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AN INVESTMENT ALTERNATIVE NOT TO BE IGNORED

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

For investors, 2016 arrived with a bang or, as some might argue, a dull thud felt around the world.

At the time of this writing, financial markets had been acidic on investors’ net worth, burning through asset values, and essentially whatever value that had been accumulated during the pre-Christmas period has been melted away.

Since the New Year’s Eve celebrations were wound down and hopes for a better year in 2016 were dialed up, the Dow Jones had fallen 7 percent, the S&P 500 by 8 percent, and the NASDAQ a nerve-jangling 13 percent. What usually exacerbates investor nervousness is that these financial markets are located in the US which is, of course, still widely regarded as the strongest of the major global economies and being held as the bastion of economic growth heading into 2016.

A quick review of every other major financial market in the world reveals similar outcomes in Japan, China, London and Germany – all showing significant declines during the same period, with virtually all markets globally showing double digit declines when compared to the same period in 2015.

There are some “contrarians”, of course, such as the Hungarian Budapest Stock Exchange which did not participate in the global financial market rout in the last month, and has returned a healthy year-on-year return of 36 percent, or Latvia and Slovakia which returned 47 percent and 36 percent year-on-year, respectively.

Although the list of financial markets that have bucked the global downward trend is short, and only represent a miniscule proportion of the total capital invested globally, it does show that there will always be opportunity somewhere in the world. For investors, the challenge is to find the opportunities and access them.

While many investors expected the initial period of 2016 to essentially become a continuation of the previous year with a modicum of the volatility and irrational market gyrations continuing, nobody ever really expected 2016 to announce its arrival with such mayhem and drama. This only goes to show that many of the issues that affected investor confidence around the world in 2015 remain, and policymakers, corporate executives, investors and consumers at large continue to harbor doubts about the ability of leaders to navigate the multiple crises that has beset the world. In short, most investors are peering into a fog of uncertainty with only continually negative headlines to guide their reasoning.

The issues are as varied as they are significant. Everything from the US presidential race that has the world bemused (and perhaps frightened as to its would-be outcome) to doubts regarding the capability of China to effectively manage and steer its economy away from being export-driven to relying on local consumption and the development of its middle class.

Meanwhile, the European refugee crisis will continue as long as there is violence in the Middle East which, of course, shows little sign of abating. Then there is the continuing saga of the US Federal Reserve’s shift from near-zero interest rates that continues to spook investors to the extent that all rational and fundamental analyses enabling investment decisions seem to have been replaced by an intense and sometimes amusing focus on the vocabulary and grammar used in Fed statements in an effort find some hidden indication of their intent.

Meanwhile, the ongoing collapse of oil and commodity prices remain likely to trigger recessions in emerging economies like Russia and Brazil – all at the time that Europe continues to struggle for growth. Not surprisingly, the IMF trimmed its global growth outlook for 2016 to 3.4 percent, down from 3.6 percent and, in all likelihood, will trim it further as the year progresses.

So, what should an investor do… who, in the depths of despair and confusion at the deluge of negative headlines, seemingly shallow financial advice and at the direction of global economies and financial markets, is feeling clueless as to where the opportunities for returns on his hard-earned capital might be? How does today’s investor make some progress towards increasing his wealth in 2016?

Investing in Dubai real estate has significant potential to satisfy the appetite for investment returns and the fundamental reasoning is compelling.

From a macro level, Dubai needs people to support an economy that is expected to grow at an estimated 2.5 percent+ in 2016 but increasing exponentially as the end of the decade draws near. The reason for this growth trajectory is the commitment and determination to deliver on 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, do not currently exist. 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 population of 2.25 million.

While the price of oil is a big issue for the region’s economies, Dubai has managed to develop a level of diversification that will allow it to weather the current global oversupply of oil. With oil representing only about 4 percent of Dubai’s GDP, the effect of the decline in oil prices is not as drastic as some may think. While a reduction in public spending is to be expected, Dubai’s economy is being driven by fundamentals such as tourism and trade, and the focus of spending will be on new projects to grow these important revenue-generating economic segments and further diversification.

In 2015, Dubai attracted over 14 million visitors continuing a growth trend of approximately 10 percent per annum since 2010, and is well on track to attracting over 20 million visitors in 2020.

