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Ask The Agent

Mohanad Alwadiya CEO, Harbor Real Estate

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

It depends on an accurate estimation of construction timelines which are invariably fluid, and the demand for real estate assets due to Dubai’s growing population that is largely driven by overall economic growth going forward. In addition, it needs to comprehend a lag effect from the time the conditions conducive to development are identified by developers and when properties are finally released to the market. Given that the economy of the emirate is expected to grow at an estimated 5+ percent annually for the remainder of the decade, and initiatives such as the Expo 2020 are expected to generate an additional 270,000 jobs, the demand for housing and commercial facilities is expected to grow significantly. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4 million by 2020, a 7 percent annual increase from today’s 2.25 million.

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

Location is the first factor to consider as it can drive up a property’s value. Prestigious locations like Palm Jumeirah, Downtown Dubai and Dubai Marina fared well in the post-GFC period, and affordable areas such as Jumeirah Lakes Towers, The Greens, Dubai Sports City, Discovery Gardens and International City followed suit. But there are other factors as well. The quality of the end-product and infrastructure, maintenance services, and the extent of completion must also be part of any consideration. Value for money and superior ROl must be considered if you are an investment buyer. Current and future supply levels of various asset types need to be examined. However, it is the fundamental drivers of market values which remain: location, product quality, features and benefits, and demand and supply.

We’re a startup company looking for an office space with the best value. Should we rent or buy?

At this stage, you need to keep costs down until you become fully established in the market. The old cliché “location, location, location” is all about the convenience and prestige it can bring to any business. Great value, affordable and well-constructed office spaces may be found in a particular area, but these may not work for you if the location is a hindrance to your operations. We always advocate businesses acquiring their own premises if they commit to operating long term in Dubai. There is no tax advantage in leasing in the UAE, and as long as your office space is appreciating, your balance sheet will grow stronger over time. If you decide to lease your premises, look for the best deal and lock it in for at least three to five years. Lease rates will soon increase going forward, so make sure you take advantage of current rates.

We purchased a villa in Dubai in 2010. Instead of continuing to rent it out, my husband and I decided to sell it. How do we find a good seller’s agent?

There is a large number of licenced real estate brokers in Dubai and the UAE. Finding the right agent to sell your property is something you need to pay close attention to because getting the best person is crucial to how quickly you can make a sale without compromising on your agreed-upon expectations. Factors such as years of experience in the UAE market, track record of success, in-depth understanding of market trends, area expertise, client testimonials, level of commitment, passion, dedication, professionalism and honesty are important. He/ she should also be a duly licenced RERA-certified real estate broker. Before committing to any realtor, make a list of all the questions you want answered first and see how they respond as doing so will help you gauge whether or not giving him/her your business is the best thing for you and your husband, and your property.

Question of the Week

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, get a proficient broker or legal representative to draft the MOU for you. You also need to sign “Form F,” a contract between the buyer and seller. Ensure that the buyer and/or the relevant representative has their respective identification and/or authorisations so payments have been satisfactorily arranged. Step 2 will require the receipt of a “No Objection Certificate” from the developer. Step 3 is to pay the 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 or payment details. Step 4 will require you to go to the Dubai Land Department offices or a trustee registration office together with the buyer and all relevant parties, and conduct the final transfer. Transfer of ownership will take place at the DLD with all monies owed by the buyer to you to be presented as part of the transfer procedure. Although the above procedure appears simple enough, I recommend you engage a professional to handle the transaction process for you. You will be surprised how little issues, many not foreseeable to the inexperienced, can delay the satisfactory settlement of your property sale.

Ask The Agent

Mohanad Alwadiya

CEO, Harbor Real Estate

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

Your landlord needs to give you a notice of increase at least 90 days prior to contract expiry. You should familiarise yourself with Law No. 43 which introduced the following restrictions (summarized) with regard to legally allowable rental increases: There should not be any rent increase if the rent for the real estate alit is no more than 10 percent below the average rent that a similar property commands within a neighborhood; The annual rent increases can range from 5 up to 20 percent according to how much the current rent s less than the market average, The market average rates are to be determined by the RERA rental index. The implementation of Law No. 43 is necessary to safeguard consumer interest, the overall industry and the economy at large from unjustifiable rental increases on existing rental contracts.

