Property

Property Times

Alwadiya

Now that the market has entered its correction phase, the time has come to consider whether you should take advantage of value opportunities that are starting to appear and benefit from the capital appreciation that is likely to accumulate over the coming five to seven years. For those who don’t have the cash readily available, the first step is to organise a pre-approved home mortgage. It’s always best to be in a position to make an offer for a house with your mortgage pre-approval in place rather than expect to arrange your mortgage once heavily involved in a negotiation process.

So, how to go about selecting the right mortgage for you?

You must first envisage your economic circumstances at least two years into the future and ask yourself the question … “Given my projected earning capability and desired lifestyle,  what  mortgage  payment  will  be financially feasible and acceptable to me in two years’ time?”

Why two years’ time?…  because most mortgages interest rates on offer at the moment are locked in for two years, after which you will be subject to likely interest rate increases as after an initial two year period of fixed interest rates, the mortgage reverts to a variable rate.

First of all, estimate your projected earning capability. Be real. We all hope to progress  rapidly  in  our  professional  (a.k.a. financial)  pursuits  but there are generally more people disappointed than delighted with their achievements. And, notwithstanding the latest reports of 5% salary increases for Dubai employees in 2015, history has shown that salary increases generally tend to lag cost of living increases so conservatism in estimating future cash-flows is a must.  Then there is lifestyle. Is there a new baby planned in the near future? … a new car perhaps? What effect will significant family or lifestyle events have on disposable income? Are there existing children who will need to start school in that time frame? All these events will have an effect on disposable income and thereby decrease the financial flexibility to address interest rate shocks. And finally, what is financially feasible may not be acceptable to you or your spouse. How much sacrifice are you and your partner willing to make to service your mortgage? What are you willing to do without and what lifestyle changes are you prepared to make? Once again, being honest with oneself is paramount.

So, notwithstanding correcting markets, value opportunities and cheap finance, cautious financial planning based upon realism and self-honesty is key when planning the purchase of your dream home. Your future happiness could well depend on it. As a general guide, we recommend that not more than 40% of your household disposable income be devoted towards paying down your mortgage. So once you have determined what type of repayment you are willing to commit to, then it’s a case of determining the mortgage amount you can actually afford. This will be determined by the Loan to Value ratio (LTV) you are prepared to accept, the amount of your own cash savings you are prepared to put towards the property, the tenure of the loan and the interest rate that you expect to be paying initially and well into the future.

When talking to mortgage providers, they will help you assess what mortgage is best for you by looking at a number of specific factors such as other debts (including credit cards) you may have, reliability of current and future income streams, the Loan to Value ratio that you would be seeking, the type of mortgage you prefer, your true disposable income and what other assets that you may own. Don’t be surprised if different mortgage providers  suggest  significantly  different mortgage  solutions  for  your  requirements including  repayment  options.  These will include the most common type of mortgage known as the Capital and Interest (Reducible Balance) Repayment Mortgage but you may also consider interest-only payments, part repayment and part interest-only mortgages although these types of mortgages are usually used for very specific investment purposes. Then it’s a case of deciding if you wish to undertake a fixed rate, variable rate or fixed/variable combination mortgage. Once again you need to think long term. If you think that mortgage rates are likely to rise and you would like to lock in a fixed rate of interest for the foreseeable future as long as you understand that once the fixed interest rate term comes to an end, a variable interest rate will apply. In many cases, the variable rate will be greater so planning is essential. If however, you expect interest rates to fall in the near future, a variable interest rate mortgage would make better financial sense as long as you have the flexibility to handle an increase in mortgage payments if interest rates do not follow your predictions and unexpectedly rise. There are a number of items which you should pursue as part of your mortgage negotiations. Try and have the mortgage establishment fees waived. Depending on the institution, this may save you up to AED3, 000. Also request that you are not penalised 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 AED10, 000, but you should try to have this stipulation dropped from your mortgage contract.