And the 277,000 extra jobs that are generated to ensure the estimated 20 million visitors to the Expo see Dubai in its most favourable light cannot be underrated in terms generating significant demand for real estate assets. This is where the Dubai economy has an advantage over many Western economies in that, looking forward, there is a requirement for intellectual and human capital which is not residing dormant and unutilised in the economy and attracting this critical resource can only result adding to economic growth, providing additional impetus for Dubai’s Real Estate industry to enjoy 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.

There is no doubt that Interest rates in the US will continue to rise and the AED will continue to get stronger. However, to invest in a market that nearing the end of a 20 percent correction in a currency that certain to appreciate over the coming 3 to 4 years only makes sense, especially when finance is still relatively affordable and will remain so for quite some time, and when the Expo is sure to have a significant effect on property values.

And the market itself is becoming more efficient. Developers have learnt from the past and are only releasing properties into the market after analysing current demand, and are continually revising projects still in the feasibility stages after carefully analysing future demand. This newfound prudence in managing supply will help preserve values and confidence in how the market is operating, going forward, and is yet another indication of the market’s rapid progress towards full maturity.

The structural shift towards more affordable housing in 2015 will not only serve to accommodate the expected rapid population growth associated with the 2020 Expo, but will 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.

And speaking of alternatives, there is an array of asset choices which hasn’t been seen for some time, and the availability of off-plan purchases with highly lucrative payment plans is unprecedented. Whether it’s an affordable studio or a luxury villa, there are investment opportunities in every segment of the market supported by the most affordable payment plans seen in years.

But the most compelling reason as to why Dubai real estate represents such a tempting investment opportunity in 2016 are the financial returns that you can expect. For a superior investment yield and strong return on your investment, the total returns that Dubai real estate provides will be hard to beat over the next 5 years.

Properties in the burgeoning affordable segment continue to provide gross rental returns of 8 percent with 10 percent rental yields not uncommon and, because of the recent price correction in the market and the slew of financial incentives that have been introduced, accessing the yields and returns can be done with comparatively minimal capital outlay. And the good news is both rental yields and property values are expected to increase as the 2020 World Expo draws nearer.

But returns are only one side of the equation… what about the risk?

One of the main reasons why the Dubai real estate industry has matured so rapidly is because of the unprecedented level of governance, oversight and scrutiny that the industry is being subjected to. The ongoing development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, reveals a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term.

The industry is much more resilient in 2016, and investors have benefitted enormously from the developments in this area.

Every investor has a finite set of investment opportunities to consider. There is no doubt that the past year has been challenging for equity investors, frustrating for fixed income investors, and costly for investors who saw the valuations of their mutual funds, many leveraged with cheap finance, lose 20 percent to 30 percent of their value.

Investing in Dubai real estate simply cannot be ignored as an alternative, whether as a primary source of returns or as a contributing participant within a broader investment portfolio, to successfully generating wealth.

The task of managing properties

By: Mohanad Alwadiya, CEO, Harbor Real Estate
Published in: Expert Eye, Gulf News
Dated: 16th March, 2016

Many people misunderstand the role of a property manager, thinking that the role does not extend beyond the collection and remittance of rental receipts, and acting as a buffer between the landlord and the tenant. Little do they realize that a good property manager will generate greater returns from their property portfolio and enable their long-term portfolio strategy to be realized.

So what should you look for in selecting a professional to manage your property?

Well, first of all, you need a professional who is experienced in the market. Not just in any market though, in this instance, the Dubai market. Typically, if you find somebody with at least 7 years experience, you will have found somebody who has witnessed and survived the global recession, and that should provide a reasonable indication that they are in the business for the long term, and that they had the skills needed to navigate and survive Dubai’s last property slump. Many didn’t.

A competent property manager will provide a whole host of services for you but the most important is the development of a Property Portfolio Strategy. Your chosen professional must be able to articulate and present his thoughts after conducting a thorough assessment of your personal situation and property portfolio. He must be able to provide you with a credible strategy and activity plan designed to harness the true potential of your property and provide you with the maximum rate of total returns It is essential to have a well-thought out strategy for your property portfolio if you are to maximize your returns.

Not just anybody can formulate a credible and implementable strategy. It requires years of expertise and a fundamental understanding of what makes real estate such a worthwhile and superior investment. A true professional will have a strong knowledge base on topics including industry history, current market factors and trends, risk factors, and the likelihood of relevant future events that will affect the performance of your property investment. This knowledge should span global, regional and local landscapes, and will require a good understanding of economic factors, industry knowledge extending to government policies and regulations, finance and market dynamics.