What documents do I need to provide so I can arrange for an agency to market and sell my villa? Give a proof of identity, usually a passport and/or Emirates ID, and a copy of the original sales and purchase agreement to be verified with the Dubai Land Department (DLD). If the property is leased, provide details of the lease agreement including the status of outstanding payments and any information pertaining to the history with the tenant. Also, provide the status of payments of service and owners association charges. The agency will sit and consult with you as to what your requirements are and prepare for you a letter of engagement which will contain the details of what you require from the agency and what fees have been mutually agreed upon. If you are located overseas and like an agency to represent you, you need to provide a power of attorney detailing the extent to which you would like the agency’s representation in the various facets of marketing and selling your property.

What property features should I prioritise when 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 to make it stand out from the rest and be highly marketable. But 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 paced 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, duality and current physical condition, whether or not it is being handled by a professional property management firm, or fully paid or financed. Also, make sure you mention any improvements done, and if it has special features such as a nice view, balcony, closed kitchen or extra storage.

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

Question of the Week

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

Whether you are buying ready or off-plan property, market fundamentals still apply. Make sure that an off-plan purchase is consistent with your property portfolio strategy. Location can never be disregarded. Considerations regarding how close the project is to commercial, educational and leisure hubs, medical and health facilities, public infrastructure, popular and established communities, and the manifold views one can enjoy all add up to the desirability of a property’s location. The asset type is also important. What type of asset will be in demand in the future: affordable apartments, townhouses or 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 can ensure you limit your capital exposure before completion. Also, you need to be conversant with financial concepts such as net present value (NPV) and internal rate of return (IRR) to guide you in the decision-making process when assessing your alternatives.

Population growth key to property market success

Dubai demonstrates strong growth in population compared to other economies around the world

The fact that the property industry is typically and notoriously cyclical is widely known yet quite often forgotten as viewpoints become blinkered due to current market performance, whether positive or negative. While some embrace cycles and their sometimes-associated market volatility that enables the opportunistic investor to profit from market fluctuations as they occur, other investors, those with a clear strategy and long-term plan, simply accept, foresee and plan for cycles in the industry. They are looking for longer-term sustainable growth rather than taking additional risks by trying to accumulate wealth by taking advantage of shorter-term spikes or dips. They are true managers of their property portfolios and have a much greater chance to succeed

A growing population is the fuel of any property industry, and it will be Dubai’s population growth that will enable the market to regain its equilibrium within the next three years

Investing in property has a very simple purpose: to create wealth over the long term. However, your property investment portfolio needs to be nurtured, maintained and managed to ensure its wealth-creating potential and capabilities are achieved as it rides the inevitable cycles that will occur in the industry. This, of course, is no different to managing a share portfolio, business venture or any other type of investments. Adopting a short-term vision and narrow perspective will engender reacting unreasonably to inevitable industry slowdowns which will lead to underperformance in the longer term.

The Dubai market is, having seen a period of falling values, rapidly approaching the bottom of its contraction phase, making 2018 a pivotal year for the industry. This contraction has been brought about by increased nervousness and uncertainty about global and regional geopolitical and economic events, the imposition of VAT, the distraction of alternative “new world” investments such as crypto currencies, along with the burgeoning oversupply in the highly competitive and lower margin per unit affordable segment. Developers, requiring greater sales volumes to achieve financial viability, needed to get financially creative to make their affordable offerings even more affordable and accessible for end-users and financially more attractive for investors

So, as we enter 2018, we are faced with a familiar situation. The market, despite lower than-promised delivery rates by developers, is in disequilibrium, particularly in the affordable segment. But this is no reason for excessive concern as the market is simply exhibiting the characteristics typical of its current cyclical phase. And while many of the issues that faced the world in 2017 remain, there are positive signs ahead: a growing world economy, rising oil prices and what appears to be an easing of some of the conflicts that have dogged the world in the last five years.

As for Dubai’s property market, its current predicament would be expected to last for quite some time, primarily as supply absorption rates are hindered by weak population growth, delaying the market’s emergence from the current phase. But Dubai has one string to its bow compared to a few other economies as the emirate has consistently demonstrated strong population growth, something many countries around the world have tried and failed to achieve.

A growing population is the fuel of any property industry, and it will be Dubai’s population growth that will enable the market to regain its equilibrium within the next three years, particularly as a spike in population growth is expected as the Expo creates an estimated 277,000 jobs.

It may come as a surprise to some that Dubai’s population is likely to exceed 3 million by end of 2018. This is up almost 331 per cent since the turn of this century. This amazing growth has been consistent during this period and is expected to continue at a rate of between 6.5 and 9 per cent over the next 10 years. This is fantastic news for Dubai’s property industry and the economy overall especially when other nations are facing stagnating population growth or, in the case of countries like Japan, falling populations.