And finally, make sure your mortgage provider will allow you to utilise the equity being built up in your home as you diligently pay down your mortgage.  This equity will compound if the value of your property is increasing due to favourable economic or market factors. Some lenders will allow you to use this equity as security for further borrowing. This can be very handy if you want to make some major home improvements, buy a new car or perhaps invest in another property. When selecting a mortgage, the key is to know what you need and pick the one that best suits you over the long term.

Ask the Agent

A proficient and professional property manager will make your investment work harder for you and the additional returns you receive will outweigh any fees he might charge. The property manager should be able to provide you with a complete and realistic property assessment, strategy and activity plan designed to harness the true financial potential of your property. Considerations start with your objectives and requirements and will include history, current and projected future market factors and risk factors. The scope of consideration should be global, regional and local in nature, and your property manager should have a good understanding of economic factors, societal trends, industry knowledge extending to policy and regulation, finance and market dynamics. Choose your property manager carefully. Ask for referrals and call some existing clients. It is your investment, and you need to ensure it is in good hands.

 Can I buy property anywhere in Dubai and can you describe the difference between freehold and leasehold?

N0, you cannot buy property just anywhere m Dubai. As with most real estate markets, the development of land in Dubai is “zoned” or subject to plans depicting intended usage so there are stipulations as to where you can purchase and what you can construct. In Dubai, the two most fundamental and important forms legal property ownership are freehold and leasehold. If you own a property “freehold,” you essentially  own any buildings or structures and I stands on outright. You are registered as “freehold” owner with the Dubai Land Department and you will own the property you decide to dispose of it, either through commercial transaction or by transfer of ownership. Leasehold, on the other hand, means you acquire the rights to occupy a property for a fixed period  courtesy of a lease contract treated with the owner. The leases are usually germ, and allow the leaseholder to make d “cations, improvements or additions.

I am considering purchasing a property.The seller told me he was about to construct a well on the property to access water for his garden and fountain. Is this legal?

This is certainly not legal without express permission from the authorities. The restrictions placed upon drilling wells are governed by Law No. (15) of 2008 on Protection of Groundwater in the Emirate of Dubai.

Ownership of groundwater within the emirate is considered to belong to the emirate, and that groundwater may only be extracted or exploited by obtaining a license from the Dubai Municipality and an approval from DEWA.

Water is a necessary yet scarce resource in the emirate, and the objective of Law No. (15) of 2008 IS to protect the groundwater of the emirate of Dubai from pollution, depletion and salinization  in order to save it as a strategic reserve for emergency use. I suggest you use the tap.

I am an investor. Should I invest in commercial or residential real estate?

A lot will depend on what investments you are currently holding. I believe that the next untapped opportunity is commercial property, specifically office space. There is no doubt that there has been a strong focus on the residential market; however, despite Dubai’s strengthening economy, Investors have been slow to consider office space despite values having bottomed out early in the middle of 2013. Things are looking very promising for new business in Dubai and opportunities exist for commercial real estate investors to benefit accordingly. While office rental returns are in the very early stages of recovery, Dubai office space is still cheap. With a high, albeit shrinking, vacancy rate of around 30%, there are definitely opportunities for value purchases providing strong cash flows increasing with Dubai’s economic momentum over the longer term. Already, there is a relative shortage of Grade A.large floor plate, Single-owner space favored by multinational companies. As Dubai seeks to grow economically, readily available office space is one the factors that new enterprises will consider.

Question of the Week 

I have been operating operating my business in Dubai for eight years now. I am in a position to buy my office space, but this will require relocation. Should i do this or continue renting?

The old cliche of “Location, location, location”is critical. It is all about proximity and the convenience and prestige that a well-chosen location can bring to your potential customers, staff and business associates. You will find great value, very affordable and well-constructed office space in Business Bay, which will cost you anywhere between Dh95 and Dh150 per square foot, but it will be pointless if the location is a hindrance to conducting your business. You need to choose your location first and work from there.