Forming a strategy is one thing, but being able to bring the strategy to life is quite another. You will require an activity plan which will include details of pricing and marketing, customer relationship management and tenant management and policies for the entire portfolio. Essentially, this area of expertise is related to the “topline” or revenue generation and management of the property.

Equally important is the cost management and maintenance supervision of the property. Many times, I have seen excellent “topline” performance being eroded due to poor operational and maintenance cost controls.

Managing your property portfolio will also require proper performance measurement, communications and review schedules, and status reporting and financial statements. You should always seek examples of these elements as transparency and candid performance appraisals are essential to managing your portfolio correctly by addressing shortfalls to objectives, issues requiring redress, and opportunities for performance improvement, in addition to your peace of mind.

You also need to choose a property manager whom you can work with and who, you believe, has your best interests at heart. Your property manager must be customer-centered and, unfortunately, in this business, this is not always the case.

There is no point entering a business relationship that is lacking in mutual trust and respect. You must have confidence in his ability to manage a business… your business… which just so happens to be a property portfolio. As with all investments, but especially investments in property, there will be good times and challenging times. There is no such scenario as “set and forget”. It doesn’t exist. If you do not respect the manager you have appointed, the relationship will not survive the more challenging times and you will need to go through the whole process of finding a replacement.

So take your time but invest your time to your benefit. Be sure to ask for referrals and call some existing clients. Seek out success stories. Ask to see examples of client reports so you have an idea of their work’s completeness, continuity and timeliness. Ask your property manager carefully thought out questions to enable you to gauge the depth and breadth of knowledge that he possesses.

Ensure that the organization you are dealing with has the resources to support the manager of your portfolio. In these times of eliminating overheads, individual performance can be inhibited because of a lack of organizational support. You should ask to meet the team.

Finally, remember, it’s your investment, and you need to ensure it’s in good hands providing you with the returns you expect with as little hassle as possible. Once you appoint a property manager, your ultimate return on your investment is largely in his hands.

Choose wisely.

عقاريون يطالبون بتشديد ضوابط الترويج محلياً لعقارات مقامة خارج الدولة

By Mohanad Alwadiya, CEO, Harbor Real Estate
Published in Emarat Al Youm
Dated: 13th March, 2016

طالب مسؤولون عقاريون بتشديد الرقابة على الشركات المسوّقة للمشروعات العقارية المقامة خارج الدولة، عبر إخضاعها لمعايير وضوابط محددة يتم من خلالها ضمان حقوق الأفراد الراغبين في ضخ استثمارات في هذه المشروعات. وأوضحوا لـ«الإمارات اليوم» أنه على الرغم من أن الإمارات قطعت شوطاً في هذا الجانب من حيث وضع لوائح وقوانين منظمة لعمليات التسويق لهذه العقارات الدولية، إلا أن الأمر يتطلب المزيد من الجهود لتنظيم هذا النشاط.

من جهتها، أكدت دائرة الأراضي والأملاك بدبي، أن مؤسسة التنظيم العقاري (ريرا)، وضعت شروطاً محددة لعمليات التسويق للعقارات الدولية، مشيرة إلى أن دبي لا تمنع أي ترويج لمشروعات عقارية من الخارج. ودعت المستثمرين إلى الحذر عبر التأكد من المستندات القانونية ومعاينة العقار قبل التعاقد مع شركات تروّج لعقارات خارج حدود الدولة.

في المقابل، أكدت إحدى الشركات المطورة لمشروعات عقارية خارج الدولة، أن الكثير من المستثمرين في الإمارات يهتمون بشراء عقارات خارج الدولة، بالتزامن مع انخفاض الأسعار بشكل كبير في دول محددة، فضلاً عن أن العائد الاستثماري مرتفع نسبياً.