The composition of the growth is also impressive as it will continue to be predominantly driven by people seeking to immediately benefit from and contribute to an economy that is expected to grow by a healthy and sustained 3.5 per cent in 2018 and beyond, as those who are seeking to progress and improve their economic well-being take advantage of the superior opportunities that Dubai will continue to offer going forward, courtesy of such major initiatives as the Expo 2020, in addition to the time-proven economic pillars of trade, finance and tourism.

So, the opportunities are there to capitalise on this population growth and resurgence in demand for property this year. The current situation is reminiscent of 2012 when the market started to emerge from the global financial crisis to foster a strong recovery peaking in 2014. The market has shown it has the capability to respond to favourable economic conditions, and as the absorption rates of properties start to build momentum with new aspirants entering the market, the positive effect on value and prices will see handsome returns being made by those who understood the market’s cyclical position and positioned themselves to capitalise on the imminent growth phase of the cycle.

Expert Eye, Gulf News, Dated: 19-04-2018 by Mohanad Alwadiya

Equilibrium now further away for Dubai market

Developers in Dubai will be happy with their 2017 results, with over 70% of all transactions in Dubai in 2017 being in the off-plan space, their efforts have been well rewarded.

In a year where over 69,000 real estate transactions were recorded, with a total value exceeding Dh285 billion, real estate transactions in 2017 eclipsed the 41,776 deals achieved in 2016 which represented a total value of Dh259 billion.

Winning the hearts and minds of real estate investors has never been easy. In recent years, certainly post 2008, buying off-plan would have been viewed with more circumspection as the prospect of buying finished property that would able to yield cash flow in the form of rental income virtually immediately would have been considered a less risky prospect than relying on developer platitudes regarding construction timelines.

In addition, attracting the buyers in the affordable segment has always been challenging as the purchaser tends to be more pragmatic, governed more by fiscal realities than emotion or ego. Developers needed to broaden and deepen their customer understandings and develop greater empathy for a segment that had really been neglected in the past.

So, the foray by developers into the affordable segment was accompanied by an increasingly attractive array of successfully marketed financing offers which were designed to garner an increasing proportion of available investor capital into the off-plan property space. After all, new customers have different needs requiring new strategies and tactics.

While these new tactics may have been treated with suspicion in the past, the industry has matured from the heady days of flipping, speculation, false promises and minimal accountability with the regulatory changes imposed on developers to ensure the rights of investors are protected making offerings in the off-plan space appear less risky in nature.

So, faced with a market nervous about global and regional geo-political and economic events, the imposition of a VAT, the distraction of alternative “new world” investments such as cryptocurrencies, along with burgeoning oversupply in the highly competitive and lower margin per unit affordable segment, developers, requiring greater sales volumes to achieve financial viability, needed to get financially creative to make their affordable offerings even more affordable and accessible for end users and financially more attractive for investors.

Inevitably, the amount of capital shifting from the traditional secondary market to the off-plan market created in a capital allocation imbalance, resulting in declining demand for finished properties. Interestingly, capital allocation was really the issue, as supply was quite healthy in 2017, with mortgages financing over 50% of transactions. It wasn’t that long ago that mortgages made up less than 30% of total transactions, extremely low by global standards.

So, as we enter 2018, we are faced with a familiar situation. The market is, once again, is moving further away from the equilibrium that we are all seeking.

The focus of developers to satisfy the requirements of an emerging affordable segment has been overdone, putting pressure on prices, yields and growth in across the industry.

To suggest a reversal or redirection of capital to the more expansive segments is likely in the short term is mere wishful thinking. The only way to address the issues facing todays market is to ensure that the long awaited and much speculated upon Expo inspired surge in demand transpires or to find other ways to expand the capital pool.

One initiative to do just that is in its final stages of planning. Looking to attract an even greater number of overseas investors, a series of roadshows will be held targeting key overseas markets such as India, China, Russia and the USA with the sole purpose of making investors in these countries to understand the benefits of investing in Dubai.

The schedule for the events is close to completion with events in Amman and Kuwait scheduled for late March to be followed by Cairo in April, Beijing in May, and Moscow in July before visiting London in September, Chicago and Dallas in October and wrapping up the tour in Mumbai does in December.

The importance of initiatives such as these cannot be overstated and The Dubai Land Department, realising the importance of increasing industry demand is pushing hard with this initiative.