Definitely think about purchasing your premises. Do a complete analysis to see if this option will work for you. If you are a business committed to operating long term in Dubai, it makes sense to own your office space, particularly if it is a well- negotiated purchase. There are still excellent deals to be had, but as Dubai’s economy continues to grow, they are getting harder to find.

If you decide to lease your premises, try to get the best deal possible and lock it in for at least three to five years. Lease rates in Dubai will be on the increase going forward and make sure you take advantage of the current rates.

 

ASK THE AGENT

Why should I use a broker instead of directly approaching the end-users or developers?

A broker or property consultant can help you determine what you are really seeking or require. Once your requirements are determined, he can help set your expectations with regard to availability and affordability. Setting a realistic budget based on disposable income, lifestyle expectations and willingness to take on debt is an important part of the process as is explaining how you can get the most for your budget. Any good property consultant will have extensive market intelligence on asset type availability, configuration, developer or contractor reputation, price, finance availability, etc. There is also the process of negotiation and finalizing a purchase. You will pay a consultant to add value by finding the property you require, saving you money, minimizing your risk, ensuring you are legally compliant and providing you with peace of mind.

Should I use my cash money to buy property or to seek a finance provider?

If your cash is currently employed in other assets, earning more than the current mortgage rates on offer, I recommend you borrow to finance the purchase of your property as long as you have the option of using your cash to pay down the mortgage once your mortgage interest rates start exceeding the return of your other investments. Property finance has been cheap for some time now but the opportunity to take advantage of today’s low mortgage rates will probably not be around in two or three years. We have been encouraging clients to buy as soon as possible and benefit from lower interest rates. Even where they had not found their perfect home, some of them settled for a less-than-perfect choice and plan to upgrade to their dream abode in the future. With careful planning, they will benefit from low interest rates in the ensuing few years, enabling them to grow their equity more quickly to a point where they can more easily afford their true dream home.

Should I assign a finance advisor when purchasing my first home, or should I do that myself?

I always recommend that clients consult with a financial advisor prior to purchasing property as this requires careful planning and a clear understanding of what it will entail, the effects it will have on lifestyle, the risks it may pose and the benefits of generating wealth through ownership. Sometimes it is difficult for clients to take an objective and realistic view because of emotions surrounding the purchase. A financial advisor can help you assess all these elements by helping you determine what you actually require, what you can afford, how best to use available finance and current assets, and how owning a home is going to enable you to grow your wealth. The financial advisor will view your property purchase as one part of your overall financial landscape and guide you into committing the right type and amount of resources to acquiring that dream home. I plan to invest in real estate.

Would you recommend investing in villas or apartments?

Villas provide lower rental yields but higher capital appreciation and vice versa for apartments. But the market rarely moves uniformly. There is always a difference in the investment returns to be expected from different asset types, in different areas, at different stages of completion, over different periods of time. In today’s market. I am recommending to my clients to invest in affordable apartments, or construct a portfolio of affordable apartments and villas. Projects such as those located within Dubailand Residence Complex including Queue Point in Uwan, Skycourts, Sarah Ajmal and Windsor Residence are filling the affordable housing void and, if you wish to diversify asset types, I suggest you consider Pacific Village as this project offers high quality, affordable and extremely spacious modern villas and townhouses. All provide affordable solutions with little compromise and have the potential of providing excellent returns.

Question of the Week

What are the steps in buying property in Dubai?

There are a series of checks and requirements to be completed to ensure an issue-free transaction. The first step is to consult a financial advisor who can help you determine what you can afford. You should then obtain a pre-approved mortgage if required.

Then you select a registered broker or agent, who can add value by allowing you to make the best decision.

Searching for the property of your dreams can be a frustrating and time-consuming experience. While you can delegate this to your appointed property broker, I recommend you conduct your own search as well. It will assist you in gaining an appreciation of what is available for your budget.

Once you have a property that is of interest to you, your broker must complete the necessary background checks to ensure there are no impediments to a sale.

If all is in order, you proceed to make an offer. If your offer has been accepted you need to sign an MOU which details the terms and responsibilities of both parties. You then provide a 10% deposit.

