Ask The Agent

Mohanad Alwadiya

CEO, Harbor Real Estate

Can you please share some details on how rental increases are determined in Dubai?

Your landlord needs to give you a notice of increase at least 90 days prior to contract expiry. You should familiarise yourself with Law No. 43 which introduced the following restrictions (summarized) with regard to legally allowable rental increases: There should not be any rent increase if the rent for the real estate alit is no more than 10 percent below the average rent that a similar property commands within a neighborhood; The annual rent increases can range from 5 up to 20 percent according to how much the current rent s less than the market average, The market average rates are to be determined by the RERA rental index. The implementation of Law No. 43 is necessary to safeguard consumer interest, the overall industry and the economy at large from unjustifiable rental increases on existing rental contracts.

What documents do I need to provide so I can arrange for an agency to market and sell my villa? Give a proof of identity, usually a passport and/or Emirates ID, and a copy of the original sales and purchase agreement to be verified with the Dubai Land Department (DLD). If the property is leased, provide details of the lease agreement including the status of outstanding payments and any information pertaining to the history with the tenant. Also, provide the status of payments of service and owners association charges. The agency will sit and consult with you as to what your requirements are and prepare for you a letter of engagement which will contain the details of what you require from the agency and what fees have been mutually agreed upon. If you are located overseas and like an agency to represent you, you need to provide a power of attorney detailing the extent to which you would like the agency’s representation in the various facets of marketing and selling your property.

What property features should I prioritise when listing my apartment for sale?

If you have a listing agent or are already working with a realtor, they would know exactly what characteristics of your property should be highlighted to make it stand out from the rest and be highly marketable. But the most important features that will make or break your goal to sell your apartment include the fact that it must be competitively priced or paced just right for the market, its location or proximity to landmarks and important infrastructure such as transportation links and commercial districts, size, building facilities and community amenities, duality and current physical condition, whether or not it is being handled by a professional property management firm, or fully paid or financed. Also, make sure you mention any improvements done, and if it has special features such as a nice view, balcony, closed kitchen or extra storage.

I have just joined the market as a property investor. Can you please help me in determining an optimal rental rate to attract may first tenant? The simplest way to determine a good rental rate for your property is the sales comparison approach (SCA) which relies on identifying a factor that is homogenous to similar properties. For example, an apartment similar to your planned investment which attracts a monthly rental rate of Dh7 per square foot can indicate the likely cash flow you expect: however, as property managers, we do not advocate this approach. A more comprehensive method is the capital asset pricing model (CAPM) which comprehends levels of risk and opportunity cost as it applies to your investment. It identifies your potential return on investment derived from capital appreciation in addition to net rental income and compares it to other investments that you may be considering. This enables smarter investment decisions and, therefore, is the one that we use as standard procedure.

Question of the Week

With many attractive off-plan offers today, I am tempted to buy an off-plan property. But how do I know if I am buying one with real potential?

Whether you are buying ready or off-plan property, market fundamentals still apply. Make sure that an off-plan purchase is consistent with your property portfolio strategy. Location can never be disregarded. Considerations regarding how close the project is to commercial, educational and leisure hubs, medical and health facilities, public infrastructure, popular and established communities, and the manifold views one can enjoy all add up to the desirability of a property’s location. The asset type is also important. What type of asset will be in demand in the future: affordable apartments, townhouses or villas? Be smart about the “product” that you buy. Look for certain property types in locations which you believe will be keenly sought in the future. You need to do some careful financial analysis which will enable you to determine the value of the discount that you anticipate receiving by buying off-plan. Easy payment plans can ensure you limit your capital exposure before completion. Also, you need to be conversant with financial concepts such as net present value (NPV) and internal rate of return (IRR) to guide you in the decision-making process when assessing your alternatives.

ASK THE AGENT

I have accumulated a portfolio of apartments and villas in Dubai. Is there still a way to make any profit during this slowdown period?

There are too many investors who are under the illusion that investing in property is almost a “set and forget” proposition, but nothing could be further from the truth. The property industry is incredibly dynamic and requires constant attention as factors influencing its performance as an investment are as broad as they are complex. Investing in property is no different from investing in any other assets. Its purpose is to create wealth but it needs to be nurtured and managed just like any other investments. With a portfolio this large, you need professional help to manage your investment, particularly during times when yield is harder to generate. You need a good property manager who will ensure that you maximise returns from your property portfolio and enable your long-term strategy to be realised.

 

We’re a new 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. For instance, great value, affordable and well-constructed office spaces are found in areas like Business Bay, but may not work for your business 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 in Dubai will soon increase, going forward, so make sure you take advantage of current rates.

 

How do I know if my property consultant is giving me the correct advice?

In any relationship, trust is key. Do some research to verify the veracity of his claims and assertions. If in doubt, seek alternatives as there are plenty of property consultants out there hungry for your business. Look for experience and passion. Ask friends who recently conducted a real estate transaction and listen to their feedback. Find a consultant that exhibits a breadth and depth of industry knowledge, and expertise. Look for an agency that has been in the industry for a long time and has built good relationships with major developers or authorities such as DLD, RERA, DEWA or DED for they will be able to operate more efficiently. And finally, look for an agency that has received some form of industry or peer recognition as they lend credence to the reputation of the realtor in question.