تشديد الرقابة

وتفصيلاً، طالب المدير التنفيذي لـ«شركة الرواد للاستشارات العقارية»، إسماعيل الحمادي، بتشديد الرقابة على الشركات المسوّقة للعقارات الدولية، خصوصاً التي تنشر إعلاناتها بكثرة في الصحف الإعلانية المجانية، عبر إخضاعها لمعايير وضوابط محددة يتم من خلالها ضمان حقوق الأفراد الراغبين في ضخ استثمارات في هذه العقارات. وأكد الحمادي ضرورة توفير الجهات التنظيمية لقطاع العقارات بالدولة، أدلة استرشادية للتعريف بالاستثمار العقاري بالدول التي تتوافر فيها هذه المشروعات العقارية.

بدوره، قال مدير العقارات في شركة «الوليد للعقارات»، محمد تركي، إن «دائرة الأراضي والأملاك بدبي وغيرها من الجهات التنظيمية بالدولة، لابد أن يكون لها دور أكبر من خلال تعيين إدارة للتفتيش تراقب الإعلانات الخاصة بشركات وساطة عقارية التي تروّج لمشروعات عقارية دولية، وذلك للوقوف على حقيقة هذه المشروعات، وأنها موجودة من عدمه، ويتم ذلك من خلال مخاطبة الجهات الرسمية وهيئات التطوير العمراني في هذه الدول التي يتم الإعلان عن عقاراتها داخل الدولة».

السوق العقارية

من جانبه، أوضح المدير الإداري لشركة «هاربور العقارية»، والمحاضر بكلية «دبي العقارية»، مهند الوادية، أن «السوق العقارية في دبي تشهد منافسة عالمية، وأن الكثير من الدول تهدف إلى جذب استثمارات عبر تسويق عقاراتها في الإمارة والدولة ككل»، لافتاً إلى أن «البعض يقوم بالترويج لعقارات دولية من دون وجود ضمانات، وهو ما يستلزم معه تشديد الرقابة على الإعلانات المرتبطة بهذه العقارات والشركات التي تقوم عليها».

ولفت الوادية، إلى أن «الاستثمار في الداخل أفضل من الاستثمار الخارجي، على اعتبار أن الاستثمار الخارجي يوجد به مخاطر عالية مقارنة بسوق العقارات في دبي والدولة، التي تتمتع بدرجة كبيرة من الأمان». وأكد الوادية أنه «على الرغم من أن دائرة الأراضي والأملاك بدبي تقوم بدور كبير في ضبط سوق الإعلانات العقارية عبر المخالفات، التي تصل إلى 50 ألف درهم لمخالفة نشر إعلان من دون موافقة الدائرة، إلا أن كثرة هذه الإعلانات واستهدافها السوق العقارية في الإمارات بهذا الشكل يستهدفان مراجعة الضوابط وتغليظها».

من جهته، قال الرئيس التنفيذي لشركة «إس إيه إس انترناشيونال للعقارات»، سيف بن يوخة، إن «دائرة الأراضي والأملاك بدبي عليها أن تقوم بزيادة الرسوم الخاصة بالإعلان عن هذه المشروعات العقارية الخارجية، بما يعود على الدائرة بعوائد مجزية على اعتبار أنها تخلق بيئة استثمارية جيدة لبيع هذه العقارات من خلال وجودها في مدينة مثل دبي».

عمليات التسويق

إلى ذلك، قال مدير إدارة الترخيص العقاري في دائرة الأراضي والأملاك بدبي، علي عبدالله آل علي، إن «مؤسسة التنظيم العقاري (ريرا)، الذراع التنظيمية لدائرة الأراضي والأملاك بدبي، تضع شروطاً معينة لعمليات التسويق للمشروعات العقارية من خارج الدولة، ويأتي في مقدمتها المستندات الواردة من خارج الدولة، ويجب أن تكون مصدّقة من سفارات الإمارات في هذه الدول ووزارة الخارجية ومترجمة باللغة العربية عن طريق مترجم قانوني».

وأضاف آل علي، أن دبي لا تمنع أي ترويج لمشروعات عقارية من الخارج، ولكن يتم التأكد أولاً من مدى صدقية هذه المشروعات عبر توثيق الأوراق الخاصة بها، فضلاً عن طلب استيفاءات محددة من الوسطاء العقاريين داخل الدولة، حتى يتم إعطاؤهم الترخيص للترويج لهذه المشروعات، مشيراً إلى أن «الأوراق المطلوبة في هذا الجانب تتضمن صورة من ملكية العقار وعقد تسويق بين مالك العقار ومكتب الوسيط العقاري، ورسالة توضيحية من الوسيط توضح نوع العقار (شقة) أو (فيلا) أو (بناية) أو (مبنى جاهز أو على الخريطة)، بالإضافة إلى تعهد من الوسيط بتحمل المسؤوليات القانونية كافة من ناحية البيانات المقدمة إلى (ريرا)». وطالب آل علي مستثمري هذا النوع من العقارات بالحذر عبر التأكد من المستندات القانونية ومعاينة العقار قبل التعاقد، مع شركات تروّج لعقارات خارج حدود الدولة.

