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- I am holding some off-plan assets in prime and non-prime areas of Dubai. Is it the right time to sell them and take profits or hold?
Generally, off-plan properties are bought cheaper than the ready properties and, upon completion, offer remarkable profits vis-a-vis market growth. Although the Dubai market has comparatively cooled down compared to the same period last year, it is still showing a lot of positive signs. As a long-term Dubai property market believer, one must hold on to their off-plan assets to earn rental incomes; in some off-plan cases, incomes exceed 12% to 15%. However, before taking the final decision, take into account some basic fundamentals such as number of projects close to handover in the area, location, current ready property prices vs. off-plan asset value, rental income vs. cost price of off-plan asset, announcement of future projects and alternate opportunity on the table.
- Regarding new laws and regulations, how do you see them affecting the market. Are there any regulations that are implemented?
The Dubai real estate market has learned a lot from the previous crash and seriously addressed the two major issues that were the major reasons behind it: short-term flipping and gray market transfers. Buyers used to put 10% deposit on any off-plan property and sold it to a third party on profit through POA and other side documents (MOU) without legally transferring the property at the Land Department. This prompted Dubai to increase the registration and transfer fees and introduced extreme measures to ensure that all off-plan properties are registered. Recently, DLD announced that the actual seller of the property must be present at the time of transfer and he can only assign next of kin through legalized POA to represent him to stop the gray market transfer; however, the formal decree has not been released yet, but the property transfer offices have started implementing this new practice.
- I am planning to invest in property in Dubai. How do you rate the current commercial property market and how is its future growth?
Investors are realizing that the Dubai realty prospects are not just built on residential exposures. While office space is not exactly the flavor of the season yet, it will soon catch the eye of the big players and investors. Dubai's prime commercial addresses, including free zones, are seeing high occupancy, led by a mix of demand from existing tenants and new businesses. The future supply of commercial space, especially in prime areas, is limited and, with current supply, commercial real estate is certainly looking towards a new boom cycle. Prime commercial areas including Business Bay and Jumeirah Lakes Towers have already seen consistent upward trend in terms of sales prices and the occupancy levels are constantly increasing. New prime areas such as Maritime City also look promising.
- In light of recent warnings from IMF, UAE Central Bank and recent correction in the stock market, do you see the property market to correct also? What sort of new regulations can come into effect?
As a property investor, it is essential to follow the indicators of the market although IMF did warn that Dubai could be risking another bubble; the UAE Central Bank seconded that opinion. IMF and other rating agencies have projected average UAE economic growth of 5.6% for the next six years. Dubai's aim is to deliver iconic projects ahead of Expo 2020, and draw more than 25 million visitors to the country. Tourism was one of the major reasons behind the real estate recovery in 2011-12; it will be a major driving force in the future. A combination of tourism and mega infrastructure shall most likely drive the market into a positive direction. As for new regulations, Dubai is completing a review of the off-plan transaction market and will issue additional regulations which could further strengthen investor confidence.
- Question of the Week: There are lots of ads for buying hotel apartments/serviced hotel apartments, how are they different from residential apartments? What is their business model? Can you make decent returns on such investments?
During the new boom cycle of Dubai, hotel and serviced apartments have indeed made significant gains in terms of capital appreciation and, in some cases, over 10% rental returns mainly due to the buoyant tourism industry of Dubai.
Serviced and hotel apartments are fully furnished apartments with all the amenities and facilities of a hotel and an individual can buy a unit(s) and can manage it on a different mode.
Individuals can then rent these units on daily, monthly and yearly basis with higher rental returns. Moreover, the exit clause of these units are not bound by RERA and the rental increase method is also not bound by the RERA index calculator. Their annual maintenance cost is generally higher than residential apartments.
Most developers who sell hotel apartments also offer a rental pool system which is, in most cases, highly profitable. The developer itself manages your unit and rents it out to its clients and then reimburses the income to the owner on monthly basis after deducting its own management fees.
Source: Junaid Ahmed, Special to Freehold
The writer is Senior Partner - Ideal Homes Real Estate
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