If you have applied for a mortgage, your bank will be informed of your intentions and carry out a property valuation. When the bank gives the go-ahead, the seller applies for an NOC from the developer.

An appointment is then made with the DLD to complete the transfer. The seller, buyer, respective agents and bank representatives attend to formalize the transfer. When all documents and transactions have been completed, you will receive the title deed.

ASK THE AGENT

There seems to be no doubt that real estate in Dubai is slowing. Do you see this as an opportunity or a long-term trend?

I do believe there is a price correction underway but we are far removed from experiencing a long- term trend. The pace of growth is falling back to what We might describe as being sustainable, not slipping into a period of across-the-board price contraction. We expect the market to achieve an average price growth of around 7% for the remainder of 2014 and maintain this average growth rate through to the end of 2015. The market in the first six months was still 4′.6% higher than the corresponding period a year earlier, despite the Dh52 billion worth of transactions conducted in Q2 being 15 down on the Dh61 billion that was written in Q1. There will definitely be value opportunities arising from this. faking a five-year view, executing a purchase during this period will provide greater ROI.

I am planning to invest in apartments to provide me with an income stream in the next 10 years.! have become aware of a lot of tenant-landlord disputes which make me reconsider. What are your thoughts?

As with all contractual relationships, the operation of the contract will always be effective if each party understands and accepts both parties’ rights and obligations according to the wording, provisions and clauses included in the lease agreement. All parties should also have a fundamental understanding of the law. The rental laws of Dubai are succinct and straightforward a d are difficult to be misinterpreted. Then there is what I call the “doctrine of reason.” A commitment or willingness to resolve disputes ugh arbitration and reconciliation will resolve issues before they escalate to a point where they require official intervention. Finally, I recommend you to have a professional manage your portfolio. He will handle issues and make your investment work harder for you.

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?

Make sure you deal with a reputable developer. One positive effect of the financial crisis was that a lot of poor developers were exposed and are no longer in business. Ask around or seek professional guidance as those in the industry have a good appreciation of who the reputable developers are. Make sure you know what proactive measures are taken to ensure the end product has been built to acceptable standards, and take the time to inspect buildings already completed. Warranties and any quality assurance policies should be discussed in detail. Have the sales and purchase agreement reviewed by a professional to ensure you have legal recourse should any quality issues arise. Upon completion, you have the right to inspect (snag) your apartment and report any legitimate issues.

I have been looking for an apartment around the Dubailand area where! think we can get more value for money. How do the properties there stack up?

As the Dubai real estate has moved through the recovery phase of its cycle, demand for more affordable developments has been rising rapidly due to a strong “trickle down” effect. This is because areas that were leading the recovery have become too expensive and people began seeking more affordable accommodation. This has resulted in developments such as Skycourts and now Queue Point overtaking the more established areas in terms of rental yield and capital appreciation. Apartments in Skycourts have seen excellent capital growth with some apartments growing by 15 to 20% over the past year. Demand for this type of affordable accommodation has been growing steadily and we expect Queue Point to benefit as well, especially as Dubai’s population swells in the run- up to the Expo and the demand for affordable housing increases.

Question of the Week

I own an apartment in Dubai Marina bought in 2012. i increased the rent six months ago with a new tenant. According to the RERA rent index, I cannot raise it any further. The market seems to have peaked. Should I sell it ?

Real estate anywhere is cyclical and Dubai Marina has performed very well since you purchased the property.

While the market may appear to have peaked, we believe it is part of the normal cyclical pattern of real estate markets.

Looking over the next five years, we expect the market to achieve an average price growth of around 7%. Bear in the mind that we are talking averages here, and Dubai Marina has a habit of outperforming the average.

So, it really comes down to alternatives. If you have identified an alternative investment to give you a better income stream and capital return than what you expect to receive in the next five years from your apartment. then the right decision may be to sell.

