Managing director of harbor real estate and part-time instructor at the Dubai Real Estate Institute.
Q1. Will the prices of 2008 ever come back, and if so, when?
A1. Dubai real estate face values fell, on average, by 50% during the recent global recession. In some area, it was closer to 33%, and in others, closer to 65%, depending on the location an proerpty type.
For smiplicity’s sake, however, let’s assume that 50% is the representative value.
An investment needs to grow at approximately 7% per annum, compounded for 10 years to double in face value. Assuming your property consistently appreciates at 7% per annum, you would need to wait approximately 10 years for the face value of your real estate asset to double.
Many factors will contribute to this growth, including the pace of global economic recovery, regional economic and geopolitical factors, and of course, Dubai’s own growth strategies.
Don’t forget that one of the advantages of investing in real estate is that it can provide you a regular income and capital growth. Some properties in dubai today are returning between 7% and 9% net to the owner. This type of return is hard to match anywhere else.
Q2. I’m looking to rent a house, but I found that it has district cooling. Is this something good or bad?
A2. District cooling for the provision of chilled water has emerged globally as a way to provide cooling in a more environmentally sensitive way. Aside from the obvious benefit of having chilled water. Especially in the summertime, it helps in saving on the costs of electricity which will be reflected in lower DEWA bills for tenants.
However, the DEWA savings will be somewhat offset, as the overall utility chares of units that are equipped with chilled water district cooling will be slightly higher, since they include expenditures for fixed operating costs via the application for the appropriate consumption charges.
Most units which are serviced by chilled water district cooling are still offered at lower rental rates. If you look at newly-completed projects such as Skycourt, Rita and Moto Ciry, which provide this form of service, the affordability o units in these properties is enhanced by a number of elements, including more energy efficient cooling.
Q3. I would like to invest in a Two-bedroom apartment in Burj khalifa, but I’m not sure if that is a sound decision or not. What’s your advice?
A3. I am assuming that you are not referring to an apartment at the Armani Residence, and you are taking a long-term view of your investment.
The rate of return will depend on a number of factors, including the initial purchase price, cash inflow from the rent, cash outflow from the charges associated with maintaining the property and your projected capital growth.
Two-bedrooms (with maid’s room) in the Burj Khalifa are being advertised for around Hd3,000 per sq.ft., depending on the floor and view. Therefore, you will be looking at an outlay of approximately Dh 6 million for a reasonable-sized apartment. Service charges will be around Dh33 per sq.ft., so you will need to cash out around Dh66,000 annually.
Assuming you wish to achieve a minimum of 5% net rental return, you would need to charge around Dh366,000 per annum or Dh30,500 per month. Values in Burj Khalifa have virtually bottomed out and there have been positive signs of capital appreciation over the last 12 months. Barring a collapse in the credit markets and the recurrence of a global recession, you could reasonably expect an average capital growth of around 7% over the next 10 years.
This is particulat investment can be very lucrative. You will be investing in an architectural icon which will always give some measure of security because of its apparitional qualities, that even after taking a long-term view, the risks would appear to be of secondary importance to its value.