Buy now, sell now

Here’s why it makes sense either way Helen Tatham

It is becoming clear in property sales that prices have started to touch  on a level that people are more comfortable with. We have seen an increase in the number of sales enquiries over the past two months and tenants are turning into buyers.

Those who are planning to remain a resident of Dubai for the next three  to five years would be mad not to buy, unless, of course, the company is paying their rent or they do not have enough savings to fund a 25 per cent deposit.

Rents have not declined at the speed predicted 18 months ago, particularly in the more mature communities.

With market stabilisation in mind, it is not only starting to grate on long-term tenants to pay exorbitant rents but they can see the opportunity to take possession of their own property while, theoretically, we are in a buyer’s market.

Economics also dictate that when rental yields are high, particularly above 6 per cent net, either rents are too high or sales prices are low. Either way, a tenant should consider buying and investors should invest because capital appreciation will also come into play.

Jean-Luc Desbois of Home Matters Mortgage Consultants takes us through an example to demonstrate how this makes absolute sense. Consider a tenant paying Dh150,000 per annum in rent for a two- bedroom apartment in Downtown Dubai, which equates to Dh12,500 per month. The tenant will have to pay Dh2.5 million to buy that apartment. A 75 per cent mortgage of Dh1.875 million could cost as little as Dh8,900 per month over a 25-year period. Immediately, we can see the difference in monthly outgoings.

However, in presenting a balanced view you should also factor in service fees and the ratio of capital to interest of the mortgage payment. Depending on the term of the loan, a certain percentage of the monthly instalment repays interest, with the balance repaying the loan (money in the bank). This reduces the actual cost of mortgage further.

Over three years the tenant would have paid Dh450,000 in rent, whereas by 2019 the property value would have potentially increased at a modest rate of 5 per cent per annum, i.e. Dh375,000, which means that the owner is now Dh825,000 better off having paid down some of the mortgage value.

Aside from the financial sense, the owner can comfortably become emotionally attached to the property. He or she may upgrade it and decorate it in a way that is not for the benefit of someone else.

So upon this realisation, how will existing tenants go about securing a good deal?

Some property owners see it as a good time to cash in, believe it or not. Many of the early investors still benefit from significant capital gains even at today’s prices so they can afford to sell at a reasonable price.

In many cases foreigners are repatriating funds into sterling or euros and are compelled to sell as the exchange rate works in their favour.
The strong US dollar won’t be around forever so it’s a real window of opportunity for some to export the cash. And, in more unfortunate situations, sellers are forced to sell due to personal financial stress.

My advice to a prospective buyer is to assess his purchasing capabilities in the first instance and then go to the market knowing what he or she can afford.

With a mortgage pre-approval in hand, one can confidently make offers on suitable properties without wasting any time and also act quickly to sign a sales agreement, which works well when in price negotiations.

The momentum of the market is likely to increase heading into 2017, with the completion of mega projects on the horizon and the World Expo 2020 putting another stamp on the global map for Dubai.

It’s easy to forget just how young this city is, but there is a long way to go from here and now is the time to own a part of it.

Source: Property Weekly


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