Aspire to be a Property Owner

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

Among the most fundamental (and practical) dreams people share in common is the dream of owning a home. But why is it that not everyone succeeds in this endeavor? Economics, of course, plays a significant role in the overall scheme of things. So, given the opportunity to purchase a property, or your home, no less, would you not hold on tightly and make sure you own (pun intended) it?

In Dubai, while there has been a correction in rental values, it has essentially lagged behind the correction in property values, and I do not believe that the general rent decline will exceed 10% in most areas. Rents will eventually start to rise from 2017 as preparations for the 2020 Expo start gathering pace.

I have always held a view that owning a property is essential to underpinning the accumulation of wealth and building net worth. Obviously, the accumulation of the property asset itself must be done judiciously and with a high level of diligence and care but, in my experience, the vast majority of people who have taken the step towards property ownership have benefitted significantly.

The essential question to ask is “How do I use my money to increase my wealth instead of the wealth of my landlord?”

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

Conversely, paying rent actually detracts from your ability to build net worth because, not only are you paying out money for no financial gain, but you are at the mercy of rental inflation as well. This is a problem because you are consistently being asked to pay more while your salary increases are lagging behind, effectively eroding your ability to build wealth. By owning your home, inflation is working in your favor because, in all likelihood, your property is increasing in value and, if kept for a number of years, will enjoy an inflation-driven compounding effect on its value. This allows you to build your individual net worth through the capital appreciation of your property – something which is very important for your financial future.

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

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

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

Then it’s a case of finding the right property. I suggest you contact a reputable real estate brokerage to assist you in doing this, but make sure that you conduct your own research as well. It’s a big decision you are making, and you need to make sure you take the responsibility and are fully aware of what you are doing.

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

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

Finally, think clearly and rationally. If you cannot find a property immediately that will satisfy your requirements and objectives, do not settle for less, regardless of what’s happening in the market.

reality_check

Reality Check

 BY CLAUDINE COLETTI
Forbes Middle East
September 2016 Edition

Mohanad Alwadiya is a man of many talents. As the host of MEMAAR on Dubai TV, he introduces VIPs to their dream homes, and as the CEO of Harbor Real Estate he manages a portfolio worth around $4 billion. Here he talks about why he loves his industry and what the future holds.

What is it about real estate that inspires such passion in you?

I see it as fundamental and critical to the existence and success of everyone and everything—individuals, families, businesses and whole economies. Real estate decisions are some of the biggest we will ever make. They affect our families, our employees, our cus­tomers, our shareholders, our citizens, our success, the way that people view us and even the way we view and express ourselves.

These decisions are quite often the determinants of whether dreams and aspirations are realized. Being in this business means we are able to play an important part in enabling people or organizations to achieve those dreams and aspirations, whatever they may be.

What motivated you to start the show?

MEMAAR was the brainchild of Dubai Channels Network. There was not a single property reality TV show in the Middle East, where structural real estate developments are an everyday occurrence. It has grown a lot since it first aired in May 2015. Our audience com­prises millions of viewers from all across the GCC and beyond. When it comes to our guests, we always try to select real clients from different backgrounds and objectives to offer a different en­riching perspective.

What’s the most expensive property you’ve found? And which has been the most inspiring story?

The most expensive property ever chosen was a luxury villa at Emirates Hills, which sold at AED 48.8 million. I’ve found all the episodes inspiring but if I had to short list one or two it would be when media entrepreneur Ali Mroueh went on a quest for a home to surprise his beloved mother. Or the truly inspiring story of Mr. Mahmoud Al Burai, Managing Director at Dubai Land Department, who entrusted me to help him identify the best income-producing investment asset to secure the future of his daughters.

What are your top pieces of advice for GCC and international investors for 2016/17?

Know why you want to invest in property

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. The more skillful you are at conceptual­izing, the greater your likelihood of generating successful strategies to grow your wealth.

Set your objectives carefully

Financial objectives. These should be reviewed annually and include elements such as total return, capital appreciation, revenue streams, net results and eventual divestment values, all wrapped up in an optimal time frame.

Think long term for your greatest success

Those who have had the greatest success can think long term, make rational, well researched and carefully thought out decisions with the end objectives in mind, and understand that the real estate in­dustry globally will go through cycles of growth and contraction.

Know your stuff

Investing in property is about recognizing and capitalizing on op­portunities that support your objectives. To do this, you must have some knowledge about the industry. This doesn’t mean you have to be an expert, but you need to be able to communicate intelligently with the experts.

Plan to eliminate risks

Plan your finances, cash flows, capital requirements, debt levels, etc, very carefully. Always plan for the worst and hope for the best.

How is the sector changing?

Real estate markets are feeling the effects of a general decline in glob­al economic growth. The world is still, after some eight years, trying to shake off the effects of the global financial crisis and while some economies have fared reasonably, others are still struggling. The re­sulting effect on consumer and investor confidence is quite negative. Yet the market is still developing. It is not stagnant. It is always a very promising sign when an industry demonstrates the flexibility and resilience to undertake a structural shift when market requirements change or develop.

News that the total value of real estate transactions in Dubai, at AED113 billion in the first half of 2016, represented a decline of around 12% from the first six months of 2015 may have disappointed some, but it did not tell the whole story. This figure was generated by 28,251 transactions, almost 25% higher than the same period last year, which is very good news. It demonstrates a market that is grow­ing in health, because it can provide more affordable solutions to a broader spectrum of investors.