In Dubai, real estate developers announce off-plan property launches on a regular basis. Therefore, how can a buyer settle on the best one to invest in? Here is a helpful list to consider prior to making a decision:
What is your objective in buying the property?
Your objective when buying a property has a major impact on the search and qualifying process. Here are the most common objectives, from an investment standpoint, to consider:
Buying to sell on handover – If your objective is to sell upon project completion, ensure that the entry point is at the very start of the project to achieve maximum gains of appreciation once it is handed over. It is most advisable to buy during the pre-launch stage. Avoid buying just prior to handover assuming a potential price boost; as a matter of fact, many investors target to sell just on handover which can potentially create a short-term over-supply, and therefore a short-term price decrease.
Buying to exit halfway through the development – If this is the objective, identify how many of the units or properties the developer will continue to supply. They can offer better payment plans and prices which you will not be able to compete with. If you anticipate strong supply of similar units from the same developer, you should anticipate cut-throat competition.
Buying to resell to end-users – If this is your purpose for investing, you have to ensure that you meet the standards of livability of your targeted segment of end-users.
Buying when your objective is to resell the property as an income-generating-property – Make sure you target a re-selling price that will still generate a decent percentage of income in light of your anticipated annual rent of such property. This ultimately should make it an attractive proposition for a new investor.
Property Type:
After the objective is set, next decide on the type of property, whether it is going to be a low, mid, high-end, residential, office or retail. The property type should be in-line with your objective; for example, if the target is to re-sell as an income-generating property, the investor is most likely to choose a low to mid-end property. This will generate 7% to 10% NET annual income. High-end properties, however, are more likely to generate a lower NET annual income of 2% to 3%; this does not make a property attractive from an income-generating viewpoint.
Location:One of the most important factors to consider when investing in off-plan property is to evaluate the location. Look at landmarks, schools, malls and the community in general. Accessibility is also critical, as well as future projects that are going to develop around the location.
Master Community:Well-established and prominent master communities in Dubai such as Downtown, Business Bay, Dubai Marina, Palm Jumeirah, Jumeirah Lake Towers, The Villa, Arabian Ranches, City Walk and Mudon are great examples. In the process of choosing one, there are two broad options:
To invest in a project within an underdeveloped master community.
To invest in a project within a semi or fully developed master community.
For medium term investment, we would recommend semi and fully developed master communities. This is because underdeveloped giant master communities can take up to 10 years to develop, and this type of investment comes with a higher risk. Upon completion, a single project is worthless if it is in the middle of nowhere in an underdeveloped master community.
It is usually not advisable to invest in underdeveloped and ambitious master communities unless your entry price and payment plan justifies such investment. You can assess this by looking into the comparison of an offer price of a property in an underdeveloped master community versus one that is in a similar class of a fully developed one. As an example, entry prices of properties in underdeveloped communities with almost no infrastructure must be equivalent to 40%-45% less than those properties in a similar class in a fully developed community. Only under such conditions and prices would it make sense to invest in underdeveloped communities.
Price:To evaluate the price and to deem it reasonable for investment, the question that we should always ask is: How can I get the best value for my money? In order to do this, you must consider the following:
Prices of similar types of apartments or properties in the area to be able to make a comparison.
Calculation of the cost of land plus cost of construction versus selling price.
Consider the historical prices in the area of the property throughout the cycle of the economy.
Payment plan:The payment plan is vital because it often has a knock-on effect on the price. For example, better payment plans mean higher price and vice versa. To better decide on the best payment plan, here are a few pointers to think about:
Your liquidity position as an investor. As an investor, make sure you can meet all the payment requirements in the scheduled period. In short, it is the ability to make payments in line with personal liquidity forecast that will achieve your overall objective.
Consider your resale plan. If your plan is to resell prior to completion, your best option is to choose a lower amount of initial payments during the construction stage and then a higher amount upon handover. This way, you are able to leverage on the small down payment and capitalize on it. For example, assume a property costs Dhs. 2 million, and 30% is due during the first year and 70% upon completion. If the investor then sells for a 15% premium just prior to completion (around 3 years), he will have made a 50% return on his investment: 15% of 2 million is Dhs. 300,000, which forms 50% of your deployed equity of Dhs. 600,000.
Invest in a credible developer, but don’t over pay just for the sake of the brand:Finding a reputable developer is crucial in your decision-making stage. However, it does not have to be an ultra-prestigious one as long as it is well-established. In other words, do not pay a premium just for the sake of buying from a branded developer, because once the property is ready, all that matters is how well it is built and maintained. The rest forms a minor contribution. An example of a great project from a modest profile developer is the Le Rêve Tower in Dubai Marina. An excellent track record of delivery as per agreed quality and standards at the project launch stage is also imperative. There are a lot of small but strong developers in the Dubai real estate market and spending some time investigating them will be worthwhile especially with stricter government rules and regulations. However, if you are a completely new player to the Dubai Real Estate Market with no experience, then it is advisable to pay such a premium for a reputable semi / governmental developer that buy you the needed security on your investment.
