2019 – Fortune favors the brave

2019 – Fortune favors the brave

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” Warren Buffet.

2018 was a fearful time for most investors. If not fearful, it was certainly a time of significant concern

We learnt that in 2018, the world is now even much more complex, smaller, more intricate with ever increasing interdependencies between nations, cultures, societies, sciences, industries and economies. With 2018 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.

In the face of such global disruption and uncertainty that was experienced in 2018, there is only so much that policy makers in each respective country can achieve. The major global players, once aligned in policy and viewpoint when tackling the global financial crisis, have now disbanded, focusing more on satisfying nationalistic interests at the expense of the global good. This is unfortunate and one only hopes that those with longer term and broader perspectives will eventually prevail.

Dubai, with an economy that has tourism, trade, construction and financial services as primary drivers of economic and population growth, will continue to be affected by global machinations, whether they be political, diplomatic, financial or otherwise. Local industries will be affected by global events. Its inescapable and something that we all, as diligent investors, need to understand.

So, the Real Estate industry in Dubai in 2019 will be shaped by any event or occurrence which affects Dubai’s population growth through its ability to provide opportunities for business and individuals alike; such as the disposable income of its residents and visitors, the affordability of the UAE dirham, the levels of available liquidity to its local and foreign investors, its governments revenues, its relationships with other countries or its commercial infrastructure will have an effect on our industry. It’s a fact that, as professionals within the industry, we all have to contend with.

So, we need to look at those variables that will drive the industry.

Our first consideration is population growth. A growing population is the fuel of any property industry and it will be Dubai’s population growth that enables that bodes well for the market within the next 3 years, particularly as a spike in population growth is expected as the Expo effect takes hold closer to 2020.

It may come as a surprise to some that Dubai’s population has exceeded 3 million by end of 2018. This is up almost 331% 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% 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% in 2019 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 2020 Global Expo in addition to the time proven economic pillars of trade, finance and tourism. So, the opportunities are there to capitalize on this population growth and resurgence in demand for property during 2019.
Our second consideration is disposable income of residents and visitors. 2018 saw property values and rents decline significantly. Put simply, these changes make effectively increase, not only the purchasing power of the individual, but also the disposable income that the individual enjoys. First home buyers will not have it so good since 2009. The decline in property values, combined with the slew of developer purchasing plans, have created value propositions that will not be repeated for quite some time.

And, as our friend My Warren Buffet is so fond of saying, “Price is what you pay. Value is what you get”, and values in 2019 are unlikely to be bettered any time soon.

Our third consideration is the affordability of the UAE Dirham. There is no doubt that the strengthening UAE Dirham has contributed to the dampening of foreign buyers. Being coupled to a US dollar, being strengthened on the back of interest rate increases in the United States, has caused some to pause.

However, the US Federal Reserve is increasingly likely to slow its interest rate increase agenda. The recent concern in world markets about the effect that an overly hawkish US monetary policy might have on US and global economic growth is causing the Fed to exhibit a more dovish tone when talking about interest rates increases in 2019.

In addition, the recent fall in oil prices, while reducing the revenues of oil producing nations, has had a positive effect in helping the Indian rupee to stabilize, essentially stopping its freefall in value. By October of 2018, the Indian rupee had fallen to an historic low, taking over 20 Indian rupees to buy 1 UAE Dirham. Investing in Dubai suddenly became expensive for one of the UAE’s most important investor groups. In addition, repatriating Dubai’s currency back home was becoming a far better proposition than spending in Dubai.
But already, the rupee has strengthened by over 5 percent and is expected to continue strengthening through 2019, thereby increasing the attractiveness of investing in Dubai.

Similarly, the Chinese economy, markets and its currency, the yuan, have been in decline since the US inspired trade issues emerged. China is becoming an important source of investment for the UAE economy and the possibility of a full-blown trade war between China and the United States would, in addition to adversely affecting oil prices, may slow the rate of Chinese investment in the UAE.

