Trends and Tips for Dubai’s Real Estate Investors and Tenants
Top five tips for buying or renting in Dubai
Just as many were in denial when Dubai’s real estate market took a downward turn, a similar attitude prevails regarding its evident revival. The current debates echoing across the Emirate are: ‘Is Dubai’s market really on a road to recovery?’ and ‘Are the increasing rental and sale prices observed in some areas of the market justified?’
A widely discussed concept in this sector is: ‘There are more residential units for rent, therefore rents must go down!’ Reality is that it depends on where you are living. Real estate behaves somewhat different to other financial assets, whilst the economic principles of supply and demand are correct, one cannot apply a broad-brush approach to its application. Property is a localised asset, we cannot move it nor can we assume all properties in the same area are the same.
When we examine new supply we need to look at it on the micro-level. For instance, building 2,000 new residential units in International City will have little impact on discouraging people from living in Dubai Marina or the rental movements there. However, increasing supply in the same area may see a short-term adjustment in rental values (or rental incentives), since investors would be keen to gain occupancy in the new units.
So what causes a difference in rental or sale values?
Differences in rents or sale prices are driven by people’s preference to live or rent in particular areas. Value is created in property through rental income and that stems from an individual’s desire and their willingness to pay to occupy space within that location. These consumer choices will differ from person to person, but what has clearly been observed during the last few years in Dubai is the opportunity for people to ‘upgrade’ their residences and choose areas with more appealing characteristics, such as proximity to good schools, shopping malls, or property with far-reaching vistas of golf courses or the sea.
A maturing phase within Dubai’s real estate sector, post financial crisis, is that of market differentiation. Locations, projects and individual buildings are further scrutinised based on a range of consumer characteristics including: how well it is managed, local amenities, infrastructure and levels of accessibility. Since everyone is not physically able to live in the same property, building or even location, favoured communities or neighbourhoods will undoubtedly start to see patterns of rental stability and rental increases.
On the flip side of this argument, one cannot assume that all buildings and units in a well-established community or area are worthy of the same rental hikes (based upon the presence of heterogeneity in property).
This brings about the discussion regarding determining the actual value of a property. From an investment perspective property is driven by its ability to generate rental income (stable and long-term) and various assumptions can be applied to determine sale prices based upon this approach. Nonetheless, all valuations and asking prices are opinions, each holding a varying degree of subjectivity. Although the best way to assess actual value is to source a list of comparable information typically comprising of recent transactions of similar properties at a similar time (last three months) in a similar location, this can be hard to come by in Dubai.
At the moment a good rule of thumb is to look at the asking prices and consider value to be anywhere in the region of 5 to 10% of this asking price. These assumptions would of course change over time depending upon prevailing market conditions.
Top five tips for buying or renting in Dubai:
Do your homework – it’s important for you to gather as much useful information as possible before you look to rent or buy. Internet sources and speaking with agents will go some way in better understanding the range of rents or purchase prices in your preferred residential area. For renting, speak to friends and colleagues who live in the same area, this way you will be able to understand what tenants are paying as opposed to what an agent wants you to pay.
Build a good relationship with your agent – at the outset speak with a range of agents, test them on the basis of your homework and make a judgement whether they are credible in their advice and conduct. Speak to friends and colleagues and get their recommendations.
Seek high quality advice – a fundamental lesson from the recent economic downturn is credibility and professionalism. It is advisable to use an RICS (Royal Institution of Chartered Surveyors) accredited firm of surveyors at some point. Members of the RICS are globally recognised for their professionalism and integrity and operate as a benchmark of property professionalism worldwide (www.rics.org).
Curb your enthusiasm – when discussing options with agents do not reveal information that is likely to negatively impact your negotiating power. For example, disclosing your full housing allowance automatically puts you on the back foot. Similarly, sometimes it’s not always good to shout out that you are new in Dubai! When you have found that dream property, be careful not to reveal your emotional side. Agents and vendors would be quick to pick up on your smiles and grins and this would hinder the possibility of better negotiation.
Negotiate – based on your thorough research look to open a dialogue with your agent on the areas of the property that you feel could justify a discount for example: a construction view, unfinished infrastructure or an unusual floor plan. That said, be realistic and not too pushy which will only deter the agent from helping you secure the property you want.
By: Michael Waters, Chartered Property Surveyor (MRICS) and Lecturer in Real Estate, Heriot-Watt University Dubai Campus