Despite UAE investors leading the 2017 nationality rankings of investors in Dubai real estate, Indian investors continue hold second place and remain extremely important to the industry. Saudis came in third place followed by the British, who have dropped down the rankings in recent years due to uncertainty around Brexit and a decline in value of the British Pound. The Chinese are emerging rapidly as active investors in Dubai and still hold the greatest potential for foreign investment.

Foreign investors, almost 23,000 in number made approximately 30,000 transactions worth Dh56 billion in 2017. The local market’s reliance on foreign investment continues and, outside the Gulf region, there are huge opportunities to increase the awareness of what benefits the Dubai market continues to offer, not least of which, is the potential yields of 7-11 percent which are unheard of in much of the developed world.

So, the race continues … to win the hearts and minds of the global investment community.

Factors to Consider in 2018

With the advent of globalization, the number of factors that can affect local economies and the industries and markets that operate within those economies has increased dramatically in both number and complexity. Here are some of the more salient influential factors that we at Harbor Real Estate have been considering as we advise our Dubai focused clients in 2018.

Oil. Despite the amount of diversification that has occurred in the Dubai economy and the small proportion of Dubai’s GDP that oil represents, the price of oil still affects liquidity levels throughout the UAE and investor confidence, both essential elements for property market growth.
In December, prices averaged $64/barrel, the highest monthly average since 2014 following an OPEC meeting where members agreed to keep production cuts through 2018 and there is no doubt that maintaining oil at or above the $60/barrel for the duration of 2018 will assist in creating market stability and that is what is being predicted by the U.S. Energy Information Administration in its Short-Term Energy Outlook.

Currency rates. With anywhere between 40% and 50% of investment in Dubai property coming from investors who usually deal in currencies that are not pegged to the US dollar, any strengthening of the US dollar makes it more difficult to invest in Dubai. The USD is likely to strengthen in 2018 as we see the first signs of inflation appear in the US economy.

However, a strengthening dollar is actually a double-edged sword. For the UAE economies overall, it just makes every barrel of oil more valuable and, for those investors who have invested or intend to invest in currencies pegged to the US dollar, a strengthening of the currency increases the value of the investment and any resulting cashflows in terms of other currencies that aren’t pegged to the USD.
Mortgages and market regulations. Historically, mortgages have represented no more than 30%-35% of property sales in the emirate. This ratio has now climbed to well over 50% during 2017 and, in some months, levels of 60+% were achieved. This is great news for several reasons.

First, this trend highlights both confidence of lenders and consumers, mostly owner occupiers, in the market. Most of these new buyers were taking advantage of the abundance of affordable properties on offer that, in addition to the onslaught of attractive payment plans, offered by developers, defined the market in 2017.

The second reason why this is such good news is because we have witnessed, in real time, the market adapting to legislative changes regarding mortgages 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, but the dream remained and, for many in 2017, became a reality.

Political instability: The levels of political instability in the world in 2017 seemed unprecedented and is likely to continue through 2018. From Middle East conflicts, North Korean nuclear ambitions, US distrust and threats towards Iran, continuing angst over Brexit a seemingly dysfunctional and increasingly partisan US government certainly portrays a world that is very unsettled place which leads to investor nervousness. Unfortunately, there are no signs that political instability is going to ease any time soon.

Demand and supply: As always, economic fundamental will always play a role in any industry performance. 2018 will commence with a market that moving further away from the equilibrium that we are all seeking.
The focus of developers to satisfy the legitimate and long forgotten requirements of an emerging affordable segment has been overdone during 2016 and 2017, putting pressure on prices, yields and growth across the industry.

The amount of capital shifting from the traditional secondary market to the off-plan market created in a capital allocation imbalance, resulting in declining demand for finished properties. Interestingly, capital allocation was really the issue, as supply was quite healthy in 2017, with mortgages financing over 50% of transactions. It wasn’t that long ago that mortgages made up less than 30% of total transactions, extremely low by global standards.

To suggest a reversal or redirection of capital to the more expansive segments is likely in the short term is mere wishful thinking. The only way to address the issues facing today’s market is to ensure that the long awaited and much speculated upon Expo inspired surge in demand transpires so as to increase absorption, that the predicted 15,000 units expected to be delivered during 2018 is not exceeded or to find other ways to expand the capital pool.

One initiative to do just that is in its final stages of planning: Looking to attract an even greater number of overseas investors, a series of roadshows will be held targeting key overseas markets such as India, China, Russia and the USA with the sole purpose of making investors in these countries to understand the benefits of investing in Dubai.

