Ask the Agent - Is it the right time to buy property for end-use or investment purposes?

Ask the Agent - Is it the right time to buy property for end-use or investment purposes?Junaid Ahmed

- In view of the recent correction in the Dubai property market, is it the right time to buy property for end-use or investment purposes?

One must understand that Dubai is transforming from an amateur market into a more stable and mature market, and time to time, correction is one of the healthiest signs. The market has been on an upward trend from Q1 2012 and it has continuously gained till Q2 2014. If there was no correction, we would have seen another bubble.

One must also realize that no analyst can determine the bottom of the market; we can only project the trend of the coming quarters.

Dubai is one of the strongest real estate markets in the MENA region and it has a lot of potential. I foresee two further cycles in the market before it reaches its peak.

If you are planning to purchase a property for end-use, I believe it is a good time to purchase in sub-prime locations.

- Since prices are falling in almost all areas of Dubai, we also notice rent corrections. With contraction in the Europe and UK markets, do you foresee another global recession?

It is correct that the European market is contracting and most of its members are in recession. They might choose the quantitative easing approach, like the US, to stabilize the situation. However, it is not a global recession wherein world banks collapse.

It is true that standard correction has hit Dubai, but it cannot be compared with that of 2008 due to many fundamental reasons, foremost of which the regulations that the Dubai government implemented to increase transparency and investor protection. The government is closely watching the market and will not allow any bubble burst situation.

Besides, the federal government is also watching the market closely. Credit bureau cap and mortgage cap were introduced to stabilize the property market.

- When do you think airlines will start shifting to the new airport? How will it affect the dynamics of the Dubai property market? Where do you recommend to buy?

Al Maktoum International Airport at Dubai World Central (DWC) is fully functional. By the end of 2015, most of the airlines will completely shift there. Moreover, DWC is on its way to becoming the biggest logistics hub in the emirate. It will definitely affect Dubai's real estate geography.

Furjan, Discovery Gardens, Jumeirah Village, International Media Production Zone and Dubai Sports City are among its major beneficiaries. It is best to buy in these areas as rents are still increasing and occupancy rates are high.

In my opinion, two and three-bedroom townhouses can be highly effective investments.

If you are looking for an off-plan investment, check out the Reem neighborhood which is delivering phase-wise starting October 2015.

- I am a real estate developer and looking to develop mid-rise, low cost apartments in Dubai. What are the best locations? When is the right time to launch these apartments?

Plot prices never actually rose much during the two-year boom; hence, they are still at feasible prices. If you combine all aspects including location, Jumeirah Village, IMPZ and Furjan are the best locations to develop low-cost apartments. However, in Dubai, the lower you go, the higher the plot price will be; hence, I recommend you go for more than 10 floors to save on plot costs.

Rental feasibility in these areas is high, touching approximately 15%. Hence, I recommend that you plan for a five-year rental or sell them on rent-to-own scheme. If you are planning to build in main road locations, you can consider building furnished hotel apartments in the above areas.

As for the timing, if you start your drawing and approval procedures, it will take almost six months to conclude the approval and register your escrow and project with RERA.

- Question of the Week: I have invested most of my funds in off-plan properties. Most of them are in prime locations like Downtown Dubai and Palm Jumeirah. Will RERA introduce more regulations to curb off-plan flipping, and should I liquidate them or hold them for the long term?

Since your off-plan investments are in prime locations, and if you have invested with a branded developer, there is no need to panic. Downtown Dubai, Palm Jumeirah and Dubai Marina have a lot of potential and have become very exclusive because their master plans are complete and fully functional. Off-plan property prices are generally 20% to 30% lower than ready property prices, making off-plan properties attractive for investors to join the bandwagon. However, it is extremely important to choose the right location and, more importantly, the developer.

Holding your off-plan assets with non-credible developers leads you to lose rental income due to project delays, especially when the market is down and rental incomes are higher in ready properties.

Holding or selling your off-plan assets is always a tricky scenario. The rule of thumb is to check the percentage of payment you have already made. If your off-plan assets are more than 40% paid and the deliveries are in the two to 2.5-year range, then I recommend you hold these assets. Anything below 20% paid, you may decide to sell.

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Source: Junaid Ahmed, Special to Freehold

The writer is Senior Partner - Ideal Homes Realty

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