However, as at the time of writing, it appeared that tensions may be easing and the beginning of productive and positive negotiations are foreseeable. Needless to say, a resolution would be significantly beneficial to world economic growth, investor confidence and renewed investor activity.

The real remaining concern is Brexit. This continuing saga appears to be headed for an outcome which, in the short term at least, will see a further weakening of the British pound, thereby making investment in Dubai a more expensive proposition for the British. The jury is still out on the timing of recovery of the British pound.

Meanwhile, the UAE banking sector is liquid and strong, with the central bank forecasting credit growth to the private sector to increase by 6.5 per cent in the first nine months of 2019. In addition, Islamic banking is growing at a rate of 9 per cent annually leading the Governor of the UAE Central Bank to state that “… the banking sector is in a very good position to excel and support economic growth” and that the banking sector is not being impacted by the correction in real estate values with banks continuing to provide credit to the industry. “The property market is in a good position, more than before, and lending continues,” the governor said.

Dubai’s infrastructural spending continues with a total budget of Dh56.8 billion being announced for 2019. 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.
And finally, notwithstanding some inflationary effect on consumer prices, the concerns that were being opined about any significantly negative effect of the newly introduced VAT do not appear to have materialized. 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 were concerned and, as has been shown in other economies that have introduced VAT, those concerns eventually proved baseless with time.

So, the picture is not as bleak as some may surmise. Quite the contrary. Taking a broader perspective and looking at all the major influences individually and logically, the picture suggests beckoning opportunities, particularly when taking a medium to long-term view.
There is no doubt that the market is nervous, but I believe that 2019 will be viewed as the year of the brave investors as they take advantage of a market that has achieved almost full correction, that is offering fantastic value and that will benefit from an economy that looks primed for sustainable long-term growth.

Complex, it may be, but unfathomable it is not.

Mohanad Alwadiya – Jan 2019

2018 – Lessons Learned

2018 – Lessons Learned

There is no doubt that 2018 was a challenging year for almost anybody in pursuit of growing their personal wealth. Some of the financial statistics and headlines from around the world provide some uncomfortable reading.

In America the Dow Jones Index fell 5.6%, The S&P 500 was down 6.2% and the Nasdaq fell 4%. It was the worst year for US stocks since 2008 and only the second year the Dow and S&P 500 fell in the past decade. December really capped off a terrible year. The S&P 500 was down 9% and the Dow was down 8.7% which made the month the worst December since 1931.

Apart from the marked decline in fortunes, 2018 will also be remembered for its nerve jangling volatility. The Dow has swung 1,000 points in a single session only eight times in its history, and five of those took place in 2018. Meanwhile, the S&P 500 was up or down more than 1% nine times in December alone, compared to eight times in all of 2017. It moved that much 64 times during the year.

And the damage wasn’t limited to the United States … China, feeling the effects of a looming trade war with the United States, saw its Shanghai Composite fall nearly 25% since the start of the year while the Shenzhen Composite, which includes many of the country’s tech firms, dropped by more than 33% over the same period. Meanwhile, in Hong Kong, the Hang Seng fell 14%.

Closer to home, Dubai’s stock market ended 2018 with a 25 percent annual loss, the worst year since the global financial crisis a decade ago, as the real estate and tourism sectors have struggled. In general terms, Real Estate values, depending on the asset type, have dropped year on year by as much as 11% while rent declines in some areas have reached 15% while many believe that tourists are delaying their visits until the Expo 2020 opens.

So why the distress? Much of it has been driven by an expectation of a global economic slowdown which has been heightened by US trade policies, monetary policy and political mayhem, a breakdown in relations between the super powers, the continuing Brexit soap opera, regional geo-political issues and concerns about the future direction of the major tech companies.

The resulting fear of an economic slowdown saw oil prices drop 24.9% to $45 a barrel after having closed as high as $77 a barrel in the middle of the year falling 41% from that price point.