في السياق نفسه، قال الرئيس التنفيذي لشركة «الوادي الأخضر»، (إحدى الشركات المطورة لمشروعات عقارية خارج الدولة)، زياد عباس، إن «دائرة الأراضي والأملاك في دبي تتخذ الكثير من الإجراءات التنظيمية الخاصة بالترويج لعقارات خارج الدولة، ومنها إلزام الشركات بتوثيق جميع العقود والأوراق الخاصة بالمشروع، وهو شرط لحصولها على ترخيص لترويج مشروعات عقارية يتم إنشاؤها في الخارج». وأكد عباس، أن الكثير من المستثمرين في الإمارات يهتمون بشراء عقارات خارج الدولة بالتزامن مع انخفاض الأسعار بشكل كبير في دول محددة، فضلاً عن أن العائد الاستثماري مرتفع نسبياً.

THE BEST INVESTMENT IS CLOSE TO HOME …

For investors, 2016 has arrived with a bang or, as some may argue, a dull thud that has been felt around the world. Since the New Year’s eve celebrations were wound down and hopes for a better year in 2016 were dialled up, The Dow Jones has fallen 7%, the S+P 500 8%, and the NASDAQ a nerve jangling 13%. Every other major financial market in the world reveals similar performances with Japan, China, London and Germany all showing significant declines during the same period. The Dubai Financial Market has recovered in recent weeks but is still 4% in arrears when compared to the start of the year.

So, what should an investor do? … How does todays investor make some progress towards increasing his or her wealth in 2016?

Investing in Dubai Real Estate remains a realistic and lucrative alternative which has significant potential to satisfy the appetite for investment returns. The fundamental reasoning is compelling.

From a macro level, Dubai needs people to support an economy that is expected to grow at an estimated 2.5%+ in 2016 but increasing exponentially as the end of the decade draws near. The reason for this growth trajectory is the commitment and determination to deliver on initiatives such as the 2020 World Expo and 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.

Dubai has managed to develop a level of diversification that will allow it to weather the current global oversupply of oil. With oil representing only about 4% of Dubai’s GDP, the effect of the decline in oil prices is not as drastic as some may think. While a reduction in public spending is to be expected, Dubai’s economy is being driven by fundamentals such as tourism and trade and the focus of spending will be on new projects to grow these important revenue generating economic segments and further diversification. Dubai’s attracted over 14 million visitors in 2015, continuing a growth trend of approximately 10% per annum since 2010 and is well on track to attracting over 20 million visitors in 2020.

And the 277,000 extra jobs that are generated to ensure the estimated 20 million visitors to the Expo see Dubai in its most favourable light is a significant statistic. The Dubai economy has an advantage over many western economies in that, looking forward, there is a requirement for intellectual and human capital which is not residing dormant and unutilised in the economy and attracting this critical resource can only result adding to economic growth, providing additional impetus for Dubai’s Real Estate industry.

Interest rates in the US will continue to rise and the AED will continue to get stronger. To invest in a market that nearing the end of a 20% correction and in a currency that certain to appreciate over the coming 3 to 4 years can only make sense, especially when finance is still relatively affordableand when considering the availability of off-plan purchases with highly lucrative payment plans.

And the market itself is becoming more efficient. Developers have learnt from the past and are continually revising projects still in the feasibility stages after carefully analysing future demand. This prudence in managing supply will help preserve values and confidence in how the market is operating going forward and is yet another indication of the markets rapid progress towards full maturity.

The structural shift towards more affordable housing in 2015 will 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, the cost of doing business in the emirate must be competitive when entrepreneurs or corporations are considering alternatives for their operations.

