes many to procrastinate over their Rent versus Buy decision.

So, as an expat, why buy your home instead of renting it? 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 home is a positive step towards establishing your financial security by building your equity or “net worth”. Owning property allows you to change the application of your hard earned dirhams from covering an expense which offers you no financial return to investing in an asset which does. In a way, it’s a forced form of saving which will reap benefits for you in the future.

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money for no financial gain, 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. This allows you to build your individual net worth through capital appreciation of your property, something which is very important for your financial future.

The fundamentals of buying Real Estate in Dubai are no different from those elsewhere in the world. As an expat in a new country, you may be even more anxious regarding the decision to buy which is all the more reason to stick to some tried and true principles.

First of all, you need to be very clear as to why you are investing in Real Estate. Whether it’s to provide the family with a home, generate a steady stream of income or build equity for the future, make sure you are very clear about what your expectations are and quantify them wherever possible. Plan for the long term as the industry is cyclical yet very rewarding if you ride out one or two cycles.

You also need to ensure that you know what you can afford. If you have the cash to pay for the property that you really want, I suggest you pay for it outright however don’t be afraid to take out a mortgage and make the purchase as at least your repayments are building equity, not being lost forever on rent.

Then it’s time to contact a reputable Real Estate Brokerage to assist you in finding the right property. As always, stick to the basics. Think carefully about location, quality of the building, developer reputation, completion status and quality of infrastructure and building amenities. Properties which are close to the beach (especially with a sea view), a golf course view or part of an iconic development such as Downtown is a good place to start. If you can also have close access to the metro, even better. These locations are more likely to provide a superior appreciation in capital value as well as riding out cyclical volatility with less distress.

If buying an apartment, you need to consider the effectivity of the Owners Association, service charges and the quality of maintenance services.  Facility management is becoming increasingly more important to determining the value of buildings and it will have an effect on the long term value of your investment.

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market. Be purposeful, persistent, patient and pragmatic in your approach and you are well on the way to making a very sound decision.

brexit_and_dubai_realty

Brexit & Dubai realty

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 among 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 Islands’ wish to continue as part of the European Union.

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 defense to an aggressive Russia and China on both economic and security fronts.

All this is heady stuff, complicated by the fact that the separation process will be negotiated by a new English Prime Minister, and will probably take up to 2 years! 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 Dubai property scene. As we all know, investors and potential homeowners alike do not handle uncertainty well.

And it is this very same 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 Japanese 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 the neighboring UAE emirates and Middle Eastern countries, it will still be affected by investor nervousness by way of association, which is unfortunate yet a reality. Just take a look at the Dubai Financial Market – it lost 3.3 percent, the biggest decline since January, as Emaar Properties PJSC fell by 4.7 percent, mirroring the Brexit effect on many other markets around the world. Hardly rational, in my view.

And investors will be looking closely at the effect of Brexit on the Dubai tourism industry as well. 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 8 per cent and Germany’s 3 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 Dubai’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 travelers while journeying to the UK and Europe for most people has just got a lot cheaper. Hopefully, many will still use Dubai as a travel hub and take advantage of what this exciting city has to offer during stopovers.

At the time of writing, the British pound had fallen more than 10 per cent to below $1.34 and is 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 £1.9bn into Dubai’s property sector in 2015, purchasing around AED 10 billion worth of UAE property assets and ranking them second with an overall 7 per cent of total investments made in the sector in 2015, increasing from the prior year. 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.

And yet, the London property market has just become a lot more affordable. Already, there are reports of overseas buyers from all over the world taking advantage of the weaker pound to buy property in the stunned city. While a feeding frenzy hasn’t developed as yet, a prolonged weakness in the pound could divert significant levels of investment capital away from markets 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.

