“Buy land, they’re not making it any more” is a quote attributed to Mark Twain which is often trotted out to prove that real estate is an asset worth acquiring.
Property is one of those investment classes that has had its ups and downs particularly in the UAE, but over time it has proved to be a solid bet, and my recent columns in The National have explained in detail what an asset it can be if treated properly.
Buying property can almost halve your rent, provide you with double digit rental returns and give exponential capital growth, but there are other reasons to buy your own home too, and there are the inevitable risks – which we real estate agents like to pretend do not exist.
The pros and cons of buying real estate are different depending on whether you are buying to live in or as an investment asset.
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Read more:
Should buyers invest in off-plan or ready built in the UAE?
Traps to avoid when buying property in the UAE
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When You Own Your Home
Owning a home is often something aspirational for people: “my own place”. When you own your home you can truly make it yours, you can renovate, decorate, and reflect your own personality, style and way of life in the place you spend the most time. You can really put time and effort into making it special, something people do not often do with rental properties.
Always make sure you have buildings insurance and an annual maintenance contract with a reputable firm.
Your landlord cannot raise your rent or ask you to leave, this is your place now. If you have bought wisely you should be paying bank payments which are well below what you would be paying as rent. If you have a fixed mortgage then the same amount will go out of your account each month (no more than one cheque in advance). Saying that, if interest rates go up and your mortgage isn’t fixed then your payments will go up (or down if the rates decrease). Another drawback is you cannot take advantage of falling rental rates as now your rent is linked to interest rates and not the rental market.
Owning your own home does make your situation a little less flexible than if you are renting. It might be harder to upgrade, downgrade or move locality - although selling and buying property in the UAE is a very quick process. If you have to leave the country quickly, hand it over to a property manager and get it rented out.
When you own property as an investment
When you own property as an investment you have the holy grail of all incomes: passive income. Warren Buffett is often quoted as saying “If you don't find a way to make money while you sleep, you will work until you die”. If you earn enough passive income you never have to work again.
The major plus for real estate as an asset is that banks will lend money against (taking security over it) even for the average person. The fact that banks will lend to you to purchase an investment asset allows you to buy a much bigger asset than you would otherwise (just with cash) and so get better returns.
Rental returns if you use leverage (see my article on this here) can give you double digit returns on cash, far better than anything you could get from a bank and a lot better than most other asset classes. If you do have cash and are looking to invest, putting it in real estate is hard to beat.
Your real estate asset may appreciate in value. According to the International Monetary Fund, world real estate has gone up about 3.3 per cent a year on average since 2000 till the present day. Using the principal of leverage, even modest value gains look very attractive.
Of course what can go up, can also go down. The recent real estate slump has been caused by oversupply and a lack of demand and prices have dropped making people wary about investing. The best way to deal with real estate prices dropping is to control when you sell and avoid panicking and dumping it at the bottom of the market. Consider having a property manager look after it if you have to leave the country and keep renting it out and covering the mortgage. Make sure you sell it only when you want to and ensure you never make a loss.
Ben Crompton is the managing director of Crompton Partners Estate Agents
Result
UAE (S. Tagliabue 90 1') 1-2 Uzbekistan (Shokhruz Norkhonov 48', 86')
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
More from UAE Human Development Report:
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
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Roll of honour 2019-2020
Dubai Rugby Sevens
Winners: Dubai Hurricanes
Runners up: Bahrain
West Asia Premiership
Winners: Bahrain
Runners up: UAE Premiership
UAE Premiership
}Winners: Dubai Exiles
Runners up: Dubai Hurricanes
UAE Division One
Winners: Abu Dhabi Saracens
Runners up: Dubai Hurricanes II
UAE Division Two
Winners: Barrelhouse
Runners up: RAK Rugby
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MATCH INFO
Quarter-finals
Saturday (all times UAE)
England v Australia, 11.15am
New Zealand v Ireland, 2.15pm
Sunday
Wales v France, 11.15am
Japan v South Africa, 2.15pm
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The specs
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
