How to minimise risk and maximise your returns

Mohanad AlwadiyaMohanad Alwadiya

* What would be a good basis for deciding on a fair and attractive rent price for my apartment?

The simplest method is the Sales Comparison Approach. It relies on identifying a factor that is homogenous to similar, if not, identical properties. For example, if an apartment similar to the one that you are planning to invest in is attracting a monthly rental rate of Dh7 per square foot a month, then this will indicate the likely cash flows you can expect. This is an approach that we as property managers do not advocate, although many people limit their analysis to this method only.

A more comprehensive method is the Capital Asset Pricing Model. This comprehends levels of risk and opportunity cost as it applies to your investment. It identifies potential Total Return on Investment, which is derived from Capital Appreciation in addition to net rental income and compares it to other investments that you might be considering. This is a much more complete evaluation tool, which enables smarter investment decisions and, therefore, is the one that we use as standard procedure.

Of course, if there is an existing tenant, you should review the current rent levels paid and compare them against the Real Estate Regulatory Agency (Rera) rental index in order to project what increases you can expect to benefit from in the future. This analysis will provide you with a good understanding of how your cash flows might rise over time as compared to inflation or another alternative investment.

Please ensure you engage an experienced and professional property consultant when considering building your portfolio. You are about to make a big decision and should utilise expertise that will help you minimise risk and maximise your returns.

* What are the steps I need to go through after accepting an offer to buy my property?

The first step is to prepare and sign a memorandum of understanding (MoU), which contains all the details and timing particulars of the offer. Obviously, the buyer needs to sign the MoU as well after reviewing its provisions. As with all legal documents, we recommend you have a proficient broker or legal representative draft the MoU for you.

You will also need to sign form F, which is a contract between buyer and seller. As part of this step you should ensure that the buyer and/or all the relevant representatives such as a power of attorney holder with original documents have their respective identification and authorisations so that down payments and/or balance amounts, payable either by manager cheque or from banks due for transfer have been satisfactorily arranged.

Step two will require the receipt of a no-objection certificate from the developer. This is usually straightforward and a simple procedure.

Step three is to pay the final utility bills so that the account is cleared and ready to be taken over by the new owner. If there’s a tenant, you will need to sort out any outstanding rent/pay-ment details.

Step four will require you to go to the Dubai Land Department (DLD) or a trustee registration office together with the buyer and all relevant parties and conduct the final transfer. Handing over the ownership will take place at the DLD after all monies owed by the buyer to you are presented as part of the transfer procedure.

Although the above process appears simple enough, I recommend that you engage a professional to handle the transaction for you. You will be surprised how little issues (that you might not have foreseen) can delay the satisfactory settlement of your property sale.

* I would like to know what we have to ensure if we want to hire a property manager because in Dubai most of the real estate companies offer Property management services but do not hold a relevant property management licence. What are the consequences if we hire a property manager who does not have the relevant management licence?

Property management has risen in importance since the global financial crisis made it harder for real estate brokerages to generate revenues from transactional services alone. In addition, demand for property management expertise grew rapidly as investors started to realise that investing in property is not a set and forget proposition. It requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

You need professional help to manage your property investment, particularly during times when the yield is harder to generate. Your property manager must ensure that you maximise returns, while operating within the law.

Your property manager should be licensed, experienced and have a strong history of successfully managing property. If you knowingly engage a person or organisation who does not possess the correct licence to manage property, you are essentially aiding that person or organisation to operate outside the law, which places you in an awkward position should something go wrong. In addition, if you have a legal dispute of any kind regarding your investment properties, any involvement of the non-licensed party that you have engaged to manage your property will place your legal position in jeopardy.

It’s your investment, so you need to ensure it’s in good hands and being managed by people who are authorised to do so. It takes little effort to check the licensing status of any organisation by referring your query to Rera, the governing authority for real estate professionals in Dubai.

* Are there specific requirements for rent contract renewals? What happens if the original lessee has already left the country?

There are legal stipulations governing the issue of contract renewals. A renewal notice must be sent via registered mail or notary public 90 days before the expiry of the current agreement and must reflect any changes in the contract terms or conditions including rental rates. Any amendments must be in line with the Rera index, which will essentially determine what percentage of rental increase, if any, can be applied.

If you have determined that the tenant has left the country, you will need to still send him or her a 30-day official written notice for non-renewal/payment of rent. You should also file a case against the tenant at the Rent Disputes Committee, which will hear your concern and will help you to gain legal access to your property by sending a representative to open the property. (You will have to arrange and pay for any locksmith charges.)

The representative will make a schedule of belongings, which have been left by the absconding tenant and you will have to store these for three months, in which time they can be auctioned off and the revenues can be paid to cover your expenses as compensation.

As soon as the apartment is ready for rent to a new tenant, you’ll have to settle any outstanding utilities and prepare it for renting again. The case against the tenant will remain on file and if he/she returns to the UAE, you can pursue avail of legal channels to claim all your losses.

* What is usually the basis for computing maintenance charges? Which areas in Dubai charge the highest rates? Why?

Maintenance charges are based on the set budget template by the owners’ association (OA) management division at Rera. The charges ensure that the OA of any community collects sufficient funds to maintain the common areas within the community.

The budget is split into two parts, an operational or general fund and a sinking or reserve fund. The funds are used to pay for major cost elements, including soft and hard facilities management and maintenance, management and maintenance of common areas, insurance costs, emergency system maintenance and upgrading.

The areas that have higher rates are usually the well-established communities, e.g. Downtown Dubai, which boast luxury towers that include very high-end facilities and amenities and very large common areas and hence require a higher budget to maintain. Charges in these areas could exceed Dh30 per square foot. Maintenance charges in the more affordable areas are much lower, with some developments charging service fees as low as Dh8 per square foot.

The discrepancies are typically due to the vastly differing levels of services and amenities that are provided in the building. Obviously, a building with a large swimming pool, huge outdoor playgrounds/land-scaped areas, high level of security, gym and big common or communal areas will require more expensive service fees to ensure an appropriate level of maintenance and management as compared to a building that has a low level of amenities and security requirements.

However, it should be the responsibility of the OA to ensure that contractors providing services to the buildings are providing true value for money when providing the requisite services. This is an important function of all OAs to ensure that owners are shielded from complacency, inefficiency and unprofessional practices.


Source: Mohanad Alwadiya, Special to Property Weekly

Mohanad Alwadiya is a Managing Director of Harbor Real Estate and advisory board member and instructor at the Dubai Real Estate Institute, the official training and certification arm of the Dubai Land Department.


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