So, while there are interesting times ahead, there is no need to act impulsively or with any undue haste. The true extent and nature of the ramifications of the Brexit decision are yet to be fully identified, analyzed and quantified. It is still early days, and it will take some time for the fog of uncertainty to clear and for opportunities to emerge. Decision time will come soon enough.

a_towering_vision

A towering vision

By Mohanad Alwadiya,
Published: Gulf Property

Dubai’s dynamic, ever-changing landscape, a constant in the continuously developing emirate, is a characteristic of the city well-known the world over. From the opulent halls of the Burj Al Arab and the graceful fronds of the Palm Jumeirah, to the tallest skyscraper that is Burj Khalifa, the architectural and engineering feats Dubai is famous for seem to have no limits.

Such achievements in the field of architecture and engineering prove how important property development is to real estate, and to the general economy. Emaar Properties, one of the UAE’s most respected property developers, has been pioneering the development of Dubai real estate since 1997, by continually and consistently conceptualizing, designing and constructing quality master-planned communities across the emirate.

So integral has Emaar Properties been to the growth and development of Dubai that its own growth and emergence as one of the world’s most valuable and respected real estate development companies has been virtually synchronous with the emergence of Dubai as one of the world’s most prominent cities.

By delivering established communities such as Arabian Ranches, Emirates Living, and Dubai Marina, Emaar has played a major role in establishing the bedrock for supporting the lifestyle that Dubai offers today. But all that was eclipsed when it delivered its flagship development, Downtown Dubai, home to the iconic Burj Khalifa, The Dubai Mall and The Dubai Fountain. Not only did it provide what is now the world’s leading lifestyle destination, but it also reshaped Dubai’s skyline forever, and gave it a profile which is recognized around the world.

And that skyline is about to change significantly, once again, with the announcement of the construction of a stunning new architectural icon, the latest exciting development by Emaar.

The icon will simply be known as “The Tower” and its design was chosen by His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, a design which draws inspiration from the lily and evokes the image of a minaret, which is a common feature and distinctive aspect of Islamic culture and architecture.

The location of The Tower is an important reminder of Dubai’s past as it will be constructed on the Dubai Creek, the cradle of Dubai’s history and culture. This astute choice of location will forever mark the origin of Dubai and remind all of the humble beginnings of what has now become a remarkable story of vision and growth, amply demonstrated by the 6 square kilometers of world-class master-planned development that will have The Tower as its centerpiece.

Not only is the site historically significant, but it is also located in close proximity to the Ras Al Khor National Wildlife Sanctuary, protected under the UNESCO Ramsar Convention, and home to over 67 species of water birds.

And, as with all great icons, The Tower has a reason for being, and is envisioned to be of symbolic significance to, not only Dubai and the UAE, but to global visitors hailing from all across the world.

Mohamed Alabbar, Chairman of Emaar Properties, said: “The Tower in Dubai Creek Harbour is our tribute to the positivity, energy and optimism that Dubai and the UAE celebrate, led by a leadership committed to all-round progress. A shining beacon of hope for the world, celebrating diversity and human achievements, this new iconic landmark further highlights the country’s ambition and futuristic vision, and enhances our nation’s pride. It will be the destination for the world to visit, enjoy and celebrate life, as Dubai prepares to host the Expo 2020.”

He also added: “It integrates, not just design excellence but also strong environmental and smart-tech considerations. With The Tower, we are delivering a compelling destination that will add long-term economic value to Dubai and the UAE. It will also position Dubai Creek Harbour as one of the most desired residential, leisure and touristic attractions, providing visitors and residents with a modern, luxurious and sustainable environment in which to live, work, learn and entertain.”

As an iconic structure, The Tower will provide a clear and bold symbol of a people’s culture, aspirations and ambitions. It will be representative of a vision of progress that has global relevance and benefit demonstrated through innovation, growth and development.

Every nation or great city has some symbolic architectural icon which helps to define either the history, vision, cultural values or characteristics of the people that inhabit it… whether it be the Statue of Liberty, The Eiffel Tower, The Shard in London, The Sydney Opera House, or even St. Basil’s Cathedral in Moscow… they are all symbols, and all of us have grown to accept those structures to be symbolic, in some way, of the cultures that they uniquely represent.