So, why did all of this affect the Dubai’s Real Estate Industry in 2018? In a single word, globalization.

The world is now much more complex, but it is smaller with ever increasing interdependencies developing between nations, cultures, societies, sciences, industries and economies. 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.

In the face of such global disruption and uncertainty, there is only so much that policy makers in each respective country can achieve. The major global players, once aligned in policy and viewpoint when tackling the global financial crisis, have now disbanded, focusing more on satisfying nationalistic interests at the expense of the global good. This is unfortunate and one only hopes that those with longer term and broader perspectives will eventually prevail.

With an economy that has tourism, trade, construction and financial services as primary drivers of economic and population growth, it stands to reason that global machinations, whether they be political, diplomatic, financial or otherwise, will affect local industries. Its inescapable and something that we all, as diligent investors, need to understand.

Any event or occurrence which affects Dubai’s population growth through its ability to provide opportunities for business and individuals alike; such as the disposable income of its residents and visitors, the affordability of the UAE dirham, the levels of available liquidity to its local and foreign investors, its governments revenues, its relationships with other countries or its commercial infrastructure will have an effect on our industry. It’s a fact that, as professionals within the industry, we all have to contend with.

No longer is the purchase of a family home a simple milestone in life. No longer is the acquisition of an investment property a relatively simple exercise in mathematics or basic finance. No longer is the relationship between landlord and tenant based on a nod and a handshake. No longer is the inheritance that we build for our children easily established and secured.

The year of 2018 has showed us how it has all become very complicated very quickly and, as we look forward to the end of this decade, there is an increasing number of global factors that we at Harbor Real Estate will be considering as we advise our clients.

As I always love to say, complex it may be, but unfathomable it is not.

Mohanad Alwadiya – Jan 2019

جريدة الخليج: 53 % حصة البيع على الخريطة في دبي خلال ثلاثة أشهر

سجل السوق العقاري المحلي في دبي بيع نحو 6350 وحدة سكنية خلال الربع الثالث من العام الجاري 2018، واستحوذت المبيعات على الخريطة على أكثر من النصف بواقع 53% (3366 وحدة)، وتصدرت كل من «الخليج التجاري» و«مدينة محمد بن راشد» و«دائرة قرية الجميرا» مبيعات الشقق على الخريطة خلال هذه الفترة.
وتصدرت «المدينة العالمية» و«مارينا دبي» و«دائرة قرية الجميرا» مبيعات الشقق الجاهزة بنسبة 32 % من مجموع مبيعات الشقق الجاهزة خلال الربع الثالث لعام 2018
أما مبيعات الفلل والمنازل الفردية الجاهزة فقد تجاوزت المبيعات على الخريطة في الربع الثالث من عام 2018 والتي تصدرتها «روعة الإمارات» (اميريتس ليفينج (و«المرابع العربية» و«داماك هيلز» والتي بلغت مجتمعة نسبة 30% من مجموع مبيعات الفلل والمنازل الفردية الجاهزة خلال الربع الثالث

استقرار سعري

ولفت التقرير المشترك بين «هاربور العقارية» و«بروبرتي مونيتور» إلى أن الأسعار التي تم تداولها للفلل والمنازل الفردية قد استقرت خلال الربع الثالث من عام 2018 على أقل من متوسط أسعار عام 2017، وضاقت فجوة السعر بين الشقق والمنازل المستقلة. كما اتجهت أسعار الشقق أيضًا إلى الانخفاض وبلغت في المتوسط نحو 1.2 مليون درهم في الربع الثالث من عام 2018. كما أن تداولات العقارات الجاهزة التي بدأت في منافسة أنشطة البيع على الخريطة للفلل والمنازل الفردية منذ نوفمبر/‏تشرين الثاني 2017، قد استمرت في اتخاذ نفس المنحى خلال هذا الربع