Infrastructure development / government spending. Dubai’s infrastructural spending continues with a total budget of Dh56.6 billion being announced for 2018. Heavily focused on infrastructure projects led by Expo 2020 the budget comes in line with Dubai Strategic Plan 2021’s targets and future commitments. The budget features a rise in infrastructure spending, which makes up 21 per cent of the total government expenditure. This reflects the directives of Sheikh Mohammed to raise infrastructure efficiency in Dubai for the emirate to become the preferred destination for living, tourism, and businesses across all sectors. The budget’s overall spending represents a 19.5 per cent increase over 2017.

Taxes and transaction costs (registration and transfer fees, commissions, NOC fees): The UAE implemented VAT at the rate of five percent in January 2018. VAT is not a new phenomenon. It has been implemented in many economies around the world and is considered an efficient and equitable way for governments to collect tax revenue to invest, innovate, develop infrastructure and provide services that are required for sustainable economic growth. The IMF has predicted that the UAE may improve GDP by as much as 1.5% by implementing a 5% VAT. Some countries have applied 20% VAT’s to generate the revenues required by their governments without detriment to their property Industries. Yet. Some investors remained concerned and, as has been shown in other economies that have introduced VAT, those concerns will prove baseless with time.

3 factors that will influence Dubai reality

Cityscape is finished for this year and the headline results are impressive: A record turnout that showed a year on year increase of 25%; over 300 exhibitors requiring 2 extra exhibition halls; a new initiative to allow sales transactions to be completed onsite resulting in a 186 per cent increase in off-plan property transactions being registered with the Dubai Land Department during the period and the reveal of plans for the Expo 2020 site gave this year’s Cityscape some real gravitas.

I walked away from the exhibition with a feeling that Dubai’s property industry has just commenced one of the most important 3 years of its relatively young life since the post Global Financial recession and that this period will have clearly defined bookends, with the recently completed Cityscape at one end and the Dubai Global Expo 2020 at the opposite end.

So, what do we have to look forward to over the next 3 years? The obvious answer is the Dubai 2020 World Expo. The market has been waiting patiently for the positive effects that the Expo generated population growth will bring to the market to eventuate.

But there are other real and pervasive influences that we need to consider and observe, for they will have a significant effect on what happens in our industry leading up to the much anticipated 2020 event.

The first challenge is VAT which has fast become the most popular acronym in the industry today. VAT is not a new phenomenon. It has been implemented in many economies around the world and is considered an efficient and equitable way for governments to collect tax revenue. As oil prices have declined significantly, oil dependent economies require new sources of revenue to continue to invest, innovate, develop infrastructure and provide services that are required for sustainable economic growth. The IMF has predicted that the USE may improve GDP by as much as 1.5% by implementing a 5% VAT. Some countries have applied 20% VAT’s to generate the revenues required by their governments.

But VAT will have an inflationary effect on the economy as most items required for everyday life will be taxed. Salaries and wage increases will likely lag the introduction of the tax which may impact disposable income levels and affect the ability to save for a house deposit.

As a purchaser of a new home, your purchase is exempt from VAT, but the price will certainly be adjusted to cover the VAT that has already been paid on the value for materials, labor, marketing and other services etc. that the developer had to incur to bring the project to market, while, sellers in the secondary market will be exempt from VAT, yet still need to pay VAT on any Real Estate Agents fees, marketing fees, and maintenance or staging fees.

The sale of Commercial properties, however, will attract the VAT, adding to the cost burden of setting up or operating a business. Once again, consumers will eventually be affected.

The second challenge will be a strengthening US dollar. In an industry where at least 40% of purchases are made by investors that hail from countries whose currencies float freely, the postponed yet inevitable interest rate hikes by the US Federal Reserve, the effectiveness of US fiscal policy and the diplomatic, trade and geo-political effects of increasingly nationalistic policies are likely to present challenges in terms of relative value and affordability as property in other markets such as the UK, Asia or Europe become more attractive. This will be compounded somewhat as the on-going saga of the Brexit implementation is likely to carry on for some time, probably leading to a continuance of a weak British pound for the foreseeable future.

A strong US dollar will also impact one of Dubai’s fundamental and burgeoning economic pillars, tourism. A strengthening AED, combined with the application of the VAT, makes visiting the Emirate a more expensive proposition, particularly if currencies of other countries competing for the tourist dollar are weakening.