For a superior investment yield and strong return on your investment, the total returns that Dubai Real Estate provides will be hard to beat over the next 5 years. Properties in the burgeoning affordable segment continue to provide Gross Rental returns of 8% with 10% rental yields not uncommon and, because of the recent price correction in the market and the slew of financial incentives that have been introduced, accessing the yields and returns can be done with comparatively minimal capital outlay. And the good news is, and both rental yields and property values are expected to increase as the 2020 World Expo draws nearer so capital appreciation is expected to average 7% per annum between now and 2020

But returns are only one side of the equation… what about the risk? The ongoing development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, reveals a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term. The industry is much more resilient in 2016 and investors have benefitted enormously from the developments in this area.

There is no doubt that the past year has been challenging for equity investors, frustrating for fixed income investors and costly for investors who saw the valuations of their mutual funds, many leveraged with cheap finance, lose 20% to 30% of their value.

An investment in Dubai’s Real Estate cannot be ignored as an alternative, whether as a primary source of returns or as a contributing participant of a broader investment portfolio, to successfully generating wealth.

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.

Ask the agent

Question: I have just joined the market as a property investor. Can you please help me in determining an optimal rental rate to attract my first tenant?

There are different ways by which a good rental rate for your property can be determined, the simplest being the sales comparison approach (SCA) which relies on identifying a factor that is homogenous to similar, if not identical, properties. For example, if an apartment similar to the one that you are planning to invest in is attracting a monthly rental rate of AED 7 per sq.ft. per month, then this will indicate the likely cash flow you can expect. This is an extremely simplistic approach that we, as property managers, do not advocate although it’s surprising how many people limit their analysis to this simple method only.

A more comprehensive method is the capital asset pricing model (CAPM). The CAPM comprehends levels of risk and opportunity cost as it applies to your investment. This model identifies your potential total return on investment which is derived from capital appreciation in addition to net rental income, and compares it to other investments that you may be considering. This is a much more comprehensive evaluation tool which enables smarter investment decisions and, therefore, is the one that we use as a standard procedure.

Please ensure you engage an experienced and professional property consultant when considering building your portfolio. You are about to make a big decision, and you should utilize expertise that will help you minimize risk and maximize your returns.

Question: Has the market bottomed out? Is now the best time to buy, or should I wait for prices to fall further?

The property market is an industry full of surprises, and it is always hard to spot the bottom of a market cycle. However, the market has been correcting for over a year now, and we expect it to pick up again sometime this year as the next five years are expected to see strong economic growth in the Dubai. My recommendation, thus, is for you to start your property search immediately as proper due diligence can take time.

Know what you can afford. If you have the cash, I suggest you pay for it outright; however, don’t be afraid to take out a mortgage and make sure you consider the many and varied easy payment plans that are currently on offer as many of these plans will save you considerable amounts of money.

Think carefully about location, surrounding infrastructure, construction quality, and developer reputation as well building amenities. Properties which are close to the beach, with a sea view, a golf course view or are part of an iconic development, such as Downtown Dubai, usually provide good returns. If you have close access to the Dubai Metro, even better.

You also need to consider the effectiveness of the owners association, service charges and the quality of maintenance services as these will have an effect on the long-term value of your investment.

Finally, be purposeful, persistent, patient and pragmatic, and you are well on the way to making a very sound business decision.

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

Calculating optimal supply levels, particularly when emerging from a recessionary period when lots of project s were cancelled or delayed, is particularly challenging. It depends on an accurate estimation of construction timelines which are invariably fluid, and the demand for real estate assets which will emanate from population growth which, in Dubai’s case, will be largely driven by overall economic growth going forward. In addition, it needs to comprehend a lag effect from the time that conditions conducive to development are identified by developers and when properties are finally released onto the market.

Given that the economy of the emirate of Dubai is expected to grow at an estimated 5+ percent annually for the remainder of the decade, and initiatives such as the 2020 World Expo are expected to generate an additional 270,000 jobs, the demand for housing and commercial facilities is expected to grow significantly, going forward. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4 million people by 2020, a 7 percent annual increase from today’s population of 2.25 million.

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

Initially, your landlord needs to give you notice of at least ninety (90) days prior to the expiration of your current contract if he wishes to increase your rent.

