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I recently had a meeting with one of my longstanding clients. As the owner of a portfolio of several villas and apartments purchased early 2011, the past three years have been extremely lucrative for her, and her success is well-deserved given the astute and well-considered decisions she has made along the way.
The topic of the conversation was whether to sell her property assets as the market slowed in the first half of 2014. Rather than make a hasty decision, I offered to perform a thorough review and recommendation for her consideration and eventual decision.
An easy decision would be to sell my client's entire portfolio for a substantial profit close to 70%, but the question remained, where should her newly gained wealth be invested? There was no answer as there was no plan.
Looking at the issue more closely, we found that by retaining her portfolio, my client would continue to receive an average of 6.2% nett rental returns per annum on the adjusted value of her properties over the next five years. Notwithstanding the recent cooling of the market, we estimated that she could expect, on average, a capital growth of at least 6% per annum over the next five years for an estimated nett total return of 12% per annum, a return we consider conservative.
The review included careful analysis of current maintenance requirements, market factors, regulatory developments, industry forecasts and trends, alternative opportunities, risk factors and the likelihood of relevant future events.
When I asked her what alternative investment could provide the same return without taking on greater or excessive levels of risk, she could not identify any.
The example of my client clearly illustrates that now, more than ever, property portfolios require very careful management. We all know the market has cooled. This is hardly a surprise as it was clearly impossible for Dubai's property assets to continue to grow at an average rate of 30% per annum as they did in 2013. Various estimates of price growth for apartments from January to June 2014 range between 3.0% and 5.0% in established areas, while villas in the more iconic locations have experienced similar reduced levels of price growth. Meanwhile, secondary locations enjoyed healthy, albeit slowing growth rates in the 6% to 9% range. Despite price growth being significantly reduced from levels experienced in 2013, there is hardly a need to panic as the residential market is clearly on a path to deliver a sustainable and acceptable 7% capital growth going forward.
Investing in property has a very simple purpose: to create wealth in the long term. However, your property investment portfolio needs to be nurtured, maintained and managed to ensure its wealth-creating potential and capabilities are achieved as it rides the inevitable cycles.
Not everybody has the time or is comfortable with managing a portfolio. However, there is expertise available to help you and you should consider engaging a good property manager who will ensure that you maximize returns from your property portfolio and enable your long-term strategy to be realized.
Delivering the strategy will require an activity plan addressing pricing and marketing, resourcing, customer relationship management, tenant management and policy, cost management, maintenance supervision, communications and review schedules, status reporting and financial statements. It should also comprehend the inevitable cyclical nature of the industry.
Think of your investment as your business, a business that will be affected by many different factors and events. Proper management is essential, and you need to ensure it is in good hands providing you with the returns you expect with as little hassle as possible.
Click on Property Manager who will ensure that you maximize returns from your property portfolio
Source: Mohanad Alwadiya, Special to Freehold
The writer is Managing Director - Harbor Real Estate