Finally, there is no denying that oil prices are very important. While the Dubai economy is only minimally reliant on oil for its GDP, the price of oil does have a strong effect on the levels of liquidity available for the property market and greatly influences the confidence levels of overseas investors in the region.

Somewhat conversely, there are those that believe, for variety of reasons, that the historical inverse relationship of oil prices and USD strength has changed. If so, we may be entering a sustained period whereby oil prices rise in sync with the USD. A positive correlation would certainly help offset increasing USD strength, however, it would make a return to a weak USD and strong oil price scenario increasingly unlikely.

We live in very interesting times.

Ask the agent

Gulf News Saturday, November 4, 2017
FREEHOLD
By: Mohanad Alwadiya CEO, Harbor Real Estate

I was advised to hire a property agent to get a better deal. They show what they have and say what others offer are not good. Are they being truthful?

The real estate market, like any sales-oriented industry, is a tough place to operate in since everyone is out to make a sale for themselves. So having observed the behaviour you mentioned, it would benefit you a lot to ensure you are dealing with a reputable agency with qualified professional agents. Since embarking on a real estate investment venture is a major decision you will have to make, it would be worth your while to do a little research, or ask people with some real estate know-how as to which companies have established themselves well in the industry. You may also want to have a look at the Dubai Land Department’s Brokers App, which shows you a ranked list of approved brokers in Dubai and could assist you greatly in picking out the agency that will work with you and for you.

Where can people go and discuss, or lodge a complaint against a property developer?

It is a fact that issues related to property transactions and deals (tenant vs. landlord, buyer vs. developer, buyer vs. broker) cannot be avoided; thus, authorities have come up with platforms where complainants can air their grievances. The Government of Dubai has made a web portal called “eComplain” available on the Dubai Government website.

Through the said portal, customers may lodge a complaint and if the matter involves a specific government department, the complaint is routed to the appropriate government entity for further action and resolution.

But in order to deal with real estate matters directly, any issues or complaints involving property industry stakeholders, in this case, a developer, need to be referred to the Real Estate Regulatory Agency (RERA) if the parties involved have failed to come to an amicable arrangement regarding the issue in question.

Who is responsible for the upkeep of leased premises? Is there no scope for natural wear and tear in lease contracts?

The landlord is responsible for the general maintenance of a leased property unless the parties have agreed otherwise in the contract. The owner is also responsible for taking care of any defects or faults that affect the tenant’s use of the property.

However, sometimes the landlord may also transfer responsibility for maintenance to the tenant as it may happen in the case of some commercial leases (Article 16, Law No. 26 of 2007).

Natural wear and tear is taken into consideration by law (Article 21, Law No. 26 of 2007) though upon the expiry of the lease, it is assumed that the tenant will return the property to the landlord in the condition that the property was in at the beginning of the tenancy.

We are very unhappy with the facilities management services in our building. What recourse do we have when the landlord is unable to offer a solution?

In Article 16 of Law No. 26 of 2007, it states that “Landlord shall, during validity of the tenancy contract, be liable for undertaking maintenance of the property and shall rectify any defects or faults that affect tenant’s intended benefit from the property, unless the two parties agree otherwise.”

The law very clearly states that property upkeep and repair is a responsibility of the landlord. The Rental Dispute Settlement Centre, which is the judiciary arm of the Dubai Land Department (DLD), would be your last recourse in case you have already exerted effort to properly communicate the matter to the landlord and/or the property manager to no avail. It hears complaints and provides solutions in a transparent and efficient manner.

Ensure though that you bring with you the required documents when filing a case.

Question of the Week

Now that protecting the environment and sustainability have become essential considerations across various sectors, are there rules to encourage builders to promote human and environmental health?

The already existing Article 7 of the Dubai Municipality’s Decree No. 66 of 2003 involves the selection of glazing for facades with the objective to minimise solar thermal heat gains. However, the article does not provide for penalties in terms of non-compliance.

A Mandatory Progression programme was introduced in 2008 with an objective to ensure new buildings meet “green” standards.

A more current development, however, is the introduction of the “Al Safat” green building rating system. The rating system applies to all types of buildings including residential, commercial, industrial and others.

The four classifications are platinum, gold, silver and bronze (in descending order), and the system requires new buildings taking permits from September 1, 2016 to meet requirements for bronze certification at a minimum.

Old buildings will have to be retrofitted to meet the minimum requirements.

Meanwhile, buildings that have previously acquired green building certification will need to apply again to be Al Safat certified.