You should familiarize yourself with Law No. 43 which was issued on 22 December 2013, and which replaced Decree No. 2 of 2011. It introduced the following restrictions (summarized) to take immediate effect with regard to the calculation and implementation of legally allowable rental increases:

There should not be any rent increase if the rent for the real estate unit is no more than 10% below the average rent that a similar property commands within a neighborhood
The annual rent increases, as specified by the decree, can range from 5% up 20% according to how much the current rent is less than the market average
The market average rates are to be determined by the RERA rental index (via the RERA Rent Calculator)

The implementation of Law No. 43 is necessary to safeguard consumer interest, the overall industry and the economy at large, from rampant and unjustifiable rental increases on existing rental contracts. It does not set out to control the rental value of new contracts and, where a property is to be let for the first time, or to a new tenant, it is up to the owner and prospective tenant to agree as to how much rent should be charged for the property.

Question: What do the terms “BUA”, “GFA” and “NFA” mean? I have heard some realtors use these terms and, as an investor, I am left in the dark.

Like any industry jargon, there are quite a few confusing acronyms used in real estate but those that you have highlighted are very important as they relate to the actual dimensions of the property you are buying or leasing. For this reason alone, it is imperative that you understand them and their significance.

The built-up area (BUA) is the total area being developed or constructed. It is the gross floor area plus parking plus any service area associated with the subject building or project.

Meanwhile, the gross floor area (GFA) is the total floor area of a building including any underground saleable or leasable area (such as basement shops) but excluding parking and underground technical areas. Any building used as some form of supporting service plant should be excluded from the GFA.

Finally, the net floor area (NFA) is the GFA as described above, minus the façade of the building (measured from the center line of glass), plant areas, service risers, building structural core, fire stairs, lifts and lift lobbies, common corridors and common toilets.

The individual measurements are used for separate reasons ranging from purchasing a building, calculating potential revenues to be derived from selling or leasing a building to estimating cleaning costs.

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.

The value of a property manager

So what should you look for in selecting a professional to manage your property?

Well, first of all, you need a professional who is experienced in the market. Not just in any market though, in this instance, the Dubai market. Typically, if you find somebody with at least 7 years of experience, you will have found somebody who has witnessed and survived the global recession, and that should provide a reasonable indication that they are in the business for the long term, and that they had the skills needed to navigate and survive Dubai’s last property slump. Many didn’t.

Choose wisely.

A YEAR OF UNCERTAINTY

The year 2015 would be remembered as a year of uncertainty and doubt; when progress towards long term objectives was overshadowed by the sheer enormity of what remains to be done, when new initiatives were devalued by doubt and a year when an avalanche of issues went unresolved because of uncertainty.

2015 was an important year on the humanitarian calendar. For the past 15 years, the United Nations has used its 8 Millennium Development Goals (MDGs) as the core development framework for the world. Its 2015 report revealed significant progress had been made towards all the MDGs. Millions of lives have been saved and improved living conditions provided for many more but the progress is overshadowed somewhat of what remains to be done, particularly in the areas of child mortality where, despite great achievements, 6 million children under 5 years of age died during 2015. As a father, I will definitely remember this shocking statistic.

It will also be remembered as the year that the global economic recovery started to slow amidst doubts surrounding its true health. Commodity prices collapsed ending a decade long boom and confusion reigned as central banks of various nations sent mixed messages on divergent monetary policies, quantitative easing and interest rates. Coupled with shock currency devaluations and overblown estimates of contagion, markets around the world were sent into a maelstrom of volatility. For many, 2015 will be remembered as a time of market irrationality, investor uncertainty and, in some cases, real fear of a return to a global recession.

The year will also be remembered as one of continued and widespread geo-political tension. Whether it be in the former Soviet bloc, Middle East, Eastern Europe, South China Sea, Asia or between the worlds super-powers, geopolitical turmoil has been ubiquitous. And while some may fear a new Cold War, the escalation of violence against innocents by ISIS and the export of its brand of terror to the world brings the stark realisation that humanity has rarely been so divided and so distant from any form of meaningful peace.

However, from a personal perspective, there have been some highlights. Despite all the mayhem and turmoil globally and regionally, and the decline in investor confidence that inevitably results, the industry of which I am a proud participant has displayed a resilience and maturity that simply did not exist in years past. The uncertainty, doubt and even fear, that has fallen like a fog on many in the midst of an overdue correction to the Real Estate market did not result in panic, overreaction nor despair, but a recognition that the market is responding as it should as it seeks equilibrium and sustainability.

