With next week’s Dubai Property Festival at the Dubai World Trade Centre expected to attract more than 20,000 visitors, the emirate’s property market once again comes into focus. During the four-day festival from March 26-29, local and overseas buyers will be scrutinising various projects, looking closely at the plus points of the market: high yields of 7-10 per cent, great supply at hand and even better price points. In fact, the 2019 Middle East Real Estate Predictions report from Deloitte has estimated that the total number of residential units delivered in Dubai last year was between 15,000 and 20,000, and noted that long-term prospects beyond 2019 remain positive with continued population growth forecast.
So is this the right time for buyers to make a move?
“Before 2014 the property market used to be very expensive, with fewer unit options and hardly any attractive payment plans. Today the market is attractive and it gives a great opportunity for tenants to rethink their strategy,” says Mahmoud Alburai, vice-president of the International Real Estate Federation of Arab Countries and a senior advisor with the Government of Dubai. “If you cannot buy property now, you cannot buy after the Expo [2020 Dubai].”
And in this era of inducements and sweet deals, real estate experts advice that no matter how attractive the post-payments plans look in the market today, investors and end users should do their due diligence.
Normally in other places we have a normal rent plus a 5-10 per cent premium. But in Dubai the premium is almost 40 per cent. To attract local demand, that premium needs to be brought down.
“Investors need to do their homework before buying,” says Alburai. “Check if you are dealing with a good developer who has a clean track record. Is he delivering quality products? Does he have a trust account?”
Inspections, hidden costs
The easiest way to confirm that a developer has registered themselves and the project is through Dubai’s Real Estate Regulatory Agency. “An escrow account will have been established to receive payments for off-plan projects and there are strict criteria on the release of funds. Inspecting property already delivered by a developer and assessing the quality of build and ease of upkeep are useful,” says Elaine Jones, executive chairman of Asteco Property Management.
Jones agrees that the mind-set in the emirate is changing and residents are taking a long-term view on living in Dubai and understanding the benefits of owning versus renting. “If you are buying off-plan, location, quality of build and an understanding of the area in which the property is situated can lead toward assessing the [property’s] feasibility as an investment,” says Jones. “Too much stock being delivered in an area will impact the ability to lease or sell and the capital value. At the time of issue of the title deed, the owner should receive a unit site plan that clearly defines the unit size, which verifies the area calculation for service charge and car park.”
According to Alburai buyers have to read their contracts carefully and look for hidden costs. “Check whether all post-payment plans are mentioned in the contract and even the promise of a free service if the developer says so.”
The service charge is often not fully considered in off-plan purchases, but it directly affects an investor’s net yield and also gives an indication on the level of maintenance to expect, which can determine rent and leasability.
Talking of buying trends, Jones said that smaller units, such as studios, one-bedroom apartments and two- or three-bedroom town houses, tend to be the better investment options due to increased leasability, whereas larger units are often bought for self-use. “Established communities such Dubai Marina and Downtown Dubai are and will continue to be popular to investors and tenants as they provide convenience through the availability of retail and hospitality offerings, ease of access and public transport,” she says. “In contrast, new communities such as Dubai Hills and Dubai Creek Harbour have been popular investment opportunities and while it is difficult to predict the leasing demand on completion, we expect the units to be received well, given supporting facilities and infrastructure works are complete.”
Talking about rent-to-own schemes, Jones says there are extra fees that need to be factored into the calculation, such as the service charge, internal utility charges and decoration/maintenance cost. “Many of the sales that are happening at present are by clients who were tenants and see the opportunity to be owners for virtually the same cost,” she says.
But one of the main obstacles of the rent-to-own scheme, AlBurai explains, is the very high premium. “Normally in other places we have a normal rent plus a 5-10 per cent premium,” he says. “But in Dubai the premium is almost 40 per cent. To attract local demand, that premium needs to be brought down.”