The Tower is set to become a landmark representing the pride of a nation, an unmistakable reminder of what has and can be achieved when people, corporations and governments, united by a shared vision, move together, inspired by the desire to move forward and march into the future.

And it comes as no surprise, then, that Emaar, with its pioneering spirit and continued significant contributions to the development of this amazing city, should be the driving force behind this wonderful initiative, while it continues, as a company, to help develop and reshape the face of Dubai.

Highest return on realty investment

By Mohanad Alwadiya

CEO, Harbor Real Estate

Advisor & Instructor, Dubai Real Estate Institute

 

Do you feel discouraged by the current real estate climate? Are you ready to give up?

A lot of us know that it is the trying times that usually make or break our fortunes. And there is no better time than right now to look inward, think deeply and test your mettle when it comes to property investment.

In every real estate investment journey, I believe that success is attained only when the objectives of the investor have been realized. It’s as simple as that.

A vital component of a property portfolio investment strategy is the careful setting of financial objectives. These objectives must include such elements as total returns, capital appreciation, revenue streams, net results and the eventual divestment values all wrapped up in a timeframe deemed strategically optimal for the investor. If the objectives of the investor have been met, then the investment can be considered a success. Very straightforward.

However, many investors suffer from what I call the “should have, could have, would have” syndrome. It occurs when the investor feels that their investment did not outperform the market and, therefore, underperformed, leading them to depart from their initial strategy and revert to short-term thinking horizons, and making poor decisions regarding their portfolio. Remember, you are in a race with yourself, nobody else.

An example springs to mind.

We all know that the Dubai real estate market returned an average capital appreciation of around 30 percent in 2013. In the same period, we estimated that the portfolio of one of our investors appreciated around 24 percent.

There was a variety of infrastructural issues that contributed to the constraints in capital appreciation. The investor felt that his investment had underperformed, despite the fact that he had set an objective of 21 percent capital appreciation for the portfolio. He was wrong.

In actual fact, the investment had been a significant success with an enviable overachievement in excess of 14 percent versus original objectives. The investor, whose first reaction was to liquidate part of the portfolio, required some convincing to retain all the assets and stick to the original strategy. He is now significantly better off.

Of all my clients, those who have had the greatest success possess the ability to think long term, make rational, well-researched and carefully thought-out decisions with the end objectives always in mind. They also understand that every real estate industry globally will go through cycles of growth and contraction.

Successful investors don’t panic. They do not get duped into making short-term decisions based on inevitable market fluctuations, and they treat headlines such as oil price deflation as a catalyst for gaining a greater understanding of the underlying events that are shaping the industry, and if any opportunities may conceivably arise.  This is what I like to describe as proactive investing.

As with any investment, investing in property is all about recognizing and capitalizing on opportunities that are consistent and supportive to your overall wealth accumulation objectives.

In order to do this, you must have some knowledge about the industry. The old adage of “Don’t invest in anything you don’t know” applies. This doesn’t mean you have to be an expert, but you need to be able to communicate intelligently and knowledgably with the experts.

The investor fraternity is getting more knowledgeable. More attention is being paid to location, quality of product and maintenance services, and the extent of completion and quality of infrastructure is now playing a big part in investor considerations. With so much supply available at the start of the recovery, astute investors could demand, seek out and purchase the best of what was on offer, and the realization of the importance of these factors has remained a key learning point for most of them.

In the post-recession era, things changed. 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. Successful investors have learnt the meaning of value.

Yet fundamental drivers of market values remain. Location, Product Features and Benefits, Product Quality, and Demand and Supply.

To be successful, you must have a clear understanding of what you are trying to achieve and what role your property portfolio will play within a larger diversified portfolio. What proportion of your total investment portfolio is allocated towards property? What is your source of financing, and where do the greatest risks lie in the event of an economic downturn. How liquid would you need to be?

All these questions (and many more) need to be addressed, and the more skillful you are at conceptualizing your wealth generation schematic, the greater your likelihood of generating successful strategies to grow your wealth.

You need to be able to identify, engage and work with a professional in the industry.

