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A curious trend has emerged as Dubai’s property market hits a low point in terms of number of transactions this year — more properties are being inspected before they are purchased. The Dubai Land Department recorded 5,662 land transactions in the first four months, down from 9,655 in the previous year and the lowest since 4,975 deals were registered in 2009.
Meanwhile, demand for snagging services is moving in the opposite direction, with Dubai-based inspection company, Snag and Inspect, conducting 50 per cent more inspections in the first half of this year compared to the same period in 2014. The first certified property inspector in Dubai and one of only six firms operating in the UAE, it has already conducted over 250 inspections this year.
Douglas Ralph, CEO of Snag and Inspect, says the trend indicates that practices such as house flipping are on the wane and that Dubai is transitioning into a mature property market. “The last time I saw an increase as I am [seeing] now was [when] end users [were buying property],” he says, referring to a high number of snagging requests during the downturn, when most people had little option but to hold on to their properties.
Buying for keeps
Far from being a red flag, Ralph says low numbers of property transactions and high numbers of inspections signal that the market is entering a more evolved phase as its breakneck growth slows. Regulations introduced by the authorities as well as rules by developers like Emaar that require buyers to pay 40 per cent before they can resell a property have curbed speculation.
“People aren’t flipping as fast or it’s not as easy [or profitable] to flip a property, so they’re now looking at keeping it and [making] sure the condition of the property is what they paid for.”
Ralph started Snag and Inspect in 2009 after identifying a hole in the property market. “I built a business [that focuses] on the individual purchaser because everyone had to keep [their] property and they wanted to make sure that problems were addressed.”
A similar end user mindset is prevalent today too, he says. “I’m hearing that [more] people are buying for themselves. It’s leading me to believe the market is changing enough that people are keeping their property for the next couple of years. Companies say the market is on a slow downturn.”
Ralph says the practice of buying property purely to make a fast buck allows poor building standards to proliferate in the market. “The attitude is when you’re not an end user, you minimise the cost of investment and avoid inspections,” he says. “If I’m going to flip it, why am I worried [about the condition of the property]?” And while he understands the logic of investors looking for quick returns, he believes it is a flawed concept.
For example, the cost of a property inspection is around Dh1.4 per square foot — less than 0.25 per cent of a property’s value on average. “I would argue that you should always have an inspection because markets have downturns and suddenly [you could be left] with a property [you can’t sell],” he says. “The cost of an inspection is minor in terms of the cost of a building or villa.”
Property inspections in the Middle East are not routine as in other parts of the world, but Ralph says this should change. “You’re investing an extremely large amount of money. Usually, for an average person, the largest purchase is a home or property.
“Knowing [its] condition and the costs when you move into it is a very smart business move and financial decision.” This is particularly important as buildings can have hidden defects. “We have absolutely beautiful, stunning buildings and the superstructure systems are very good. It’s [the implementation of] the systems and maintenance that are falling short of high quality.”
Emphasis on excellence
Qualified housing inspectors allow such defects to be unmasked, scratching underneath the surface during thorough inspections. “Any person can walk into a home or villa and say, there are some marks on the wall, there’s a crack over here, but do they know how to look at the AC and drainage systems, [or determine] the efficiency of the thermal installation?”
Ralph says inspectors check all the internal components of buildings, including water pipes and electrical wiring, and ensure everything is up to standard.
Given that property is such a huge part of the UAE economy, he finds it very surprising that property inspections are not more commonplace. “What we find is that many people do not realise it’s available,” he says. “I’ve been doing this for almost six years now and we have clients coming to us and saying, ‘We had no idea this even existed [until] a friend mentioned this to me.’”
Ralph claims there are now talks with the Real Estate Regulatory Agency to make inspections mandatory, similar to measures that exist in the used car market. “If it’s managed and implemented properly, it is a very good idea,” he says. “The challenge we have right now is that there are a lot of good standards and codes in place, but they are not always implemented or managed the right way, so they are abused.”
Emphasising the quality of buildings through tools such as housing inspections will be good news for everyone, including developers, Ralph says. He also believes that developers who build affordable, good-quality housing will make a healthy profit as a result of high quantity, not high price tags.
“They’re more accessible to the average person. [When prices] go up, they sell because you still have demand, you still have growth. “[There will be] a downturn, and you’ll ride it [up] again. If you’re a good planner and buy and purchase at the right time, you’ll actually make a reasonable profit.”
Source: Amanda Fisher, Special to Property Weekly