Property Investment: The allure of real estate

Property as lucrative assetPaul Preston

Property continues to be the favoured asset class for seasoned investors. Like me, people seem to really enjoy the excitement of owning property as well as the financial gain it can achieve. What I really like about property is the fact that it’s a physical asset — it’s real, it exists, you can touch and feel it.

People also like the fact that property is a commodity that everyone needs. We all need somewhere to live, therefore, property will always carry demand, which will keep prices moving upwards as long as you’re buying in the right market.

You can also take out a mortgage on a property, which, when investing, is quite unique. Most investments are done in lump sums with cash investors. With property, however, you can take out a mortgage, rent the property out and have someone else pay off your mortgage for you. Not bad.

Time to buy?
Expats generally like living in their own property when living and working in a foreign country, especially if they have a long-term strategy of being offshore. In Dubai, over the past 12 months we have seen a lot more homebuyers entering the market, meaning people buying a home to occupy themselves, rather than for out-and-out investment.

The issue in Dubai has always been the volatility of house prices largely driven by speculative investors, and this was certainly the case pre-2008. Dubai is now starting to see people buying properties as homes, which is exactly what the market needs and is a sure sign the market is maturing.

Abu Dhabi is starting to see the same trend, albeit at a much slower pace, which again I see as a huge positive. If a market grows too quickly, there is always the potential for a bubble followed by a large crash, so to see Abu Dhabi’s property market maturing gradually is a huge positive.

The UAE continues to see large volumes of property transactions, a trend that doesn’t show signs of slowing down.

Expo: a different view
No one can argue that winning the rights to host the World Expo has not had a significant impact on both the rental and sales property markets in Dubai — we have all felt that, I’m sure.

What baffles me is why we have seen such fast-paced price growth and transaction levels when the World Expo is still six years away. No property market on this planet can sustain this type of growth month-on-month, year-on-year, and my concern is that at some stage the market will crash again.

Jobs will be created as a result of winning the Expo 2020 and there will be a lot of foreign and local investment coming into Dubai over the next few years. We will also see this amazing city deliver more fascinating buildings, making Dubai an even better place to live.

What I fail to understand is how rental prices can jump up to 20 per cent overnight in some cases just because Dubai won the Expo? This is bizarre, considering we can sign 12-month contracts over here. In my eyes, this is just a case of people being greedy and ruining the market. If price growth continues to move as fast as it currently is, then we could actually get to a point where Dubai becomes too expensive to live, forcing people to go back home or to other locations to find work.

While winning the Expo is fantastic news and great for Dubai, we don’t need to make the same mistakes we made pre-2008. It’s in everyone’s best interest that we avoid this.

Global trends
We are witnessing similar trends seen last year, although investment volume is greater across most markets, London being a standout. As people start to understand that investing in property is actually one of the safest and most robust asset classes, investors now prefer investing in a physical asset — something they can touch and feel.

With the volatility of bonds, stocks and shares, we are seeing more people investing in fully managed buy-to-let property in strong markets such as London, New York and Melbourne. Clients want safe investments that will make them money, not lose it.

We are actually seeing a record number of client referrals from independent financial advisers than ever before, which underpins the appetite for property investment.

In Johannesburg and Cape Town, there is huge appetite for property — it’s a topic everyone loves talking about over there. Although the domestic market in South Africa has been a little static over the past five years, prices are now starting to move in some parts of the country, especially in the south. We are starting to see a lot of South African money being invested in markets such as London, as investors flock to safe, stable and mature property markets.

London beckons
While it is such a fantastic city in its own right and attracts millions of visitors per year, it’s not really tourism that drives London’s property market, rather a mixture of foreign investment in property and, more importantly, its domestic consumption.

Around 69 per cent of transactions in London last year were from people living and working in the city (domestic buyers), with the remaining 31 per cent coming from foreign investment. This is a fantastic statistic that underpins the huge requirement and demand for property in London, which potential investors should pay attention to, as a strong and active domestic marketplace will play a key part in the exit strategy when it comes to selling the property.

Investors in London are now looking at locations that have not yet seen the price hikes that locations such as Chelsea and Kensington have. They are looking for the next location that is well positioned and is set to perform. Locations such as Lewisham and Deptford are very well positioned, but have not yet seen the huge price increases that other parts of London have enjoyed, despite being very well placed and having excellent transport links.

As rental prices in central areas of London also start to become more expensive, tenants and investors alike are looking at these locations in search of value, without compromising their lifestyle.

Length of investment
I personally don’t like the short-term investment model wherein investors buy property and then sell it quickly at a profit. All this does is inflate the market artificially, which, in time, causes the property market to crash.

When investing in property, it’s important that you look at strong, stable markets where prices appreciate steadily through strong domestic demand, built on strong fundamentals. Property should be a mid-to-long-term investment, with the minimum holding period being five years.

Most strong property markets show that if you hold property for the long term, you will make money.

The people who lose money are those who stretch themselves, become over exposed and have to sell, regardless of the market condition. Buying and selling property in a short timeframe is a very risky business, as investors who have been in Dubai since pre-2008 would have seen themselves.

With all these, perhaps you want to start investing in residential properties in Dubai.

Source: Paul Preston, Special to Property Weekly
Director and Head of Middle East at IP Global, a full service property investment company


Al Nisr Publishing accepts no liability for the views or opinions expressed in this article, or for the consequences of any actions taken on the basis of the information provided



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