However, if you have not identified a better alternative, I recommend you hold on to the property as I believe that you will continue to receive at least a 5 to 7% net rental return and achieve around 7% P.A. capital growth for the foreseeable future. These types of returns are not easy to find.

Ask the agent

Around 60% of the occupants in our building are members of the OA, and I am being persuaded to join. Are they fully functional in representing the interests of homeowners?

The effectiveness of owners associations (OAs) will vary greatly depending on the commitment and expertise of the owners. I suggest you attend the meetings and see how you can contribute.An OA is comprised of and represents all of the owners of a jointly-owned property development which is registered as an official entity with RERA.

Its purpose is to manage, operate and maintain the common areas. The OA is also empowered to select and appoint suppliers and companies. A functioning OA will go a long way to ensuring that owners get what they pay for. Property owners should actively participate in the operation of their A. Neglecting to do so is to ignore the maintenance of their own property asset and live with the consequences.

We keep hearing that the market is cooling off. Do you think that there will be a major correction or dip in the market?

I believe a minor price correction is underway.

The price/demand correlation is definitely in play as the latest figures from the Dubai Land Department have confirmed what we have all been surmising, that despite being 4.6% higher than the corresponding period in 2013, the property market in Dubai in the first six months of 2014 has been slowing, with the second quarter producing Dh52 billion worth of transactions, down 15% on the Dh61 billion that was written in he first quarter.

However,l must reiterate that the pace of growth s falling back to what we might describe as being sustainable, not slipping into a period of deep, across-the-board price contraction. We expect e market to achieve an average price growth Of around 7% for the remainder of 2014 and maintain this average growth rate through to the end of 2015.

I heard about a new project called Ajmal Sarah which is located at Dubailand Residence. Do you advise me to invest there and why?

The Ajmal Sarah Tower is one of the latest additions to a hive of activity in Dubailand. lt is the flagship real estate project for the renowned Ajmal brand of perfumes. It has been designed and constructed to a very high standard and features high levels of quality and luxury elements from some world-leading luxury brands. It offers spacious units with a choice of studio,l B/R,2 B/R and 3 B/R apartments, and provides state-of-the-art facilities and amenities. Being located in the Dubailand Residence, it enjoys a location surrounded by leisure, shopping and entertainment options. With prices starting from around Dh530K and an in-house payment plan, the property provides excellent value for the astute investor. I would recommend it.

What is the difference between freehold and leasehold?

This is a very important question to resolve when considering the acquisition of a property as it determines whether you own your property outright or whether you have a landlord for the duration of your “leasehold.” If you own a freehold property, you essentially own any buildings or structures and the land it stands on outright.

You are registered as the freehold owner with the Dubai Land Department and you will own the property until you decide to dispose of it. Leasehold, on the other hand, means that you acquire the rights to occupy a property for a fixed period courtesy of a lease contract created with the owner. The leases are usually long term, often 99 years and frequently allow the lease holder to make modifications. However, they must do so recognizant that they do not actually own the property and must vacate eventually if the leasehold is not renewed

 Question of the week

What is REIT and do you advise me to invest in one?

A Real Estate Investment Trust (REIT) is a trust company that accumulates a pool of money through an initial public offering (lPO) which is then used to buy, develop, manage and sell assets in real estate. The IPO is identical to any other security offerings with many of the same rules regarding disclosure and reporting requirements and regulations. The investor, instead of purchasing stock in a single company, is buying a unit which is actually a portion of a managed pool of real estate. This pool of real estate then generates income through renting, leasing, selling and financing of property and distributes it directly to the REIT holder on a regular basis.

Units held in a REIT can be bought like a stock on a stock exchange. The REIT invests in real estate directly either by buying, selling or leasing properties or .by investing in property mortgages. Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in REITs that are listed on the stock exchange. Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels.

Investing in REITs is a liquid, dividend-paying means of participating in the real estate market. REITS allow the average investor the ability to invest in real estate without investing large amounts of capital or devoting a lot of time in directly managing a property portfolio.

