Duibai: Property is often viewed as a ‘fail safe’ investment but are savers taking a risk by relying so heavily on one asset?

For many, when asked how they plan to fund their retirement, they’ll confidently state that their property ‘is their pension’.

Research conducted by Towers Watson found that 60 per cent of people living in the Mena region view property as one of the top three ways to save.

With residential property prices in the Mena (Middle East and North Africa) region some of the fastest rising in the world, it’s easy to see where this confidence originates.

According to the latest report from property consultants JLL, residential house prices in Abu Dhabi grew seven per cent during the second quarter of this year, bringing the average increase during the first half of 2014 to 17 per cent. In Dubai, average sales prices grew by six per cent during the second quarter with prices back to near pre-2009 financial crisis levels in some areas.

In June, the UAE Central Bank cautioned that the region’s property market could be at risk of overheating. In fact, many regions have already taken steps to cool the market by introducing mortgage ceilings and increasing fees on property transactions to prevent investors buying and selling properties in quick succession to make speculative profits. Further action to dampen the market may also be on the horizon.

During the UAE’s last real estate crash, property prices plunged more than 50 per cent from their peaks.

Against such a volatile backdrop, relying on property to fund retirement begins to feel too risky and too concentrated. Buy and sell at the right time and you could do well, but with such mixed results anticipating the market is far from easy.

What’s the solution?

The reality is that very few investments are fail safe or guaranteed 100 per cent to keep their value. While historically residential property has performed well, having a diversified basket of savings and investments makes better sense. By spreading your investment risk, you are helping to safeguard your future.

When constructing a balanced portfolio of savings and investments, the first thing to consider is what your saving goals are.

These can range from saving for a new home, children’s education and weddings through to long term financial planning for later years.

If you are saving for retirement for example, what kind of lifestyle do you want? Are you happy to lead a modest lifestyle or are you hoping to enjoy a little more luxury? When do you want to retire? Do you want to retire early or are you content to carry on working longer?

Once you have established the short, medium and long term objectives, think about what level of risk you are willing to take with your money. If you are willing to take some risk, investing in stocks and shares might be appropriate for you but for those who are more risk adverse, a more conservative approach is needed to safeguard their capital. For the majority, a mix of different asset classes offers the best spread combining equity investments with ‘safer’ options such as cash and bonds.

While government pensions in the Mena region are typically quite generous compared to other parts of the world, it doesn’t mean that they will be enough to support the lifestyle you want or in fact, sustainable at current levels. Although very few employers in the Mena region currently offer retirement benefits as part of their employee benefits package, if your employer does offer a pension scheme, be sure to take them up on the offer.

Workplace pension schemes vary considerably but most offer some form of employer contribution so think of it like getting a pay rise. If your employer doesn’t offer a pension, consider setting up your own personal pension scheme with professional advice.

Once you have a financial plan in place, try and stick to it. With the ups and downs in the stock market, many investors fall into the ‘buy high, sell low trap’. Instead, view your financial plan as a long-term project and try and avoid the temptation to react to every bump along the road.

Relying too heavily on any one individual investment is best avoided. While property can play a valuable role in a balanced portfolio, ensuring a mix of other savings and investments is wise. The market for financial services products in the Mena region is maturing so speak to an adviser about the options that are available to you — there may be more choice than you think.

The Writer is the Chief Actuary of TAKAUD.