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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 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.
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. Taking a five-year view, executing a purchase during this period will provide greater ROI.
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 am planning to invest in apartments to provide me with an income stream in the next 10 years. I 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 and are difficult to be misinterpreted. Then there is what I call the “doctrine of reason.” A commitment or willingness to resolve disputes through 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.
I have been looking for an apartment around the Dubailand area where I 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.
Source: Mohanad Alwadiya, Managing Director, Harbor Real Estate