 

I come from overseas and I am looking to rent a home. I heard about “district cooling.” What exactly does it mean?

District cooling for the provision of chilled water has emerged globally as a way to provide cooling to buildings in a more environmentally sensitive way. It is considered to provide great benefits in the long run and helps save on the costs of electricity. Most units serviced by chilled water district cooling are offered at slightly lower rental rates. However, ask how your cooling charges will be calculated and which are included in the cost. As to consumption charges, I assume you will have a BTU metre installed in your apartment. If so, you will be billed directly by the cooling services provider. The DEWA savings will be offset somewhat as you may incur an additional utility charge as some unit owners equipped with district cooling will be passed on the slightly higher utility charges involving the remuneration of the capital cost of providing the infrastructure.

 

Question of the Week

I am looking at the UAE as a possible destination for retirement. I would like to buy a property here, rent it out initially and later use it myself. Any advice?

The key to choosing your property is determining the right balance between the amount to be invested, the returns you require in the interim period before you retire, and what type of property you want to enjoy during your retirement. The good news here is your tastes are likely to be shared by your tenants in the interim so renting it out should not be a problem. There are many quality properties available; however, if you want to purchase in the prime areas of Dubai, either in Downtown Dubai or somewhere close to the beach or with a golf course view, the amount is double or triple. You can expect a minimum net rental return of around 5 to 7 percent which, given the cheap financing available at the moment, makes for a solid investment in preparation for outright ownership and retirement. Be careful with fluctuations in exchange rates. Factors such as location, the developer’s record and reputation, quality, service fees, building management and a functioning owners association will require a reputable local real estate professional to help minimise risks in your investment, whether during the procurement stage or until you are ready to assume occupancy.

Why buy rather than rent this year?

I am predicting that over 70% of the people who are reading this article are concerned about ensuring their financial security by building equity or “net worth”.

I am also predicting that every person reading this article understands that owning property allows will allow them to achieve their financial security goals by building an asset base that will serve them and their families’ well into the future.

For those who don’t act upon that knowledge, the opportunities that will emerge in 2017 will go begging and are bound to be viewed in retrospect with some regret by the clear majority of Real Estate investors because, put simply, only a few will open their eyes to the opportunities that 2017 will offer. History has shown us time and again, the majority will be too late to make the most of the opportunities on offer today. They will wait, pontificate and procrastinate and, later ruminate on how they missed the boat.

If you are living in Dubai now, you are uniquely placed to take advantage of a variety of positive developments.

For a start, the market is offering the best value for some time. A slew of affordable properties that have been launched over the past 2 years and there will be more launched in 2017. This structural shift in the market has been a boon for first home buyers and affordability, or a lack thereof, as a reason to continue to rent is disappearing fast. Whether it’s an affordable studio or a luxury villa, there are great value opportunities in every segment of the market supported by the most affordable payment plans seen in years.

Also, the value of your property will be increasing as the US dollar continues to strengthen in 2017. The US Federal reserve is 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.

And then there are mortgages themselves … although interest rates will be increasing going forward, they will remain at very affordable levels for quite some time. Now is the time to do some financial planning to determine how you can obtain that most desirable of assets, the family home.

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 3.4 million people by 2020, a 7% annual increase from today’s population of 2.25 million.

While the price of oil is a big issue for the region’s economies, with oil representing only about 4% of Dubai’s GDP, the effect of the decline in oil prices is not as drastic as some may think. Infrastructural spending continues unabated with the total budget outlay of Dh 48.7 billion for 2017 being marginally up from Dh 48.55 billion allocated to 2016. Looking at the 5-year budget plan of Dh 248 billion, the average annual spending of Dh49.6 billion is higher by 6.5 per cent than Dh 46.6 billion spent during 2014 to 2016 inclusive. This is significant as it demonstrates an unwavering commitment to economic and societal development.

Dubai’s economy is being driven by fundamentals such as tourism and trade and a slew of new projects to grow these important revenue generating economic segments. Predicted by Mastercard’s Global Destination Cities Index to be the 4th most popular destination in the world by year end, Dubai will have welcomed almost 16 million overnight visitors in the by the close of 2016. This will represent a 12% increase over 2015 and continue a trend of approximately 10% per annum since 2010.

And those visitor number will seem paltry once the 2020 Expo kicks off. And the 277,000 extra jobs that are generated to ensure the estimated 20 million visitors to the Expo see Dubai in its most favorable light cannot be underrated in terms generating significant demand for Real Estate assets. Hosting the World Expo 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 is sure to have a significant effect on property values.

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.

2017 will be remembered as a year of the astute investor. When opportunity knocks, be ready to welcome and embrace it.

Published: Gulf News Freehold
Dated: 19-March-2017

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.