Dubai: Financial and real estate experts agree that investors — wherever they are around the world, should make property a part of their diversified portfolio.
Property has long been viewed as a strategic investment that can ride out economic cycles. Historically, investors in the UAE hold the asset class high in their portfolios, as it offers the potential for higher returns and exhibits "brick and mortar" characteristics that are not found in intangible assets like securities.
"Property has been an attractive and good performing asset class and offers the potential for high capital appreciation as well as attractive yields…The returns can be quite dramatic as investors have the ability to leverage easily and rely on future earnings to repay the debt," says Ishrat Kiyani, UAE head of premier banking and wealth management at HSBC.
"For instance, if you invest $100,000 [Dh367,203] into a stock portfolio and it doubles in value, you make a profit of $100,000. If you buy a property for $100,000 and borrow $80,000 to facilitate the purchase, and the property doubles in value, you make a profit of $100,000 from only a $20,000 outlay," he adds.
Kiyani, however, says that property can be considered a cautious and very high risk asset class, and just like any other investment, has its pros and cons. He notes that properties in established markets like central London will be much less volatile than the ones in less established markets like the Middle East.
"It is important that people understand the risks and limitations of property such as its illiquidity, rent voids or defaults and cost of leverage. Furthermore, property can be expensive to buy and sell, and prices can be massively distorted by sentiment," he adds.
Jesse Downs of Landmark Advisory says it is the tangible nature of property that makes it appealing to investors, even during a downturn.
Property assets should appeal to investors during down cycles. Real estate is typically an asset that an investor should be prepared to hold for five to seven years, if necessary. Generally, property cycles follow a similar time frame. Rationally, buyers should be buying during a down cycle and holding," Downs says.
In any investment life cyle, Elaine Jones, CEO of Asteco Property, notes that there will always be peaks and troughs. At certain points, market fundamentals will change, making the equity markets look more favourable than property, and vice versa. As to why property still appeals to investors during a recession, Jones cites the real estate's bricks and mortar factor.
"The old adage that there is nothing safer than bricks and mortar still rings true. During the last downturn, we have seen a number of investors lose hundreds of millions through the liquidation of shares and companies. Provided an investor has the capacity for a long-term view and is canny in their choice of property investment, then bricks and mortar will always have a core value. It all boils down to spotting end-user demand, regardless of what asset class is being invested," she says.