As astute, skillful and knowledgeable you may be, a reputable, experienced and client-focused full service agency will greatly enhance your levels of success. The selection of the right agency is a skill in itself, and it is up to you to choose wisely.

Don’t fall into the trap that the cheapest will be good enough as this is rarely ever the case.

Real estate investment is never a decision made lightly, so stick to your guns and watch as the market continues on its course. Know it deeply, analyze and study it some more. Get reliable, professional advice, and listen.

Remember the words of John Barrymore: A man is not old until regrets take the place of dreams.

The UAE real estate market is still quite young by global standards, and you can accomplish so much more.

Capital and clarity lead to confidence

By Mohanad Alwadiya

CEO – Harbor Real Estate

Instructor & Advisor – Dubai Real Estate Institute

 

Like the proverbial race between the turtle and the hare, global economics, by its very nature, has become a machine on a constant race against time and tide.

Mid-January 2016, RBS gave a rather bleak projection of the immediate economic future by advising everyone to “sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” Though not everybody went into panic mode, a lot of industry stakeholders did reach for that panic button while hoping against hope that the worst is over.

Now again, late last week, there was news that the global stock markets fared a little better after a slight rebound in oil prices, and the promise of interest rate cuts from the European Central Bank (ECB). The US, European and Asian markets all performed positively amid assurances of more support for the economy – which, by all appearances, must refer to the global economy – whose performance has become the bedrock of most (if not all) of our business and investment decisions.

And while we may want to separate ourselves from the global economy and assert our ability to make independent decisions based on prevailing local conditions, we are unable to do so – thanks to the phenomenon of globalization. We, as nations, are now interlinked through a series of socio-economic and geopolitical relationships from whose web we have become inevitably intertwined.

But in order to not get too caught up in what appear to be lukewarm financial prospects, and to avoid making hasty, ill-advised investment decisions, it is always useful to master the fundamentals.

In real estate, the three essential ingredients considered prerequisites for the property market to function effectively remain to be the 3Cs: CAPITAL, CONFIDENCE and CLARITY. For investors, potential owner-occupiers, developers or another industry stakeholder, these ingredients are of paramount importance in ensuring long-term profitable and sustainable growth in an industry which, in itself, is a key ingredient to long-term economic growth.

The 3Cs are interdependent whereby a shift or change in any one element will affect the other two. The relationship between all 3Cs can be either positive or negative, and can lead to a multiplier effect on growth, or can increase the rates of contraction or decline.

The amount of CAPITAL injected into Dubai real estate in 2015 amounted to AED 135 billion which, last year’s market slowdown notwithstanding, exceeded the AED 109 billion total invested in the year 2014. The exceptional performance of Dubai real estate even in the midst of global and regional economic challenges, and its ability to attract a variety of investors worldwide are strong indicators of the CONFIDENCE investors have in the quality and performance of Dubai property.

When you are investing in real estate, you are really investing into an economy, and you must have confidence in its future. The UAE economy in general, and the Dubai economy in particular, are both faring quite well as the promotion of a more diversified economy has softened the impact of last year’s falling oil prices. Economic growth in the UAE is projected at a modest 2.6 percent by IMF, with the economy being driven by fundamentals such as tourism and trade and a slew of new projects to grow these important revenue-generating economic segments.

Upcoming initiatives such as the 2020 Expo are also important in building confidence in the emirate. The effect of the 2020 Expo on the UAE economy cannot be underrated in terms of generating demand for real estate assets. Hosting the World Expo will provide additional impetus for the industry to enjoy continued growth, and the predictable surge in demand for accommodation and commercial space of all types, from labor camps to offices to warehouses to apartments to executive villas, is sure to have a significant effect on property values.

The last ingredient, CLARITY or transparency, is arguably the most important. Investor confidence in and the level of understanding of their legal rights, the consistency in the application of the law, government economic and social policy along with knowledge of  developers track record in terms of quality, integrity and proficiency can be boosted by a proactive drive for clarity.