Ask the agent

I have properties in Dubai Marina and Downtown Dubai and wish to acquire more. What areas in Dubai will have good investment potential?

Given that you are already exposed to the more upmarket areas, I suggest you use your next investment activity to diversify your property portfolio. There are some lucrative opportunities in the affordable housing segment which stand to benefit greatly from Dubai’s well-chronicled economic and population growth over the next five years. I suggest you look at the apartments in Queue Point in Liwan, Skycourts, Ajmal and Windsor Residence located in Dubailand. lf you.wish to diversify asset types, consider the recently launched Pacific Village located adjacent to the renowned The Villa Project, City of Arabia and Falcon City of Arabia. This project offers high quality, spacious villas and townhouses. All the above recommendations will provide you with good rental and capital appreciation returns.

We’re a family of five with three dogs relocating from New Zealand, with UAE work to be based in Business Bay. Which villa communities would you recommend for people like us?

You need not look further than The Villa Project. An easy 20-minute commute to Business Bay, it offers affordable and spacious living within a secure gated community complete with 24-hour security. The project was designed and inspired by Spanish architecture and is ideal for family living. It offers affordable free-standing 4, 5 and 6-bedroom villas set among lush and expansive landscapes ideal for exercising your dogs, and is located within easy driving distance from some leading schools. Amenities include a mosque, children’s nursery, playground, a community center and a new tennis academy. Spinneys s currently under construction and plans are underway for a new health club. Shopping is not a Issue with Dubai Outlet Mall only 10 minutes away, Mirdif City Centre 15 minutes away and The Dubai Mall 20 minutes away.

I heard about the Andalusia Collection at The Villa Project, can you please tell me what makes these villas more special when compared to other villas within Dubailand?

The Andalusia Collection consists of 69 ready-to- move-in premium limited edition villas renowned for their unique design, levels of grandeur, quality and value. It boasts some of the biggest plot sizes while the villas have been fitted with high quality features and fittings. Other features include marble flooring, designer staircases, an overflow swimming pool, decorative fencing, a fully enclosed and air-conditioned central courtyard and unique Andalusian archways connecting large living areas, some adorned with wooden beams. The project has proven very popular.lf you are interested in owning one, you better hurry because they are as popular as they are rare, and they are currently being offered with a 3-year in- house payment plan for a limited period.

I would like to buy an apartment for investment purposes. Do you advise I buy in the main areas of Dubai or should I consider the projects located in the outer rings of Dubai?

I suggest you consider the more affordable areas. Properties in International City, Dubai Sports City (DSC), Discovery Gardens and JLT have benefitted from a “trickle down” effect as the market has recovered and more people are now seeking more affordable accommodation. A wide variety of apartments in Skycourts and DSC achieved YTD average growth of 20.5%, 23% and 21%, respectively with demand being driven mainly by first-time home buyers and investors such as you. International City and Discovery Gardens have shown a 23% and 26% increase in rental income since the 3rd quarter 2012, respectively. I also suggest you check the apartments in Queue Point in Liwan, and Ajmal and Windsor Residence in Dubailand. They are all expected to perform very well going forward as the demand for affordable properties continues to grow.

Question of the week

How do I select the best real estate broker to represent me in buying my family home in Dubai?

For you, the homeowner, there are many considerations to take into account and what follows are just a few things to watch out for.
Look for an experienced and passionate team. The best way to find such is to ask around. Seek out friends or peers who have recently conducted a real estate transaction and listen to the positive as well as negative stories.

Look for an agency that exhibits breadth and depth of industry knowledge and expertise. Where conducting initial meetings, make sure you assess how much the agency or its brokers actually know.

Look for longevity. Those that survived the recent recession must be good.

Seek an agency with a strong network of contacts. Agencies with good relationships with key industry stakeholders such as major developers or authorities such as DLD, RERA. DEWA or the Economic Department will be able to operate more efficiently and effectively.

Finally, look for an agency that has received some form of industry or peer recognition. These are the hardest plaudits to get.