 
في غضون ذلك، وخلال الأشهر التسعة الأولى من عام 2018 استمرت تداولات البيع على الخريطة للشقق في التصدر حيث ركز المطورون اهتمامهم على تزويد خيارات منخفضة الأسعار وخطط الدفع الميسرة والمنافسة
والمنافسة والتنازل عن رسوم  التسجيل وغيرها من الحوافز الأخرى

الرئيسي والثانوي

وطبقًا للبيانات الصادرة عن «بروبرتي مونيتور» فإن 27% من سعر تداولات البيع على الخريطة للشقق خلال الأشهر التسعة الأولى من عام 2018 تراوح بين 1,200 إلى 1,500 درهم للقدم المربعة. وبالمقارنة فإن أعلى سعر في السوق الثانوي للشقق بلغ بين 500 و 800 درهم للقدم المربعة
واستمرت شقق الاستوديو والوحدات ذات غرفة النوم الواحدة في تصدر المشهد الأنشط من حيث التداولات في كل من المبيعات على الخريطة والسوق الثانوي في عام 2018 حتى تاريخه
في الربع الثالث من عام 2018 سجلت أسعار المبيعات في سوق العقارات انخفاضًا ربع سنوي بنسبة 1.4% و 1.3% للفلل والمنازل الفردية والشقق على التوالي. ومن المحتمل أن النشاط الاقتصادي الضعيف وتسليم الوحدات السكنية الجديدة من المطورين لاحقًا هذا العام، أن يفرض مزيدًا من الضغط لخفض أسعار مبيعات المساكن. وفي تلك الأثناء، فإن إعلان حكومة دولة الإمارات في عام 2018 عن لوائح التأشيرة الجديدة لمدة عشر سنوات وتأشيرة الإقامة لمدة خمس سنوات للأجانب المتقاعدين سيكون له تأثير إيجابي على السوق في الأجل القريب

أداء الإيجار

كان انخفاض أسعار إيجارات الوحدات السكنية أكثر وضوحًا في «دبي لاند» و«الروضة – ذا جرينز» وفي «روعة الإمارات» و«موتور سيتي» و«المرابع العربية» و«فيكتوري هايتس» و كان متوسط التغير على مدى 12 شهرًا نحو7%
ومن المتوقع أن يستمر انخفاض الأسعار خلال الربع الأخير من العام الجاري وبداية عام 2019 مع وجود خطط لتسليم مساكن جديدة بكل من الملكية الحرة ومجتمعات الإيجار غير المنتهي بالتمليك في دبي
ومع ذلك، فإن أثر ذلك على بعض المشاريع سيكون أقل وضوحًا إذا استفاد المطورون من محفزات الطلب الفريدة مثل الواجهة البحرية والتشطيبات عالية الجودة والمرافق المجتمعية المتميزة

المعروض القادم

جرى تسليم نحو 6,000 وحدة سكنية في أنحاء دبي في الربع الثالث من عام 2018، وتركزت غالبية عمليات التسليم خلال الربع الثالث لعام 2018 في «دائرة قرية جميرا» و«منطقة برج خليفة» و«تاون سكوير» و«دبي الجنوب». واستحوذت الشقق السكنية على أكثر من 72% الوحدات التي تم تسليمها. أما بالنسبة لباقي السنة، فستتركز غالبية المعروض القادم في مناطق «الخليج التجاري» و«دائرة قرية جميرا» و«مدينة دبي الرياضية» و«واحة دبي للسيليكون» و«تاون سكوير»

مهند الوادية: 1.2 و 1.9 مليون درهم متوسط السعر

قال مهند الوادية، الرئيس التنفيذي لشركة «هاربور العقارية»: «من بين الملاحظات التي برزت في التقرير هذا عن السوق العقاري في دبي للربع الثالث من 2018، هو أن متوسط الأسعار الحالية للمنازل المستقلة والشقق يبلغ 1.9 مليون درهم و1.2 مليون درهم على التوالي، وهي تقريبا نفس أسعار ما رأيناه في الربع الأول من عام 2008 وقبل انهيار السوق المالي العالمي
وأضاف الوادية أن الفرق قبل عشر سنوات أن كنا في طفرة نمو اقتصادية سريعة متسارعة، حيث كان المشترون يلاحقون المكاسب المالية السريعة في ذلك الوقت، لم يتوقع الكثيرون أن السوق كان متجهاًً نحو الانخفاض الحاد، على الرغم من أن بعض العقول المنطقية تنبأت بحدوث هذه الحالة التي كانت وشيكة

