Industry

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.

Ask the agent

Can you explain the term capitalization rate?

Capitalisation rate (cap rate) is the rate of return on a real estate property based on the income that the property is expected to generate. It is used to estimate the investor’s potential return on investment. It maybe calculated by dividing the investment’s net operating income (NOI) by the current market value, where NOI is the total revenue derived from renting or leasing the property minus all operating costs. Put simply, the cap rate = NOl current market value. Given that the capital values for Dubai properties have shown greater volatility than the income being derived, the NOI being generated from the property at today’s value needs to be looked into. This allows us to see whether the property’s performance is improving or declining by referring to the cap rate. If the cap rate is declining, this leads us to conclude that selling the property would generate greater income.

Where do you think the best investment opportunities are in the Dubai real estate market?

Definitely in the affordable segment of the market!

We are encouraging clients to invest in this important segment as there are some great opportunities and the demand for affordable housing is likely to continue increasing as Dubai heads towards the Expo 2020. There are many affordable developments that have been sprouting in Dubailand and other parts of the city, especially in the outskirts. They are strategically located, with easy access to major road networks like the Shaikh Mohammed bin Zayed Road, thus residents enjoy fast transit times to most of Dubai’s popular areas. The demand for this type of affordable accommodation will continue to grow. invest in apartments and retain ownership for atleast five years to gain superior capital growth and enjoy healthy net annual rental return in the meantime.

Do you think the property prices will fall further in this current cycle? If so, would now be a good time to sell?

The fact that the property industry is notoriously cyclical is widely known yet viewed differently. Investors with a clear strategy and long-term plan simply accept, foresee and plan for cycles in the industry. They look for longer—term sustainable growth rather than take additional risk by trying to accumulate wealth by taking advantage of shorter-term spikes or dips. Investing in property has a very simple purpose: to create wealth over the long term. However, your portfolio needs to be nurtured, maintained and managed to ensure its wealth-creating potential is achieved as it rides the inevitable cycles that occur in the industry. Adopting a short-term vision and reacting unreasonably to inevitable industry slowdowns will lead to underperformance in the longer term. Consider engaging a good property manager who will ensure that you maximize returns.

I plan to purchase our first family home. What are the factors to consider when getting a mortgage?

There are a number of considerations that you need to factor into your plan of buying a home. One of these is getting a mortgage. Generally speaking, you are much better off financially in applying your hard-earned money towards building equity, but keep in mind that mortgage payments can be subject to fluctuations as interest rates rise. Not all mortgages are the same. Try and have the mortgage establishment fees waived. Depending on the institution, this may save you up to Dh3,000. Also request that you are not penalized for paying the mortgage down faster or in its entirety. By law, the mortgage provider cannot charge you more than 1% of the outstanding amount or a maximum of Dhl0,000, but try to have this stipulation dropped from your contract. Make sure your provider will allow you to utilize the equity you build in your home over time. Some lenders will allow you to use this as security for further borrowing.

Question of the week

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

An escrow can be described as a legally recognized 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 ranging from those which establish the bona fide nature of the developer including details of its officers and solvency, title deeds proving ownership of the land to be developed, NOC from relevant parties to performance guarantees.