Realty Talk: What is hot property and what is not

I have been asked almost daily, "What is best development to invest in?" In other words what is "hot property" at the moment?

It is not easy to identify what is a good investment right now. There are several factors to take into consideration.

How long is the investment for? How much is being invested? Are you looking for capital gain or investment yield? What is your tax position in your country of origin? Do you intend to utilise the investment for yourself?

These are but a few of the relevant points when deciding on what to purchase. I will try to elaborate on a couple of the more salient factors.

The two most important factors are, the amount you are investing and the length of time. This rules out many projects instantly.

For example if your investment is Dh3 million, forget a building or a plot on International City or a Palm Jumeirah villa. If on the other hand you have Dh100 million plus to invest then these can be part of your portfolio.

If you want a quick turnaround, go for projects nearing completion or take a chance on newly launched projects.

Dubai is unique in that you can own and then sell buildings, plots and individual properties without paying in full; all you need is the deposit, transfer fee, premium, commission and accelerated payment if applicable. I touched on this matter in a previous article.

Basically you can own and sell real estate for a fraction of the total price without having to prove you have the ability to fund the balance.

This obviously applies to recently launched developments, and this is where luck as much as judgment comes in. All you have to do is to sell it before the next payment is due.

If you cannot make the second payment then you incur a relatively small penalty. It is rare for developers to repossess properties although it does happen if you make no further payments whatsoever.

Certain developments look like they are sure fire wins in the short term, but can turn out to be not so good after all.

For example, The Golden Mile was sold out in 48 hours, over 6 months ago, yet they are still not commanding any premiums, this was supposed to be the hottest project going at the time.

The Burj Dubai, the tallest tower, a milestone in architecture and engineering, should have been a sure shot, but again premiums at present are only around 3-5 per cent, not what the investors were expecting.

So there is no easy way to identify an instant winner. One thing however is fairly certain, as both these projects near completion the prices will start to move up very sharply.

Springs is a prime example of this where premiums hovered around 10-15 per cent for nearly a year, and then suddenly as phases started to complete they rose to 50 per cent and above.

On the commercial side, Fortune tower offices were around 10-15 per cent premiums 6 months ago, now all of a sudden try and find one at less than 35 per cent premium, and it still has a year to go before completion.

I was once told by a large investor that beach front property was the best investment no matter what.

The Palm villas and JBR are a good example of this advice as they have both done very well. That is not to say beach front is the only good investment.

Take International City, which is hardly beach front, set inland some 10km and right in the middle of the desert, yet January and February saw some very active trading in this project.

Buildings, plots and individual units were swapping hands several times, with premiums rising daily.

In some instances, transfers were not even taking place, as memorandums of understanding were being used to secure property instead.

This method is utilised when product is moving too quickly and there is not enough time to incorporate official transfers.

Some examples are, China buildings originally Dh225-Dh250 per square foot at launch 15 months ago, now selling for Dh380 per square foot and above a premium of nearly 70 per cent.

This still has 18 months to 2 years to go before completion so I cannot imagine what premiums these will attract in another year's time.

There is much speculation that the premiums have risen quickly because the buildings are composed of mainly studios, and one-bedroom apartments starting from just Dh250,000.

This is a cheap way to get a residency visa for nationalities where obtaining visas is otherwise somewhat difficult. How true this is, is anybodies guess, but it does appear to have an element of truth, considering studios elsewhere are almost twice as much.

Commercial developments

Investors should look at the commercial developments as well as the residential ones.

Business Bay launched less than two months ago by Dubai Properties, has sold out its first phase at Dh225 per square foot and is already commanding Dh250 plus, i.e., over 11 per cent premiums and still 2 years to go before completion.

The entire project involves the building of 550 towers and will take up to 10 years to complete.

So if you are a large investor this looks like a good one, but do not take my word for it as there are no guarantees that the further phases will increase as rapidly.

A prime example of this is the water homes on The Palm Jebel Ali. The second phase, launched just a few months after the first phase, still has to command any premium at all, yet the first phase is hovering around 30 per cent.

But the same is not true on the Springs properties where there was a price increase after each phase was launched.

For the smaller investor, the water homes are a good option. I think they are the best value properties on any of the palms.

Try to buy anything else with 3,800 square feet accommodation for Dh3 million completely surrounded by the sea, and somewhere to moor your boat.

The cheapest villas right near the trunk on the Jebel Ali Palm are just under Dh4 million and climbing and on Jumeirah Palm over Dh5 million.

I think the water homes are definitely undervalued and will have their day in the not too distant future. The other good thing is that cash flow wise you only need around Dh500,000 to secure a phase 2 water home.

The next payment not being due till October this year. I think nearer completion they will be selling for around the Dh5-Dh6 million mark.

The long and short of it all is that there is no magical formula for predicting which development is going to be the best investment, so go with your budget just incase you have to pay for it in full.

One thing is almost certain if you buy at launch and see it through to completion you are more than likely to make a profit.

The writer is a senior property consultant.