محمد عبيدات: مبيعات الجاهز تتحرك للتفوقعلى نظيرتها على الخريطة

من جانبه أشار محمد عبيدات، الرئيس التنفيذي للتكنولوجيا في شركة بوروبرتي مونيتور إلى أن الجميع يدرك الوضع الحالي للسوق العقاري ونملك اليقين بأنه سيتحول قريبا للاتجاه الأعلى. ونرى أنه، بالنسبة للعديد من المشترين، فهذا هو الوقت المثالي لشراء منزل في دبي وأصبح الحلم هذا في متناول اليد حسب أسعار السوق الحالية
وذكر عبيدات أن بيانات نظام بروبرتي مونيتور تشير إلى أن مبيعات المنازل الجاهزة قد تخطت في الآونة الأخيرة مبيعات المنازل قيد الإنشاء في المشاريع المطلقة مؤخرا، وهذا أمر منطقي لأن العائلات المشترية لا تقدر أن تقوم بالدفع والانتظار لبناء منزل وفي نفس الوقت دفع الإيجار أيضًا، فهي تحتاج إلى منازلها الآن، وبالتالي فهي أكثر ميولاً إلى شراء المنازل الجاهزة في نفس الوقت

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.

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

ASK-THE-AGENT-4Nov17

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

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.

The Essential role of property asset managers

The role of the property asset manager is misunderstood by many, with the majority of property investors and other industry participants 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 asset manager will generate a greater return from a property portfolio and enable long term portfolio strategic objectives to be realized.

Any investor in property would benefit from a professional property asset manager but it is essential to   know what to look for in selecting a professional to manage their property(s)?

  1. Astute investors understand that you need a professional who is experienced in the market. Not just any market, but the Dubai market. Typically, if you find somebody with at least 10 years’ experience, you will have found somebody who has 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 to navigate and survive Dubai’s property slump. Many didn’t.
  2. Strategic Approach. A competent property asset manager will provide a whole host of services for the investor but the most important is the development of a Property Portfolio Strategy. The 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 which is designed to harness the true potential of your property and provide you with the maximum rate of total return. It is essential to have a well thought out strategy for your property portfolio if you are to maximize your returns.
  3. Knowledge and Understanding. 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 policy and regulation, finance and market dynamics.
  4. Planning Expertise and Ability to Implement. Forming a strategy is one thing, but being able to bring the strategy to life is quite another. A true professional will provide an activity plan which will include details of pricing and marketing, customer relationship management and tenant management and policy 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.
  5. Organizational Ability and Communication Skills. Managing your property portfolio will also require proper performance measurement, communications and review schedules, and status reporting and financial statements. Investors should always seek examples of these elements as transparency and candid performance appraisals are essential for managing your portfolio correctly by addressing shortfalls to objectives, issues requiring addressing and opportunities for performance improvement, in addition to your peace of mind.
  6. Customer Centricity. It’s important to choose a property manager who 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.
  7. There is no point entering a business relationship that is lacking in mutual trust and respect. The investor must have confidence in his ability to manage a business … the investor’s 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 challenging times and you will need to go through the whole process of finding a replacement.
  8. A History of success. The investor should be sure to ask for referrals and call some existing clients. It’s important to seek out success stories and ask to see examples of client reports to assess their completeness, continuity and timeliness. The investor must ask the property manager carefully thought out questions to gauge the depth and breadth of knowledge that he possesses.
  9. Finally, it’s essential that the organization the investor is dealing with has the resources to support the manager of the portfolio. In these times of eliminating overheads, individual performance can be inhibited because of a lack of organizational support. The investor should ask to meet the team.

