Mohanad Alwadiya
Published: Gulf News Free Hold
Dated: 14th May, 2016

Question: I have an apartment I wish to rent out. Which would be a more practical approach, getting a rental agent or a property manager? I heard that property managers usually charge more, why is that?

If you are going to engage the services of a realtor, you would enter a leasing agreement assigning the real estate agency to locate suitable tenants for your apartments, facilitate the signing of the tenancy agreement, and leaving you to assume the responsibility and devote your time to managing the tenant and all aspects of the property thereafter. A property management agreement includes a lot more.

A competent property manager will provide an assessment, strategy and activity plan designed to harness the true financial potential of your property. Considerations include history, current market factors and risk factors, whether they be global, regional or local in nature requiring a good understanding of economic factors, industry knowledge extending to policy and regulation, finance and market dynamics.

An activity plan will be provided covering pricing and marketing, customer relationship management, tenant management and policy, cost management, maintenance supervision, communications and review schedules, status reporting, financial reporting and resourcing. All of these activities will be performed by the property manager under a property management agreement.

A professional property manager will make your investment work harder for you and the additional returns you receive will outweigh any fees he/she might charge, which means less headaches for you.

 

Question: I am 52 and planning for my retirement with Dubai in mind as a future part-time retirement destination. Right now, I want to invest in a property I can rent out, then use personally in the future during retirement. Is this a good strategy?

Including property as part of your retirement plan is a sound investment decision and a safe bet to ensure you maximize whatever you savings or wealth you possess at this time. 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 in your retirement.

As the property will eventually be for your own use, you need to determine what you will enjoy in your retirement. The good news is, your tastes are likely to be shared by your tenants in the interim so renting should not be a problem.

Quality properties are available starting from AED 700 per sq.ft., but if you want to purchase in the prime areas of Dubai such as Downtown Burj Khalifa, somewhere close to the beach or with a golf course view, you can easily double or triple that amount. The choices are varied, and getting what works for you is certainly achievable.

You can expect a minimum net rental return of around 5% to 7% which, given the cheap financing available at the moment, makes for a solid investment in preparation for outright ownership and retirement. But be careful with fluctuations in exchange rates.

Factors such as location, the developer’s track record, building quality, service fees, building management and the existence of a functioning owner’s association will require a reputable local real estate professional to help you minimize any risks with your investment, whether during the procurement stage or managing your investment until you are ready to assume occupancy during retirement.

 

Question: What property characteristics should I, as a buyer, pay close attention to in order minimize any risks associated with my investment decision?

An old adage in real estate says “location, location, location” – as it is the first factor to consider and can drive up to 90% of any property’s value. The more established and prestigious locations such as The Palm, Downtown, Dubai Marina and JBR fared extremely well in the post-GFC period, and secondary, more affordable areas such as JLT, The Greens, Sports City, Discovery Gardens and International City followed suit.

But there are other factors as well. The quality of the end-product and maintenance services, and the extent of completion and quality of infrastructure should also be part of any investment consideration. With so much upcoming supply, buyers can demand, seek out and purchase the best of what is on offer.

Value for money and superior ROI must be considered very closely especially if you are an investment buyer. In the post-recession era, the chase for yield along with an increase in the level of critical assessment of true values has meant that properties that offer more in way of physical product and potential rental returns are attracting the greatest attention.

Current and future supply levels of various asset types need to be examined so consulting a reputable property broker to assist you is a must. For example, villas as an asset type, across-the-board, have outperformed other asset types because of supply shortages. However, when looking at the inventory pipeline, this may not be the case always as more affordable properties are likely to be in higher demand – a trend we are already experiencing.

But one thing is certain, it is the fundamental drivers of market values which remain, i.e. location, product features and benefits, product quality and demand and supply.

 

QUESTION: Can you please share some information on Dubai property management fees?

Like most services, property management fees would vary depending on the service provider. It may be anywhere between 3% and 6% of the rental receipts, and some will charge an administrative fee as well.

You need to know and understand what you can expect from your property manager as the depth and breadth of services provided by them in Dubai can vary greatly.

You can negotiate a fee structure based upon your actual requirements. We have had many clients who went with the cheapest on offer, with an ill-defined scope of services and, sadly but almost predictably, had very poor experience, resulting in all sorts of tenant problems, maintenance deficiencies, missed revenue, and generally poor advice with regard to marketing and obtaining the best returns from their property.

A competent property manager will provide an assessment, strategy and activity plan designed to harness the true financial potential of your property.

Depending on the size and complexity of your portfolio, you should have, as a minimum, a rolling 5-year activity plan which covers pricing and marketing, tenant management and policy, cost management and maintenance schedules. A competent property manager will also provide you with communications and review schedules, status reporting formats and regular financial reporting.

Ask for referrals and make sure you follow up with some existing clients to get an appreciation of levels of efficiency and professionalism.

 

Question: What would be the consequences if we hire a property manager who does not have the relevant property management license?

The property management practice has risen in importance since the last GFC made it harder for real estate brokerages to generate revenue from transactional services alone. In addition, demand for property management expertise grew rapidly as investors started to realise that investing in property is not a “set and forget” proposition, and requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

You need professional help to manage your property investment, particularly during times when yield is harder to generate. Your property manager must ensure that you maximize returns from your property portfolio while operating within the law.

Your property manager should be licensed, experienced and have a strong history of successfully managing properties. If you knowingly engage a person or organization who does not possess the correct license to manage properties, you are essentially aiding that person or organization to operate outside the law which places you in an awkward position should something go wrong.

In addition, if you have a legal dispute of any kind regarding your investment properties, any involvement of the non-licensed party that you have managed to manage your property will place your legal position in jeopardy.

It takes only a little effort to check on the licensing status of any organisation by referring your query to RERA, the regulatory authority for real estate professionals in Dubai. Remember, it is better to be certain than shoot arrows in the dark – especially when it involves investing your trust and hard-earned money in any business venture.