Timing is everything

Affordable properties are benefitting from Dubai’s recovering economyMohanad Alwadiya

With activity in Dubai’s real estate market having slowed somewhat, do you see 2015 as a year in which to invest or is it prudent to wait until market activity picks up again?

There are a number of compelling reasons why this is the year in which to invest in Dubai real estate.

First, the broader economy continues to grow. Economic growth this year is expected to reach 4.5 per cent and independent bodies such as the International Monetary Fund are forecasting 5 per cent-plus economic growth annually through to the end of the decade.

Second, the economy is being driven by fundamentals such as tourism and trade and a slew of new projects to grow these important revenue-generating economic segments. The number of visitors to Dubai last year continued a growth trend of approximately 9 per cent per annum since 2010.

Third, the effect of Dubai hosting the World Expo 2020 on the UAE economy cannot be underestimated. This year is the start of a five-year countdown for the Expo.

Fourth, financing is still cheap. We have been encouraging our clients to buy now and benefit from historically low interest rates.

Fifth, the development of the industry’s regulatory framework to safeguard consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, reveals a mature and balanced approach to shaping an industry.

And finally, if it’s superior yield with minimal capital outlay that you are after, Dubai real estate is still hard to beat. Affordable properties in developments such as Queue Point, Skycourts, International City, Dubai Sports City, Discovery Gardens and Jumeirah Lakes Towers are all benefitting from Dubai’s recovering economy and you can expect a rental return in these areas of at least 7 per cent.

I have accumulated a portfolio of 23 apartments in projects around Dubai. Now that the market has cooled somewhat, how can I maximise my return during this slow period?

The property industry is incredibly dynamic and requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

Investing in property is no different from investing in any other asset. Its purpose is to create  wealth, but to do that it needs to be nurtured, maintained and managed just like any other investment. Ask yourself a question: Would you create a share portfolio without monitoring and managing its health and performance?

Of course not — and holding a property portfolio is no different.

With a portfolio this large, you need professional help to manage your property investment, particularly during times when yield is harder to generate. This requires careful thinking about the true earnings potential of the portfolio and the most efficient and effective way to realise that potential.

Essentially, your property manager should be capable of managing your business, which just so happens to be a property portfolio.

Choose wisely, as once you appoint a property manager, your ultimate return on your investment is largely in his or her hands.

I have a one-bedroom apartment in the Queue Point development in Liwan that has just been handed over. I purchased the property at Dh550 per square foot. Should I sell or rent it out?

Properties located in nonprime areas such as Dubailand have been doing very well. With the industry’s recent strong recovery, we have witnessed the more affordable segments following the trend set by the prime areas and showing significant value growth.

A recent example is the Skycourts project, which is also located in Dubailand, adjacent to the Queue Point development. Apartments in Skycourts have recorded excellent capital growth with some properties growing by 15-20 per cent in value over the past year, with rental premiums of at least 7 per cent not uncommon.

Demand for this type of affordable accommodation has been growing steadily and we expect Queue Point to benefit as well, especially as Dubai’s population swells in the run-up to the Expo and the demand for affordable housing increases.

At the moment, apartments in Queue Point are being valued from Dh750- Dh800 per square foot. There is no doubt that you would make a handsome profit if you sold today, however, we expect values to continue to increase over the coming five years at a sustainable 7 per cent average, especially as the infrastructure and landscaping around the development is completed.

I suggest you retain the apartment for at least the next five years.

I read in the news that the Real Estate Regulatory Agency(Rera)has recently increased its rental index by 6-25 per cent. As a landlord with several rental properties, how does this apply to me?

What will determine whether or not you can raise your rent is how your rental levels compare with the new and updated index.

You should familiarise yourself with Law 43, which was issued on December 22, 2013 and replaced Decree No. 2 of 2011. It introduced the following restrictions (summarised) to take immediate effect with regard to the calculation and implementation of legally allowable rental increases:

• There should not be any rent increase if the rent for the real estate unit is no more than 10 per cent below  the average rent that a similar property commands within a neighbourhood.

• The annual rent increases, as specified by the decree, can range from 5-20 per cent, according to how much the current rent is below the market average.

• The market average rates are to be determined by the Rera Rent Index.

As a landlord, you might feel that you are restricted with regard to how much yield you can generate from your investment. However, taking a broader view, it is important to understand that the implementation of Law 43 is necessary to safeguard consumer interest, the overall industry and the economy at large from rampant and unjustifiable rental increases on existing rental contracts.

Having said that, it does not control the rental value of new contracts and where a property is to be let out for the first time or to a new tenant, it is up to the owner and prospective tenant to agree how much rent should be charged for the property.

Source:  Mohanad Alwadiya, Special to Property Weekly

Mohanad Alwadiya 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.


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