Ask the Agent - What is the difference between a leasing agreement and property management agreement?

Ask the Agent - What is the difference between a leasing agreement and property management agreement?Mohanad Alwadiya

- Since the prices are going up every month, should I continue to rent or should I consider buying a property?

Another way of phrasing your question is this: Am I better off using my money to increase my wealth or somebody else's?

Owning property allows you to better utilize your hard-earned dirhams from covering an expense which offers you no future financial return to an investment which does. In a way, it's a forced form of savings which will reap future benefits for you in the form of property ownership. It allows you to build your individual net worth through the capital appreciation of your property.

Paying rent can actually inhibit your ability to build net worth. For example, as somebody who pays rent, inflation is a problem because you are consistently being asked to pay more, putting greater pressure on your disposable income.

But as a property owner, inflation is working in your favor, because, in all likelihood, your property is increasing in value and, if kept for years, you will enjoy an inflationary compounding effect on its value.

- Is the property market cooling off? Is it still worth investing when the market is losing some of its steam?

We need to reset expectations and understand that high, double-digit capital appreciation is an unsustainable phenomenon that had been driven by a number of adhoc, unusual or non-recurring events.

With the industry ''cooling'' somewhat to return to high single digit capital appreciation, we are witnessing the effect of new regulations and the market's determination of fair value levels. It's all part of the maturation process. One of the benefits of a robust, stable, well-regulated industry is the increased predictability and sustainability of price rises as compared to the boom and bust scenarios typical of young, undisciplined, unregulated markets.

If you are taking a long-term perspective, say, seven to 15 years, it is still the right time to buy. Barring any unforeseen shocks, economic or otherwise, and assuming your investment is well-managed, you can confidently predict an average YoY capital appreciation of at least 7% over that period, and a net rental yield of at least 5%.

- With prices having moved so quickly in the market, how can you tell whether you are paying a fair price for property?

You need to determine and locate the type of property that will work best for you. There is no such thing as a fair price for something you don't want or value! You can contact a reputable real estate brokerage to assist you but make sure you conduct your own research as well.

Remember that, fundamentally, price is determined by the market. Through research, you will be able to ascertain pretty accurately what a property will sell for in any given market. Remember, any significant deviation from your research findings usually means there is something wrong. If it looks too cheap to be true, it probably is! The key word is 'value'.

Once you have found a property at what you believe to be is at fair market value, negotiations can begin. If you cannot find a property immediately that will satisfy your value expectations, do not settle for less, regardless of what's happening in the market. Be purposeful, persistent, patient and pragmatic in your approach so you make a sound business decision.

- I want to buy a residential apartment for long-term investment purposes. Should I buy one in Dubai Marina or Skycourts in Dubailand?

Assuming you have two alternatives, both priced at fair market value, cash flows and capital returns as a percentage of funds invested are likely to be greater in Skycourts.

Demand for more affordable developments is rising rapidly due to a strong ''trickle down'' effect as areas that were leading the recovery, such as Dubai Marina, have become too expensive. This has resulted in developments such as Skycourts overtaking the more established areas in terms of rental yield and capital appreciation.

Some properties located within Skycourts have shown an average 24% increase in gross rental income since the 3rd quarter of 2012, outperforming virtually all of their more expensive peers.

Meanwhile, apartments in the same development achieved YTD average price growth of 28%, with demand being driven mainly by first home buyers and investors seeking the increasing yields on offer.

- Question of the Week: What is the difference between a leasing agreement and property management agreement?

You would enter a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments, facilitate the signing of the tenancy agreement leaving you to assume the responsibility and devote your time to managing the tenant and all aspects of the property thereafter. A property management agreement includes a lot more.

A competent property manager will provide an assessment, strategy and activity plan designed to harness the true financial potential of your property.

Considerations include history, current market factors and risk factors, whether they be global, regional or local in nature requiring a good understanding of economic factors, industry knowledge extending to policy and regulation, finance and market dynamics.

An activity plan will be provided covering pricing and marketing, customer relationship management, tenant management and policy, cost management, maintenance supervision, communications and review schedules, status reporting, financial reporting and resourcing.

All of these activities will be performed by the property manager under a property management agreement.

Source: Mohanad Alwadiya, Special to Freehold

The writer is Managing Director, Harbor Real Estate

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