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- There are news reports suggesting an impending oversupply in Dubai's real estate market. What are your thoughts on this? - Name withheld on request
There is no doubt developers have started construction on many projects that were stalled by the global financial crisis or have launched new projects on the back of the market's recent resurgence. Given the frequency of new project announcements and the size of these developments, it is easy to become concerned about an oversupply.
However, calculating optimal supply levels, particularly when emerging from a recessionary period, is particularly challenging. It depends on an accurate estimation of demand for real estate assets that will emanate from population growth, which, in Dubai's case. will be largely driven by overall economic growth. In addition, it needs to comprehend a lag effect from the time conditions conducive to development are identified by developers and when properties are completed and released onto the market.
Given that Dubai's economy is expected to grow at an estimated 5 per cent annually for the remainder of the decade and initiatives such as the World Expo 2020 are expected to generate around 270,000 new jobs, the demand for housing and commercial facilities is expected to grow significantly. Much of the city's planning comprehends the number of people living in the emirate to grow to 3.4 million by 2020, a 7 per cent annual increase from today's population of 2.25 million.
We at Harbor take a minimum five-year view when trying to estimate supply and demand. When taking into account the nature of the market's resurgence, the strong growth in fundamental economic drivers such as tourism and trade, the levels of investment in infrastructure and initiatives and stakeholder commitment to sustainable growth, we believe that, while inventory levels may spike in the interim, they will not be excessive at the end of our five-year forecast period.
- I invested in a two-bedroom apartment in Dubai Marina in June 2011. Its value has climbed more than 55 per cent since. I have just renewed a lease with a tenant, which is providing a 5.75 per cent net return in today's market value. Now that it appears that prices have peaked, I am considering selling my apartment. What is your advice? - Malcolm E.
You are right. The pace of price growth has slowed somewhat when compared to the estimated 30 per cent increases last year. While you can be satisfied and proud with the success of your investment, you need to ask yourself what you have planned for the capital, which will be freed up when you sell the property. If you have identified an alternative investment to give you a better income stream and capital return than what you expect to receive in the next two years, then the right decision may be to sell.
If you have no immediate requirement for the capital, I suggest you don't rush into selling just because the market is cooling down. The market needed to cool as the growth rates last year were unsustainable.
Real estate is a long-term game, which revolves around cycles of approximately seven years in most markets. We at Harbor believe that the market is experiencing an adjustment towards more sustainable capital growth rates, which we expect to last until the end of the decade. These rates will be driven by a healthy and growing economy, which the International Monetary Fund estimates will grow at around 5 per cent per year. By riding the cycle, you can still enjoy your 5.75 per cent net rental return and enjoy an average 5-7 per cent capital appreciation.
- I rented out my apartment to a company about three months ago and was given four checks for the annual rent, post-dated for four consecutive months from March to June. While the March check was cleared, the checks for April and May bounced due to insufficient funds. When I contacted the company, it Initially tried to buy time, but is now unreachable. I filed a police complaint, but there seems to be no progress in the case. I went to the rental disputes section, which said it has no jurisdiction over such cases. Meanwhile, there are people living in the apartment who claim to have signed a rental contract with the company that leased the property from me. I have not given any such authority to sublease the property. Furthermore, the tenants have rented the apartment for much less than the amount in my contract with the company in question. Please advise a course of action to get the rental amount due me and to get the property vacated and back in my possession. - Name withheld on request
This is a classic case of illegal subleasing whereby a tenant with a headlease contract illegally signs a sublease contract with another tenant without the consent of the landlord.
You mentioned that the sublease contract value is lower than the headlease contract value, which leads me to believe that the intentions of the company signing the headlease with you were dubious from the outset. I don't believe that you will be able to reach them easily.
According to article 25 (1b) of Dubai's Law No. 33 of 2008, if the tenant grants the sublease without the approval of the landlord, the landlord is entitled to follow a specific procedure to evict the tenant and the subtenant. In that event the subtenant retains its rights to claim compensation from the tenant. This means that even if you, as a landlord, have not approved the sublease agreement, the subtenant cannot be immediately evicted from the property.
You will have to file a case against the main tenant (in this case the company that signed the headlease contract with you) and demand a termination of the current headlease contract on the grounds of non-payment and subleasing the property without your consent. After getting approval from the Rent Dispute Centre to terminate the contract, you will need to file an eviction request with the subtenant, which will take some time to process, possibly beyond the end of the current sublease contract.
As for the bounced cheques, I'm assuming you have copies of the trade license and the passports and Emirates IDs of the authorized signatories when you signed the headlease agreement. You can use these documents to file a police case against the company that issued them.
There are some valuable lessons from your experience. All landlords must ensure they obtain and verify all documents from prospective tenants, especially corporate tenants, before signing the headlease contract. Landlords and tenants should also employ a reputable and certified leasing consultant to represent them in leasing their property as this will help protect their rights or at least ensure that contracts are reviewed and verified by a licensed leasing or legal firm.
The contract should encompass and transparently state each party's rights and obligations, consistent with the law.
Click on Property in Dubai and read on vital tips to consider when investing
Source: Mohanad Alwadiya, Special to Property Weekly
The writer is 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