Choose Wisely The investor must ensure that the property asset portfolio is in good hands providing expected returns with as little hassle as possible. But the investor must realize that once a property manager is appointed, the ultimate return on the investment is largely in his hands.

2017 … THE YEAR IS ALMOST HALF OVER

It was an interesting first quarter in Dubai’s property market. While prices generally approximated those of the last quarter of 2016, they actually fell by around 8% from the corresponding quarter a full year prior.

Nevertheless, and maybe not too surprisingly, total transaction value jumped by 45% for a total spend of around AED 77 billion on the back of a 7% increase in transactions. Needless to say, there were some pretty big deals done in the 1st quarter.

The 1st quarter industry performance shouldn’t come as a surprise to many. The market has been approaching its cyclical bottom for some time now and it appears that, barring unforeseen events, the decline in property values experienced last year has just about run its course.

So, what does the rest of the year hold? Well, I wouldn’t count on a rapid and sudden turnaround in property values. We are likely to do a bit of bottom-dwelling for a couple of quarters yet.

The headwinds that beset the property market may have lost some of their velocity, but they are still strong enough to make any sudden upturn in values very unlikely.

Nevertheless, the market is offering the best value for some time and will continue to do so for at least the next couple of quarters … but I wouldn’t wait too long.

Affordability has been key to keeping the market bubbling along, and a slew of affordable properties have been launched over the past 2 years and there will be more launched in 2017. First home buyers have never had it so good in Dubai and affordability, or a lack thereof, as a reason to continue to rent is now more of an excuse to justify either procrastination or excessive conservatism.

The strengthening AED has been a headwind, no doubt, particularly where those investors purchasing with the pound, euro and yen are concerned. However, for those who have purchased recently or plan to do so imminently, the value of your property will be increasing as the US dollar continues to strengthen in 2017.

The US Federal reserve remains committed to normalizing interest rates in 2017 which is good news for investors who are holding assets denominated in or pegged to the value of the US dollar, while the angst associated with Brexit is only just beginning. Although interest rates will be increasing going forward, they will remain at very affordable levels for quite some time, making financing through mortgages still very attractive.

And the economic environment will improve from this time forward. Put simply, Dubai needs people to support an economy that is expected to grow at an estimated annual average of 5% for the remainder of the decade and to deliver initiatives such as the 2020 World Expo. The Expo alone is expected to generate an additional 270,000 jobs and drive demand for housing and commercial facilities that, by and large, don’t currently exist. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4million people by 2020, a 7% annual increase from today’s population of 2.25million.

Meanwhile, oil prices continue to bubble around the USD45 to USD50 per barrel mark. Despite this obvious crimp on revenues, the governments Infrastructural spending continues unabated with the total budget outlay of Dh48.7 billion for 2017 being marginally up from Dh48.55 billion allocated to 2016. Looking at the 5-year budget plan of Dh248 billion, the average annual spending of Dh49.6 billion is higher by 6.5 per cent than Dh46.6 billion spent during 2014 to 2016 inclusive. This is significant as it demonstrates an unwavering commitment to economic and societal development with the investments in development initiatives being supported by revenues to be generated a newly introduced VAT in January 2018.

And despite global nervousness and uncertainty emanating from Brexit, terrorist threats, North Korean recalcitrance and virtually everything under the Trump administration, the global traveler is continuing explore the globe. Dubai’s economy continues to be driven by fundamentals such as tourism and trade and a slew of new projects to grow these important revenue generating economic segments.  Dubai welcomed almost 15 million overnight visitors in 2016 representing a 12% increase over 2015 to continue a trend of approximately 10% per annum since 2010. 2017 is expected to see the trend continue.