Send in your property issue-related questions to be answered by industry experts, mentioning Ask the Agent’ in the subject line, to: properties@gulfnews.corn

مطالبات بقانون جديد لضبط سوق التأمين العقاري

فادت مصادر عاملة في قطاعي العقار والتأمين في السوق المحلي، أن «التأمين العقاري» ما يزال يفتقد إلى مجموعة من الضوابط واللوائح التنظيمية، التي تساهم في توضيح آليات التعاقد بين مختلف الأطراف، وتطبيق وتحديد الأسعار، إضافة إلى منع التلاعب بالبوليصات المتعلقة به.

وأضافت المصادر أنه بات من الضروري تشريع قانون واضح يحدد كل جوانب العلاقة بين شركات التأمين من جهة، والمستفيدين من جهة ثانية، ورفده بلوائح تنظيمية تغطي الجوانب العملية وشمولية التأمين، ليكون قادراً على تغطية مختلف أركان العقار الخارجية والداخلية.

وقالت: «لا بد من خطوات جريئة وسريعة لوضع منظومة متكاملة للتأمين العقاري، تشمل مرافقه ومستخدميه ومحتوياته، مع التركيز على محور بنود وأسعار بوليصات التأمين، لمنع أي محاولات للتلاعب بها على حساب المستفيدين منها».

وأكدت أيضاً أهمية التوعية بأهمية التأمين العقاري على المدى الطويل، وشن الحملات التثقيفية لتحقيق الهدف الأساسي منه في صون وحماية أملاك وحقوق المستفيدين، وهذا يتطلب التعاون والتنسيق بين الجهات والشركات المعنية في القطاعين العام والخاص.
ولفت مهند الوادية، الخبير العقاري، والمدير الإداري في شركة هاربور العقارية، إلى أن التأمين على العقار بشتى أنواعه وأشكاله ما يزال غير مطبق من الناحية العملية والقانونية في السوق المحلي، لكن العاملين في القطاع اجتهدوا جزئياً بهذا الشأن، من حيث إرفاقه ضمن ميزانية جمعيات الملاك للمشاريع التي تنطبق عليها شروط التملك الحر فقط.

وأضاف الوادية أنه من هذا المنطلق، تظهر مجموعة من المطالب التي تقع مسؤولية دراسة آليات تطبيقها على أرض الواقع وتوضيحها، على الجهات الحكومية المعنية بالتعاون مع القطاع الخاص، في سوقي العقار والتأمين، وربطها بلوائح تنظيمية وقوانين تشريعية، تكون واضحة وإلزامية من جهة، ونشر التوعية بأهميته بين الأفراد ذوي الشأن من جهة أخرى.

وأشار إلى أن التأمين على العقار يتجزأ إلى عدة أقسام أو أنواع، وهي أولاً: التأمين على المبنى والمرافق العامة التي يشملها، ثانياً: التأمين على محتويات العقار وما بداخله، ثالثاً: التأمين على دفعات العقار التي ترتبط بجداول سداد مرنة وطويلة الأجل، تتراوح بين 3 و5 و10 سنوات، والتي باتت رائجة في الوقت الراهن بين شركات التطوير العاملة في السوق المحلي.

وأوضح الخبير العقاري والمدير الإداري في شركة هاربور العقارية، أن قاعدة «أرخص تأمين هو أفضل تأمين» المتعارف عليها في سوق السيارات لا تنطبق على العقار؛ لذلك لا بد من خطوات جريئة وسريعة لوضع منظومة متكاملة للتأمين العقاري، تشمل مرافقه ومستخدميه ومحتوياته، مع التركيز على محور بنود وأسعار بوليصات التأمين، لمنع أي محاولات التلاعب بها على حساب المستفيدين منها.
وأكد أيمن خميس، المدير العام في شركة الشارقة للتأمين، أهمية تفعيل سوق التأمين العقاري بشكل أوسع وأكثر وضوحاً، من خلال شن حملات توعية لمختلف الأفراد المعنيين به، خاصة الملاك والمشترين، إلى جانب المستخدمين النهائيين، ولنجاح هذا التوجه لا بد من الانتقال إلى الجانب الإلزامي من حيث سن القوانين واللوائح التنظيمية، لحقيق الهدف الأساسي منه، وهو صون مصالح وحقوق جميع الأطراف.