Lawmakers have been working hard in Dubai to address the issues of CLARITY and CONFIDENCE in particular. Steps have been taken to introduce laws that better protect investor rights and standardize and clarify the relationship between developers and investors. The law is aimed at protecting investors in a variety of areas, from delays in the handing over of projects, changes specifications of properties, defects and any material departure from the contracts provisions.

These steps towards increased CLARITY, showing clear intent by the regulating authorities to develop a more sustainable and consistently profitable industry model, have been essential in driving renewed CONFIDENCE in the industry resulting in massive injections of creditors’ and investors’ CAPITAL into Dubai real estate.

So now, armed with the knowledge that several factors come into play in our business and financial lives, especially as property investors, we can now take better heed of what global economics is telling us and what we know to be, where we are, and then make sound investment decisions without having to reach for that panic button.

Au Revoir 2015 … Bonjour 2016

So, 2015 is almost finished and, in reality, it was well and truly finished a few months ago. The planning for 2016 started in the third quarter and, save for a few formalities, 2015 is really already history.

What will 2015 be remembered for?

Well, the headlines that made continual references to the fact that there was a Real Estate correction will not be forgotten. Those who possess a more tactical, less strategic and shorter term point of view will view the year through a negative yet narrow lens while those who are taking the long term perspective, will view the year as one that saw the elimination of many systemic issues, addressing fundamental market imbalances and the implementation of necessary adjustments to deal with impacts of external issues on the efficient operation of the real estate market itself.

2015 will be remembered as the year that the mortgage rules implemented by the Central Bank and the increase in registration fees by the DLD really had full effect in helping to cool the market. It will also be remembered as the year that developers went to the “ideas bin” to create a myriad of different easy payment plans that, not only offered potential customers with an immediate and easier way to pay for off-plan properties, but also assisted in establishing new values for finished properties as well.

2015 saw a slew of new projects being launched, each one adding to the rapidly increasing on liquidity levels and, eventually, prices market-wide. Each additional launch added to the competition for the investor dirham intensified leading to a gradual reduction in prices for off plan units making the risk reward equation more palatable for off-plan units versus completed units.  In addition, the shift of developer focus in response to the call for more affordable housing also meant that investors gravitated towards this, perhaps the most important structural correction in the market to date.

Which means that 2015 will also be remembered as the year when the market got serious about building affordable properties, mainly because of the rapid growth in Real Estate prices in preceding years, a dirham that was rapidly appreciating versus most major currencies due to geo-political issues in Russia, tanking of commodity (including oil of course) prices, unprecedented quantitative easing in Europe, surprise downward revaluations of the Chinese Yen along with the imposition of capital controls and the imminent and the most talked about interest rate rise in US history. With global growth slowing and the strength economic recovery being questioned everywhere except for the US, Dubai faced the reality of simply being too expensive for its residents and too costly for its businesses. The cost of acquiring, owning and managing Real Estate plays a large role in determining the fiscal viability of both individuals and businesses in the emirate.

But 2015 will also be remembered as the year that was critical to the growth expected to be experienced in 2016. The price correction that was so much a part of 2015 in Dubai will bottom out in the early part of the year before the market starts to recalibrate. Population growth will drive demand going forward as, put simply, Dubai needs people to support an economy that is expected to grow at an estimated 4-5% 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 270,000 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% annual increase from today’s population of 2.25million.

There is no doubt that the market gyrations of 2015 will result in more stable 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. Every emerging economy needs to develop a strong middle class as its expansion is critical to growing a sustainable economy and developing resilience in the face of external financial and economic shocks. In addition, for Dubai to compete effectively on a regional and global basis, it needs to ensure that the cost of doing business in the emirate does not position it as an outlier when entrepreneurs or corporations are considering alternatives for their operations.

When taking this perspective, 2015 will be seen as being at the forefront of the next period of growth for Dubai and will not be recalled as a year of stagnation, but rather as a year of laying the foundations for what may well be the most prosperous decade in the emirates history to date.

By Mohanad Alwadiya
Published in Gulf Property Magazine December 2015 Edition