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Dubai continues to offer active opportunities to property investors with the real estate market witnessing good price appreciation in recent years, resulting in high returns.
''You should expect a return of about 3 per cent maximum, if investing in rental property in London,'' says Laura Adams, Managing Director of Carlton Real Estate. ''But in Dubai the net return starts at 6 per cent and goes up to 10 per cent.''
The real estate market in Dubai is back on track. The growth is supported by stronger government regulation, which further adds to the positive sentiment and confidence in the emirate's property market.
''The government has taken many steps to make the market more stable, adding to investor security,'' says Craig Williamson, Client Manager at Exclusive Links. ''There is still a massive potential to make excellent tax-free return on investment [ROI] - as good as, if not better than, anywhere I am aware of.''
However, every investment requires due diligence. Making smart choices will help ensure the investment is profitable, while minimizing the effort and time needed to attend to the property.
Here are key things to consider when investing in property in Dubai.
Be clear on your investment plan before searching for a property, as this helps in shortlisting the location and property type, saving a lot of time.
''Work out what you want from your investment,'' says Adams. ''Are you looking for a return through appreciation within a year or five years, or are you looking for good, steady ROI through leasing over a longer period?''
Also, carefully choose the area that serves your goals.
''If you are looking for good ROI, stick with the more developed, completed areas such as Dubai Marina, Downtown Dubai and The Palm Jumeirah, where leasing occupancy rates have remained high for some time and demand is strong,'' says Adams.
''If you are looking for large appreciation, look in areas such as Dubailand, where some developments, especially in Dubai Investments Park, have seen an increase in price of nearly 50 per cent over the past 18 months.''
There are various types of costs that are above the actual price of the property, in addition to service charges payable each year. Hence it is essential to know about all these costs at the time of purchase.
''The main costs to consider when purchasing are the 4 per cent transfer/registration fee, 2 per cent commission and the transaction and search fees of approximately Dh4,500,'' says Williamson. ''There are other costs such as the no-objection certificate from the developer, which can vary, but these are generally paid by the seller.''
Maintenance is another important area that must be considered before purchasing a property. The owner will have to pay community service charges, which vary depending on the type of property and development.
''This charge is generally based on the size of the property,'' says Williamson. ''An apartment service charge is typically between Dhl2 and Dh20 per square foot per year, while for a villa it would be much lower and generally around Dh5 per square foot.
''Each development is different so this should be investigated before the purchase. The landlord is also liable for any major maintenance such as structural issues.''
Every location has its own merits. Research the area's leasing and sales price structure in the past few years as this helps in evaluating the investment potential of the property.
''Areas such as The Greens, Dubai Marina and Downtown Dubai have always been good for investors, but each case must be considered on its merits,'' says Williamson. ''It's more about the acquisition price compared to the rental price. You can do equally well on a percentage return on investment in International City as in any of these areas. It's a case of considering all the fundamentals.''
Check if the developer and the development are registered with the Real Estate Regulatory Agency (Rera).
''For off-plan investment, this guarantees that all funds are paid into an escrow account and are only used for the construction of the project,'' says Jodie Louise Smith, Director of JLS Properties.
''For a completed property, the risk is nominal and a forecast can be provided by developers or specialist agents referencing the history of price adjustments and increases or, most importantly, any decreases in rent or selling price.''
When you lease your property, maintenance is essential and requires professional help. Adams advises to sign a yearly contract with a maintenance company as opposed to delegating the job to a real estate agent.
''Most maintenance companies will charge you a set fee of Dh2,500 per year for ten call-outs, in addition to air-conditioning servicing, whereas agents charge you 5-8 per cent of your annual rent to manage the property and then you have to pay further costs for maintenance.''
6. Mortgage terms
When buying property through financing, the length of the mortgage and the borrowing rate are key factors in determining your investment potential.
''Find an independent mortgage adviser who can offer you a variety of rates and mortgage terms, comparing various banks and packages,'' says Smith. ''This will be tailored to your needs on either a fixed rate or variable rate.''
Always check the small print. For instance, lenders often ask for fees for certain facilities, and this can be easily overlooked.
''Some mortgage options have a large redemption settlement fee, which can be missed when accepting the loan,'' says Smith. ''In addition, there is an extra fee of around 0.25 per cent of the net purchase price, which is often neglected in the overall ROI. There are also nominal fees to deregister the loan.''
Furthermore, Smith says there are small costs for the issuance of the certificate of liability to clear the loan. This always needs to be paid before the property can be sold.
7. Legal aspect
Getting help from a qualified conveyancing company will ensure that the property investor's money is protected from unforeseen circumstances, says Williamson.
''As real estate professionals, we have a great understanding of the legal procedure, however, we are not legal professionals,'' he says. ''Therefore, we strongly recommend conveyancing services. It is very easy to write and execute a memorandum of understanding if everything goes to plan, but a mis take or a dispute could lead to bigger problems.
''It is also important that a proper legal will is established to protect the investor's assets and ensure they are dispersed to the right people should the worst happen.''
Rajiv Ghanekar, Associate Director of Fine and Country Real Estate, says the following are the most important legal aspects to consider when purchasing property:
• Understand the title of the property - is it freehold or leasehold?
• Read the sales and purchase agreement to understand the developer's obligations, your rights and obligations, the community rules, the home owner's association, etc.
• Read the mortgage contract thoroughly to understand the fee structure and other aspects of the contract.
• Study the Rera guidelines for landlords and tenants.
Get help from an experienced agent who specialises in the area of your choice.
''Ensure your real estate broker is legally registered with Rera, both the company and your property consultant,'' says Smith. ''Ask for the office registration number [ORN] and broker registration number [BRN] and contact Rera to confirm the information is accurate and current.''
Off-plan property in underdeveloped areas can offer good pricing to attract investors. However, exercise caution when evaluating these properties.
''Do thorough research when investing in an off-plan property in an underdeveloped location,'' says Adams. ''Check whether the property is registered with the Dubai Land Department and has an escrow account before considering these options.''
10. Risk factor
The beauty of real estate is that it is tangible and the buyer has total control of the location and in choosing tenants, so the risk is largely minimised, says Ghanekar. He adds that the laws and regulations set by the DLD and Rera are very transparent, with clear guidelines.
''Though all forms of investment in any part of the world have a certain element of risk, real estate still remains the most stable and reliable,'' says Ghanekar.
Tips for landlords by Rajiv Ghanekar - Associate Director, Fine and Country Real Estate
• Draw up a budget and shortlist communities that fall in your budget.
• Set your ROI expectations and then survey various locations.
• Be clear on your investment objective.
• Get the services of a reputed mortgage broker rather than directly approaching banks. This gives you access to various products for comparison and advice on the ones that best suit your needs. A broker can also help get fast bank approval and a generally hassle-free mortgage experience.
• Take note of all the closing costs, which are to be borne by the buyer.
• Make provisions for a possible price difference between the actual purchase price and the bank's property valuation.
• Set up an exit strategy at the outset if you want to eventually sell the property for profit.
• A buyer pre-approved by a bank is more likely to get a better response from agents and sellers.
• Talk to residents of the building or community where you intend to buy property to gain inputs on the quality, maintenance and other relevant matters.
Click on Successful real estate investors and learn how you can ensure success as a real estate investor
Source: Hina Navin, Special to Property Weekly