وأضاف خميس أنه لا بد من التعاون والتنسيق بين القطاعين الحكومي والخاص، لتحريك بوصلة نشاط التأمين العقاري، ورفده بالضوابط لمنع التلاعب بالبوليصات وأسعارها، التي تختلف فيما بينها حسب أنواعها وبنودها، وحجم الإضافات التي تغطيها، ومحاولة الالتفاف على المستفيدين. وبيّن أن التأمين العقاري يبدأ من المبنى الرئيسي والمرافق التابعة له، ثم على العقار نفسه سواء أكان شقة أو منزلاً أو مكتباً، كما يمكن أيضاً التأمين على المحتويات الداخلية للعقار نفسه، وهو سوق ضخم بدأنا بالتركيز عليه وطرح بوليصات خاصة به.

http://www.alkhaleej.ae/economics/page/8700160c-4ca4-4c40-a076-68a15bc17c1b

Mortgage trend continues this year

There has been a very pleasing trend that we first noticed in 2016 which is yet another demonstration of the development and maturation of Dubai’s Real Estate industry.

The marked increase in the utilization of mortgages to purchase properties in the emirate demonstrates a market that has undergone a structural shift to supply more affordable properties and the maturation of buyers in structuring their financial affairs to obtain a mortgage and buy the home of their dreams.

Historically, mortgages have represented no more than 30%-35% of property sales in the emirate. This ratio has now climbed to over 50%, in some months, levels of 60+% have been achieved.

This is great news for several reasons.

First, while this trend highlights 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 this lucrative market going forward.

Understanding value-added tax (VAT)

The UAE will implement VAT at the rate of five percent in January 2018. This is not breaking news but still many people are concerned as to how the VAT will affect them personally. The VAT will affect every individual and every institution in the UAE in some way.

The easy way to understand a Value Added Tax is to consider it to be a “consumption” tax. Put simply, for most goods and services, every time somebody sells a good or service to a customer, regardless of where they are in the supply chain, 5% will be added to the price which is collected by the seller and remitted to the governments tax department.

VAT is not a new phenomenon. It has been implemented in many economies around the world and is considered an efficient and equitable way for governments to collect tax revenue. As oil prices have declined significantly, oil dependent economies require new sources of revenue to continue to invest, innovate, develop infrastructure and provide services that are required for sustainable economic growth. The IMF has predicted that the USE may improve GDP by as much as 1.5% by implementing a 5% VAT. Some countries have applied 20% VAT’s to generate the revenues required by their governments.

For businesses, there are procedural and systems that need to be implemented to ensure that compliance with is achieved in the most resource efficient way possible. Usually, this requires the implementation of an appropriate accounting solution package. Non-compliance could be expensive, with heavy penalties expected to be imposed for those businesses who do not comply.

Those businesses who are unsure of how the VAT works or will affect them, need to seek expert legal advice as to their obligations under the VAT regulations and engage accounting experts to ensure their systems and procedures are correctly recognising, applying, recording and remitting VAT.

Individuals, meanwhile, will be impacted in their everyday life. For example, Electricity and water services will be subject to VAT, so will most of the food that you buy and the purchase of that new car and any subsequent maintenance that it will require and private education will also attract the VAT.

Fittings and furniture for your new home will also attract VAT, as will services such as housekeeping, dry cleaning or laundering.

There are some goods and services that will be VAT exempt. Items such as fuel for your car, essential healthcare items, public education, air travel and taxis. It is important that, when a VAT is being applied, that the poorer segments of the population are not disadvantaged by taxing the necessities of life.

Technically, the VAT will not apply to your rental expense however landlords will be subject to VAT on items such service charges and maintenance, indirectly driving up the cost of rentals over time.

If you decide to purchase a new home, there will not be VAT applied directly to the purchase but it will be applied to the real estate agents’ fees. Of course, as a purchaser of a new home, your purchase price will certainly cover for the VAT that has already been paid on the charges for materials, labor, marketing and other services etc. that the developer had to incur to bring the project to market.

If you are selling your current house in the secondary market, the sale itself will be exempt from VAT, however, you will need to pay VAT on any Real Estate Agents fees, marketing fees, and maintenance or staging fees that you might incur.

For developers, VAT will affect virtually every supply and construction contract that exists. This will have an inflationary effect on the industry as the additional cost burden of the VAT will be passed on to the consumer. Developers need to ensure that they have the systems to recover the VAT cost and ensure that future planning considers the inflationary effect so that any possible drop in demand due to the rise in prices is comprehended with minimal effect on margins.

VAT is not something to be feared, but it is something to be understood, particularly by the business community. The only cost to business is the administration required and the expense of ensuring compliance while the consumer will only notice the effects at the cash register.