Investing in a Pre-World Expo Environment

Investing in a Pre-World Expo Environment

Event expected to provide the impetus for continued growth in all segments. 

A lot has been said, and much has been written about Dubai’s Expo 2020 bid, and the successful aftermath of the long wait for this prestigious event that is scheduled to start Oct 2020.

Many industry insiders have been predicting how a world Expo would lead to the escalation of property rates in the emirate, and people waited, with some enthusiasm and excitement, and a tinge of fear, thinking that a sudden bubble could form and hurt the industry on the long run.

Logic dictates that hosting the 2020 World Expo will provide the impetus for continued growth in all segments of the Dubai real estate industry but, as with all extraordinary events, there are many nuances that must be considered.

The residential segment will enjoy a surge in demand for accommodation of all types, from labor camps to apartments to executive villas, for the additional 270,000 or so new jobholders that will enter the market.

However, we expect a gradual rise in rents leading up to and including the period of the event to be more likely than a sudden spike.

This expectation is based upon analyses of existing supply-demand streams, increasing industry regulation and oversight, and the fact that Dubai winning the Expo 2020 bid was already partially priced in by the market.

Values will rise, but differing asset types and locations will not move in unison. As the Expo 2020 preparations continue to move from the analytical and planning phases through to implementation and eventual launch and operational phases, real estate requirements will differ.

Initially, investor demand will drive much of the value appreciation. However, initial end-user demand is likely to increase for accommodation, both for villa and apartment units, with close proximity and easy access to the Expo 2020 site itself.

The demand for this type of property will continue to increase in the run-up to the launch and duration of the Expo, and the capital return curve will steepen as the event approaches.

Meanwhile, office and commercial space in general some located within the Jebel Ali Free Zone will also benefit from a rise in demand as operations are commenced for those companies involved in the initial construction or preparatory phases.

Developments in close proximity to the Expo site will be in focus as logistics, storage and service providers look to set up operations. Labor camps will be required from the initial stages as the race to implement the infrastructure required to cater with so many visitors begins in earnest.

Demand for residential, retail and commercial space alike will spread to the more central areas of Dubai at a later stage as retailers, hotels, service providers, and those operations supporting the tourism industry hire additional staff and set up operations to support the event, service the bevy of new business operators, or the millions of additional shoppers.

So, while the World Expo 2020 is great news for the industry, it brings with it a new set of considerations for the prudent investor. Which assets, located where, purchased in which timeframe are likely to provide the best return on the investment dollar and, perhaps, more importantly, what is the likely performance of the asset when the event is over? The 2020 World Expo will provide many opportunities for real estate investors, but maximizing returns will require some very careful planning.

lifetime_opportunity

A lifetime Opportunity

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

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

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

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

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

So, as an expat, why buy your home instead of renting it? Some may re-phrase this question by asking “How do I use my money to increase my wealth instead of the wealth of my landlord?”

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

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

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

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

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

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

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

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

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

Buy, don’t rent!

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

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

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

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

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

So, as an expat, why buy your home instead of renting it? Some may re-phrase this question by asking “How do I use my money to increase my wealth instead of the wealth of my landlord?”

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

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

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

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

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

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

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

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

mohanad_professional

Gulf News Freehold – Expert Eye

Why invest in real estate

before 2016?

The opportunities that have emerged so far will be too good to pass up

There have been a number of reports recently estimating the effect of the correction on Dubai’s real estate market. The most recent forecast shows a reduction of anywhere between 10% and 20% by the end of 2015.

The opportunities that have emerged so far in 2015 and will continue to emerge as the year progresses will be too good to pass up. Why is this, you ask? Oil prices are not expected to go anywhere soon. The decline of the Russian ruble has effectively made offshore investing too expensive. There is a growing oversupply, and the inevitable interest rate increases on the US dollar and its dirham cousin will further hamper liquidity. While these considerations are valid and worth considering, we need to put our positive hat on for a while.

Put simply, Dubai needs people to support an economy that is expected to grow at an estimated 5% annually for the remainder of the decade and to deliver initiatives such as the Expo 2020. The event alone is expected to drive demand for housing and commercial facilities that currently do not exist. 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% annual increase from today’s 2.25 million.

While the price of oil is a big issue for the region’s economies, the effect of the decline in oil prices is not as drastic as some may think. The Dubai economy is being driven by fundamentals such as tourism and trade, and a slew of projects to grow these important revenue-generating economic segments. Dubai has attracted almost 12 million visitors in 2014, continuing a growth trend of approximately 9% per annum since 2010.

And those visitor numbers will seem paltry once the Expo kicks off. Hosting the event 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.

We all know that the ongoing speculation surrounding the US Federal Reserve’s intention to raise interest rates is making many people nervous. However, we can be sure that interest rates in the US will eventually rise and the dirham will continue to get stronger. To invest in a market that is undergoing a 10% to 20% correction in a currency that is certain to appreciate only makes sense, especially when finance is still cheap and will remain so for quite some time to come.

While on the topic of certainty, there is no doubt that a stabilized real estate market will provide a much better launch pad for what will be a period of significant economic and commercial activity over the next five to seven years. The structural shift towards more affordable housing will not only serve to accommodate expected rapid population growth associated with the 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. 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.

Talking of alternatives, there is an array of asset choice which has not been seen for some time. The availability of off-plan purchases with highly lucrative payment plans is unprecedented. There are investment opportunities in every segment of the market supported by the most affordable payment plans.

This year will be remembered as a year of the astute investor. Don’t miss out.

mohanad_in_style

Boost your portfolio

By Mohanad Alwadiya

Long-term planning is paramount to maximize financial gains

I have a property portfolio consisting of a mix of one and two-bedroom apartments in Jumeirah Lakes Towers and Dubai Marina. How can I capitalize on opportunities that arise as the World Expo 2020 draws near?

You need to seek professional advice. Many landlords across Dubai are bound to miss out on the revenue-generating opportunities that the Expo will bring because of poor or non-existent planning. A competent property manager will maximize your financial gains by providing an assessment of the opportunities and a strategy. Do  not  make  the  mistake  of  leaving  your  planning  for  too late. You will need to comprehend current and future market conditions and events, factors that may enable or inhibit revenue growth, inflation and cost increases as well as a complete understanding of financial modelling and the ever-developing area of industry policy and regulation. Depending on the size and complexity of your portfolio, you should have, as a minimum, a rolling five-year activity plan, which covers cost management and maintenance schedules, pricing and marketing, and tenant management and policy. A competent property manager will also provide you with communications and review schedules, as well as status and financial reporting.

There are a lot of opportunities to buy off-plan at the moment.  How can I protect myself against buying an apartment of inferior quality?

Firstly, make sure that you are dealing with a reputable developer. A positive effect of the recession was that a lot of inferior developers were exposed and are no longer in business. Seek professional guidance — those in the industry have a good understanding of who the reputable developers are. Secondly, ask about the proactive measures taken to ensure the product is built to an acceptable standard and take the time to inspect the developer’s completed projects. Warranties and any quality assurance policies should be discussed in detail. Get the sales and purchase agreements reviewed by a professional so you have legal recourse should any issues arise. Upon completion you have the right to inspect your apartment and report any legitimate issues to the developer for rectification. Matters that can be remedied in the short term should be fixed immediately.  Remember, once you have taken ownership of the apartment, the developer is obliged to fix any issues that may arise for 12 months following the transfer of ownership.

Mohanad Alwadiya is Managing Director of Harbor Real Estate and advisory board member and instructor at the Dubai Real Estate Institute, the official training and certification arm of the Dubai Land Department.