Tips on buying property during a pandemic
Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.
While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.
While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.
Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.
Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.
Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.
Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.
Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.
If this world was in any way rational, we would be going through a massive global property market crash right now.
Residential house prices have looked inflated for years – and by rights should have collapsed after the financial crisis in 2008. At the time, global central bankers saved property owners by unleashing massive fiscal stimulus and cutting interest rates almost to near zero, triggering yet another boom.
Central bankers are doing exactly the same today, averting a crash and in some parts of the world, driving prices to fresh highs.
The Knight Frank Prime Global Cities Index for the second quarter of this year shows house prices fell by 2.3 per cent at the height of the Covid-19 pandemic, between March and June. Yet, they are still up over the year as a whole, if marginally, by 0.9 per cent.
Knight Frank researcher Kate Everett-Allen says the true picture is hard to gauge, as 29 of the 56 countries it tracks failed to report second quarter figures, amid the lockdown confusion.
She says the impact of the pandemic is likely to be “inconsistent and regular”, and vary from country to country. "Much will depend on the state of the housing market prior to the pandemic, the length and severity of the lockdown, and local reliance on international demand, which has dried up due to travel restrictions," she says.
Property markets seem to be holding up best in Eastern Europe, its figures show, with Luxembourg, Lithuania, Estonia, Poland, Slovakia and Ukraine posting double-digit price growth measured over 12 months.
Countries including South Africa, Singapore, Spain, India, Malta and Hong Kong are faring worst, but the declines are relatively minor so far. There is no global house price collapse. That doesn't mean it won't come, though.
In Dubai, prices fell for five years before the pandemic struck, although the stay-at-home restrictions have had only a minor effect.
If you aim to own for the medium to long term, you will always be in a position to ride out short-term market fluctuations.
Figures from listings portals Bayut and dubizzle show a decline of just 4 per cent in the first half of this year, despite the postponement of Expo 2020 Dubai to next year.
Global property market resilience may delight owners, but disappoint home buyers and investors who were hoping to bag a bargain during the crisis.
Chris Speller, group director of real estate exhibitions specialist Cityscape, has a simple message for those thinking of purchasing property in Dubai: “If you can afford it, now is a good time to buy. This is definitely a buyer’s market, with prices significantly lower than nine to 18 months ago.”
Some buyers may be tempted to wait in case prices fall further, but Mr Speller says the UAE is showing signs of recovery. "The government has been doing many things to attract business in the manufacturing, industrial, tourism and retail sectors. Many companies have already made job cuts, so we hope employment won’t fall further. This could support prices.”
Now is not a good time for speculators hoping to “flip” property for a quick profit, he says. “But for a private investor with a longer-term plan and job security, it could be a great opportunity.”
Before jumping in, Mr Speller advises checking the progress of local development plans. “If you were expecting a new mall or new roads and infrastructure, these may have been shelved for a period.”
Chris Battle, a buy-to-let investor who runs The Property Hub Meetup in Dubai, also suggests taking advantage of lower UAE prices. “The government could take action to protect prices by limiting new property supply until demand recovers."
Your decision depends on why you are buying, though. "If I was looking for a home to live in, I would definitely buy now. Even if prices fall, the money you are saving on rent will take the sting out of that.”
By contrast, property investors can afford to wait and see if a second global wave of the pandemic knocks confidence and prices, and throws up property bargains. “I don't think we have reached bottom in the UAE, but I don't think there is a lot further to fall,” Mr Battle says.
Travel restrictions have reduced demand from overseas buyers, but Professor Stephen Thomas, associate dean, MBA Programmes at the Business School in Dubai and London, says this could soon change as the weaker US dollar is making Dubai relatively cheap for buyers who earn in other currencies.
He predicts a surge in “lifestyle demand post-Covid as mature, well-off international buyers choose sun and security in the Gulf”.
Arran Summerhill, company director at Holo Mortgage Consultants in Dubai, says your decision also rests on how long you plan to hold the property. "If you aim to own for the medium to long term, you will always be in a position to ride out short-term market fluctuations.”
With UAE prices at their lowest in a decade, and mortgage rates at their lowest in history, buying today is tempting, he adds.
When deciding what to buy, Mr Summerhill says the lockdown has changed perceptions of what makes a desirable property. “Many buyers now favour villas or townhouses over apartments, to get additional outdoor space.”
One problem is that many Dubai owners have lost money on their properties and are reluctant to sell at today's depressed prices. They are hanging on, waiting for prices to recover.
Mr Summerhill says only those needing to sell urgently are doing so. “While plenty of buyers are looking to take advantage of today's favourable purchase conditions, supply is short."
Mr Thomas says falling Dubai prices have punctured the “dangerous myth” that property is always a good investment. “It depends when you buy and sell. As we have seen in the UAE, cycles occur with some regularity.”
Aaron Strutt, product and communications director at mortgage broker Trinity Financial, has been taking calls from British expats and other nationals in the UAE and Middle East, who are keen to take advantage of a current UK stamp duty holiday to buy in London.
The tax break runs until March 31, 2021, and saves buyers, including those living overseas, a maximum £15,000 (Dh71,374) on properties up to £500,000.
Foreign buyers have a second reason to act fast, as the stamp duty surcharge for overseas buyers rises from today's 3 per cent to 5 per cent from April 1, 2021.
This means an expat or overseas resident buying a £500,000 London bolthole would pay stamp duty of just £15,000 if they complete on March 31, but £40,000 the next day.
Wherever you buy, you should not let tax considerations dictate. The Centre for Economics and Business Research (CEBR) forecasts UK house prices will drop 14 per cent by the end of 2021. If it is right, overseas buyers would be better to wait. They may pay more stamp duty, but the overall cost will be much lower.
The truth is that property price movements, like shares, are impossible to predict. Especially since this is an artificial market, buoyed by government job protection programmes and years of low interest rates.
If you hold back waiting for the perfect moment to buy, the chances are you will never take the plunge.
Despite today's massive uncertainty, Mr Strutt says the demand is still out there. “People believe owning property gives them security, and renting is expensive.”
Low interest rates give you another good reason to take the plunge, he adds. “If you can lock into a fixed rate for five years at around 1.5 per cent, you should benefit for a long time to come."
One thing has not changed. If you have found your dream property and can afford the mortgage, the best time to buy is nearly always today.
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.”
How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
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Tips on buying property during a pandemic
Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.
While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.
While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.
Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.
Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.
Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.
Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.
Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.