While it appears that the market may have been overburdened with a glut of new launches raising the prospect of an oversupply, the structural shift towards more affordable housing will not only serve to accommodate the expected rapid population growth associated with the 2020 expo, but also serve as an important factor in the development of the Dubai economy overall. Every emerging economy needs to develop a strong middle class as its expansion is critical to growing a sustainable economy and developing resilience in the face of external financial and economic shocks.

I stated earlier in the year that 2017 will be remembered as a year of the astute investor. Those that can recognize the headwinds and understand that every headwind eventually dies out, will do very well over the coming 7 years by investing in 2017.

 

Ask the agent

Should I assign my property to a leasing broker or a property manager?

You enter into a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments and facilitate the signing of the tenancy agreement, leaving you to assume the responsibility of managing the tenants and all aspects of the property thereafter. A property management agreement includes more. It provides an assessment, strategy and activity plan designed to harness the financial potential of your property. Considerations include history; current market, economic and risk factors; regulations; finance; and market dynamics. An activity plan covers pricing and marketing, customer relationship and tenant management, and policy and cost management. These will be performed under a property management agreement. A good property manager will make your investment work harder for you and the returns you receive will outweigh any fees.

I wish to sell my villa, but the garden needs a little bit of work. Is it worth investing in improving the garden? Am I likely to get my money back?

For your garden to become a selling point, you need to establish a low-maintenance and functional landscape that is highly appealing to the potential buyer. Resist the temptation to clutter the landscape with every species of flora known to man. Plants grow and you need to keep that growth in check as your garden can look unkempt and create a negative impression. Ensure that all landscaping elements must be coordinated carefully. If you don’t know or understand the differing qualities of certain soils, it’s time to call your landscape gardener and have him produce an impressive garden for you. Even if you don’t plan on selling your home for another five or 10 years, now is a good time to lay the foundation for a great landscape design that will win over your future homebuyers.

I am planning to invest in Dubai. As this would be my first investment, can you give any useful tips.
First of all, know why you want to invest in property. You must have a clear understanding of what you are trying to achieve. Then you must set your financial objectives carefully. Success in property investment can only be attained when (and if) those objectives have been realised. Always think long term for your greatest success. 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 in mind and understand that every real estate industry globally will go through cycles of growth and contraction. Make sure you know your stuff by being able to communicate knowledgeably with the experts. Always strive to eliminate risks. Plan your finances, cash flows, capital requirements and debt levels carefully.

With many new projects and off-plan opportunities, I am nervous about the quality of end products. Can we expect an improvement in quality?

During the global financial crisis, many developers realised that properties of poor quality were dealt the harshest of value declines. As a result, many developers did not survive. Having said that, the old caveat of “buyer beware” still applies. Deal with a reputable developer. Ask around or seek professional guidance. Ask what proactive measures are taken to ensure the end product has been built to an acceptable standard. Warranties and any quality assurance policies should be discussed in detail, and have the sales and purchase agreement reviewed by a professional. Engage an expert to inspect (snag) your property and report any legitimate issues to the developer for rectification. Remember, once you have taken ownership of the apartment, the developer is still obliged to fix any issues that may arise during the full 12 months following the transfer of ownership.

Question of the Week

I am buying an off-plan property. Can you explain the principle of escrow.

An escrow can be described as a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party (bank) providing the escrow service until it receives the formal advice that certain previously agreed obligations of the seller have been fulfilled upon which time, the seller can receive funds to the amount specified in the agreement between the seller and buyer.

The use of escrow accounts by Dubai developers has now been mandated by law for the purpose of protecting the prepayments made by buyers. This limits developers from gaining access to funds until certain construction milestones are completed, helping ensure developers are not misappropriating funds provided in advance for purposes other than which they are intended.

Anybody can open an escrow account, but not anybody can open one for the purposes of property development in Dubai. The developer must first be registered as a bona fide developer with RERA which involves providing documents including details of its officers and solvency, title deeds proving ownership of the land to be developed, NOC from relevant parties to performance guarantees.

Gulf News Saturday, June 10,2017
FREEHOLD