Find a real estate broker who is experienced:An experienced, certified and knowledgeable agent who works in real estate seven days a week will surely know more about the property market than an engineer, stock trader, manufacturer or doctor, and should be able to offer sound advice based on common sense, facts and basic fundamentals. An experienced agent, who is not just after commission, should be able to objectively tick all the 8 steps from their checklist.They can also have experience of dealing with several projects from different developers, hence, investors can get advice on different projects to match their needs. Ideal agents are those who intellectually and genuinely appreciate the enormous value in building long-term relationships with investors.
Download Infographic
Undeniable Facts. Make your own conclusion! Is it the right time to buy in Dubai?
In addition to the classic reasons you read and hear about all over the news that emphasize and reassure the healthy investment environment in Dubai, the question is: Is the current market negativity only about Dubai? NO. If anything, when you dig deep you realize that the economic risk is actually far higher in other parts of the world in comparison to a stable city like Dubai. This might raise your next question about Dubai in light of the oil price crisis: Is the economy safe despite unstable oil prices in the global market? I can simply tell you that Dubai is by far the least oil dependent city in the entire region.
In addition to the above, if we also agree that currently the market is not at its peak, but rather at the low-end, then it would be correct to say that prices also are low, and hence now is the right time to buy.
As long as we make a well thought-out rational decision on why and what to buy, there is not a better time to invest in an underpriced city like Dubai. A city, which none of us can deny has a successful future evident by the proven record of the enormous success over the past decade.
Let us first establish that the wise Government of Dubai has consistently proven its long-term ability to attract new residents and foreign investments, offering unmatched infrastructure and world-class living standards. No one can deny the stability, speed and continuity of all mega strategic projects that are Government driven. In other words, the Government of Dubai continues to write its own success story and continues to take the lead of investing in its vision ahead of others.
Upcoming mega projects that are making waves in the world are the following:
Al Maktoum Airport and DWC (Advanced and ongoing)
Jebel Ali Theme Park (Advanced and ongoing)
Dubai Water Canal (Ready by end of 2016)
Jumeirah City Walk (Ready in 3 months)
Dubai Creek Harbour (Advanced and ongoing)
Sheikh Mohammed Bin Rashid City (Advanced and ongoing)
A comparative look into the real estate market then and now
Some cynics might ask about what if the symphony of 2008/9 plays out again?
This table illustrates the differences between the potential price drop in 2008 compared to a potential price drop today. Properties during the time were evidently overpriced.
The Reality of 2008
Today’s Reality
Prices during the time were steep. An average off-plan price in the middle of the desert peaked at a massive 3,000 dhs/sq.ft.
Prices today are more reasonable. For on-plan property in Downtown, prices are an average of 2,500/sq.ft.
The market was unregulated. During the time, the market was pretty much free of government regulation for a more laissez-faire approach, thus the proliferation of fly-by-night real estate developers and investors who were swindled.
The market is highly regulated. The Dubai Government now plays a major role in strictly applying rules and regulations to monitor real estate developers’ activities for the protection of the investors. These are done through strict requirements and regulation of investor funds in an escrow account.
Impractical financing plans. Banks were more lenient during the time. In fact, so lenient that anyone could finance a property through the local banks without strict requirements and limitations.
Conservative finance schemes. To avoid the condition of the market in 2008, the government and local banks have put regulations in place to avoid an excessive exposure to debt by its people.
People were careless and were not properly informed about current events in the region. Speculations were rampant without this news being verified. There was panic and many were affected.
People are well-informed and found smarter ways to be so by being more intelligent and cautious. They know what to look for and who to believe when they are researching prior to making major investments.
Both real estate developers and institutions lacked liquidity.
The market is very liquid. This can be seen by the low interest rates and mega-investors are liquid. In fact, most investors’ holdings today are 30% cash or in cash-like assets, enabling them to have more buying power, thus having more options to shop around for lucrative property investments.
In conclusion, investing in off-plan properties in Dubai is very profitable as long as you follow the necessary guide to help you during the decision-making process. By careful and thoughtful planning, your decisions will become fruitful in the long run. Investors are safe because of the protection from the Government; moreover, the Federal Government is busy executing a plan to steer the UAE away from its dependence on oil in order to maintain its stability despite world market turmoil. Amongst all of its GCC neighbors, the United Arab Emirates is the oasis of political stability. It is the country that enjoys economic growth through its various sectors and it will be the strongest, most economically stable nation to rejoice upon the depletion of the last barrel of oil. Why even think about investing anywhere else in the world? Switzerland has maintained a safe economic environment throughout the worst time of European history. Dubai is setting a new example of a modern Swiss model, mainly because it is the place where all the giants have various stakes in its success.
Facts: All the data available indicates that after appreciating an average of 35-45 percent since 2012, the market in 2016 for ready properties has cooled.
Written by:
CEO fämProperties – Mr.Firas AlMsaddi
The post A guide to identify the best off-plan property investment in Dubai appeared first on Dubai Properties Launch.