While 2015 may be remembered as the year of unresolved issues, of doubt, uncertainty and sometimes fear, the opportunity exists for all of us to make 2016 the year of resolve, progress and renewed confidence. That’s why I prefer to look forward.

Time to hold on, or let go?

By Mohanad Alwadiya

The year 2016 has certainly made its entrance with a bang.

By mid-January, the Royal Bank of Scotland’s dire warning to “sell everything except high quality bonds” had everyone’s tongues wagging, with some analysts saying that yes, 2016 could lead the US and European markets down a substantial plunge. On the other hand, a few critics of RBS’s dismal pronouncement have advised investors to stay calm but keep a close watch on events as they unfold.

Reflecting the property market slowdown which became more marked in 2015, some distress sales had already begun creeping into the market which left me a little intrigued. It reminded me of a meeting I had with one of our most loyal clients.

As the owner of a portfolio of apartments purchased in early 2011, the past few years had been an extremely lucrative time for this client, and his success has been a result of his astuteness, objectivity, and well-developed analytical and decision-making skills refined by years of experience in an exciting albeit sometimes-risky market.

The topic of our conversation was whether or not to sell his property assets as the market has certainly slowed. I was surprised by the question as he had always held the view that owning property was an important part of his overall investment portfolio, and the assets he is holding are of excellent quality located in some of Dubai’s well-established or iconic areas. Rather than make a hasty decision that might be regrettable, I conducted a thorough review and constructed a recommendation for his consideration and eventual decision.

When reviewing the portfolio, it became apparent to me that now, more than ever, property portfolios require very careful management. While on the face of it, an easy decision would be to sell our client’s entire portfolio – not for a substantial profit, but simply for a “return of investment,” to quote RBS. But the question remained, if he were to sell part of his property portfolio, where should the money be invested? There was no answer as there was no plan.

As part of our analysis, we found that by retaining his portfolio, our client would continue to receive an average of 6.8 percent net rental returns per annum on the adjusted value of his properties over the next 5 years. In addition, notwithstanding the recent cooling of the market, we estimated that he could expect, on average, a capital growth of at least 6 percent per annum over the next five years for an estimated net total return of 12 percent per annum, a return we considered conservative.

The review included careful analysis of current maintenance requirements, future capital works, market factors, regulatory developments, industry forecasts and trends, alternative opportunities, risk factors, and the likelihood of relevant future events, whether they be economic, political, regulatory or financial in nature.

When I asked our client what alternative investment could provide the same return without taking on greater or excessive levels of risk or incurring new investment transaction costs, none could be identified.

The example of our loyal client clearly illustrates that now, more than ever, property portfolios require very careful management. We all know the market has cooled, but this is hardly a reason to make rash decisions without looking forward and doing some proper analysis.

Wherever you look around the globe, yield and total returns are getting harder to find, and the value of established property portfolios with good occupancy levels and good projected tenant retention are increasing in comparative value all the time.

Those investors who hold and nurture their existing property asset portfolios will do very well over the next 5 years, particularly those who have diversified their holdings to include some of the more affordable asset types as well. Conversely, rather than selling existing assets, the opportunity to use existing equity to take advantage of the current market slowdown and finance new acquisitions and expand portfolios is one strategy that we are working on with several clients now.

Not everybody has the time or is comfortable with managing a property portfolio, especially in times of change. However, there is expertise available to help you, and you should consider engaging a good property manager who will ensure that you maximize returns from your property portfolio and enable your long-term portfolio strategy to be realized.

Think of your investment as your business, a business that will be affected by many different factors and events. Proper management is essential, and you need to ensure your business is in capable hands – providing you with the returns you expect with as little hassle as possible.

And even as other prominent financial institutions like Standard Chartered and JP Morgan have expressed somewhat similar sentiments in terms of oil prices and stocks respectively, those investors with sufficient liquidity, and who already enjoy ownership of a varied stock of high quality performing real estate assets may want to consider acquiring more property after proper due diligence.

All knowledgeable investors know that, when all else fails, real estate is one type of asset that increases in value over time (capital appreciation)… even after being subjected to market highs and lows.

In sum, if you have what it takes to hold on to a good quality real estate portfolio, do not even consider selling at this stage. If market prices give you good reason to acquire more, why not? Remember the market cycle – right now, if you can still afford to purchase property, go right ahead and buy – but, as always, with eyes wide open.