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But what differentiates those who ultimately succeed from those who don’t? How does one prepare for the risks? Can one prepare at all? Mohanad Alwadiya of Harbor Real Estate tells us how even neophytes in real estate investment can prepare themselves to enter the property world.
Long-term success in property investment
Success in property investment can only be attained when (and if) the objectives of the investor have been realized. It’s as simple as that.
A vital component of your property portfolio investment strategy is the careful setting of financial objectives. These objectives, which would be reviewed on an annual basis, must include such elements as total return, capital appreciation, revenue streams, net results and eventual divestment values all wrapped up in a timeframe deemed strategically optimal for the investor. If the objectives of the investor have been met, then the investment can be considered a success.
However, many investors suffer from what I call the “should have, could have, would have” syndrome. This occurs when the investor feels that his investment did not outperform the market and, therefore, underperformed, leading him to depart from his initial strategy, reverting to short-term thinking horizons and making poor decisions regarding his portfolio.
A recent example springs to mind. We all know that the Dubai real estate market returned to an average capital appreciation of around 30% in 2013. In the same period, we estimated that the portfolio of one of our investors appreciated around 24%. Infrastructural issues that contributed to the constraints on capital appreciation. The investor felt that his investment had underperformed, despite the fact that he had set an objective of 21% capital appreciation for the portfolio when first determining the strategy. In actuality, the investment had been a significant success with an enviable overachievement in excess of 14% versus original objectives. The investor, whose first reaction was to liquidate part of the portfolio, required some convincing to retain all his assets and stick to the original strategy.
The above example illustrates why the key determinant to long-term success in the market is the ability to develop a comprehensive, realistic and flexible strategy that encompasses at least five (preferably seven) years duration and which is reviewed at least once, but preferably twice, every year.
Qualities of a shrewd property investor
As with any investment, investing in property is all about recognizing and capitalizing on opportunities that are consistent and supportive to your overall objectives.
To do this, you must have some knowledge about the industry. The old adage of “Don’t invest in anything you don’t know” applies. You must have a clear understanding of what you are trying to achieve and what role your property portfolio will play within a larger diversified portfolio. What proportion of your total investment portfolio is allocated towards property? Towards stocks or bonds, gold or commodities, etc.? What is your source of finance and where do the greatest risks lie? How liquid might you need to be? All these questions (and more) need to be addressed, and the more skillful you are at conceptualizing your wealth generation schematic, the greater your likelihood of successfully growing your wealth.
Services for first-time investors
The professionals serving Dubai’s real estate industry are steadily developing the sophistication seen in more mature markets around the world. Areas including economic and financial analysis, appraisal and real estate evaluation, market analysis and forecasting, marketing and effective brokerage and property management services are improving all the time. The skills and strategies mentioned above are hardly rocket science to an experienced and professional real estate practitioner, and good work has already been done by the DREI and RERA in helping build a body of professionals who are knowledgeable, conversant, proficient and ethical in their practices.
Value of proactive investing
Those who have had the greatest success:
• possess the ability to think long term
• make rational, well-researched and carefully thought out decisions with the end objectives in mind
• understand that every real estate market globally will go through cycles of growth and contraction
They do not get duped into making short-term decisions based on inevitable market fluctuations, and they treat disturbing headlines as the catalyst for gaining a greater understanding of the underlying events that are shaping the industry, and if any opportunities may conceivably arise.
Source: Claire Dangalan, Special to Freehold
The writer is a freelancer