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- What are the measures that can be taken by investors looking at the current market trends in Dubai?
Investors should look into long-term investments. Dubai's fast-growing residential real estate market is likely to peak in 2015, but will not suffer the same dramatic pitfall seen in 2008 and 2009. There will be an increase in supply of residential units, with over 20,000 expected to be delivered in 2014, predominantly in the more affordable areas such as Dubailand, Dubai Silicon Oasis, Dubai MotorCity and Dubai Sports City. This new supply will be good news to those who have been seeking relief from the recent rent hikes, and is expected to lessen demand for higher priced areas. There will be new developments to be launched, and stalled developments will be restarted. While most are not expected for delivery until 2016, these will provide an alternative to investors who will have the Expo as a key milestone in their investment time horizon.
- Is it justifiable to pay a premium for a project which is associated with a famous brand identity?
Knowing what an asset is worth and what determines its value is a prerequisite for intelligent decision making – in choosing investments for a portfolio and in deciding on the appropriate price to pay.
Investors need to identify the project and conduct due diligence before deciding on one. If it comes with only just a brand name and does not offer value for money, it will be meaningless to invest in such a project.
When a brand is associated with a big project just to create hype in the market and to get volumes of people during its launching and several other reasons, smart investors do not easily get swayed by such.
They know and understand enough where to put their money, that is, in a project which will give them good return on investment in the future.
- What are the reasons for the market's slowing down in the last couple of months?
Dubai's property market demonstrated positive performance in the second quarter of 2014, although sales slowed and buyers were more interested in lower-priced areas. The rising apartment prices have become a major setback for investors, while 'peripheral' areas like Dubai Silicon Oasis, Dubai Sports City and Jumeirah Village are gaining more popularity. Although Dubai property sales are still strong, the market has slowed down from its 2013 rapid growth. Higher prices are starting to affect demand. While apartment prices have continued to rise, prices of existing villas have started to lose steam, with anecdotal evidence of a drop in asking prices that looks set to continue. In addition, the Dubai authorities have been trying to tame a market that has lurched between boom and bust since it opened to foreign buyers in 2002.
- What are the best investments with low risks?
Cost consideration: This is a no-brainer! We know how much we can spend. There's no point spreading yourself thin when it comes to allocating a budget for your rent or mortgage because the strain is bound to build up over time. Make sure you allow yourself to live comfortably within your budget so you can have peace of mind and actually enjoy living in your home.
Convenience is a bonus: Unfortunately, living close to where you work or where your kids go to school may not be affordable. In that case, we all need to improvise. Possibly picking a home close to a metro stop will make commuting easier, or living in a location that easily connects to a main highway can be a game changer.
Investors should invest their money in ready projects or projects near completion in places with more occupancy rates. It is a smart move as return on investment is close to 6-7% per annum, which is net return, whereas the banks only give 2% per annum.
- Question of the Week: With the announcement of the Expo 2020 hosting, there has been a huge shift in the development side. Is supply higher compared to demand?
The Expo 2020 will have a positive impact on the Dubai real estate market. The most direct benefits will be felt in the hospitality and logistics sectors. It will be less significant in the office market.
Excess supply: Most developers are now recognizing the need to phase projects in line with demand.
Excess speculation: The population is growing at about 5% per year while house prices have been increasing much faster by about 30% which suggests that there is a degree of speculation driving the market. The government and major developers are taking measures to reduce this.
We recommend keeping a strict budget when looking to buy property. As time passes, the availability of finance will become easier, and one should not be tempted to avail of a high degree of leverage. The government has taken steps in the right direction with the mortgage cap, but, in the end, you should let common sense guide you. There is plenty of availability coming on stream in the years ahead.
Property is a long-term asset and should not be purchased expecting to make quick profits. Investors are now more cautious and smarter the second time around, and banks have also learned their lessons.
Source: Tayyab Khan, Special to Freehold
The writer is Sales Manager - Silver Heights Real Estate
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