Off-plan residential transactions in Dubai for the first six months of 2018 were down 20 per cent from last year during the same period, according to GCP-Reidin. On the ready property side, sales in the first six months of the year held up well, with an increase of around about 6 per cent year-on-year.
Does this mark the end of off-plan sales and a switch back to ready units? Time will tell, but what is worth talking about is at what point in the real estate cycle this change occurs. When should the savvy investor give up on off-plan and move into the secondary market?
To answer this question, let's compare the two asset classes (as I really believe they are two separate classes within real estate), by examining the pros and cons of buying off-plan versus built and what buyers need to look out for:
Risk
Off-plan is a risky asset, which is one of the reasons you get a price discount. In Abu Dhabi, the 2015 sales law stated that each off-plan offering should come with a full prospectus, similar to those shown when investors buy riskier assets to make sure they have all the facts. There is a chance your property may not be built, may be built late or not to the specifications you expect, so be aware of your risk. The better-known developers will offer you less of a discount on market price because they are less risky - you pay more for less risk. Buying built property has its own risks but the unit is there for you to see and touch.
________
Read more:
Traps to avoid when buying property in the UAE
Why property is a good investment if you take out a mortgage
How long do expats need to stay for buying a home to make sense?
_________
Downpayments
The off-plan market is very attractive for those investors who don’t have the 25 per cent (for expats, 20 per cent for Emiratis) deposit. It is a way of paying for your property in instalments. Beware however, if you are using the off-plan purchase solely as a savings plan, developers don’t often pay you interest on your payments. Look into saving the money in a savings plan and then buying the property once it is built, particularly if the payment plan requires a lot before completion or there is not much of a price discount given. It might be cheaper earning interest on your money. For built property you will need a pretty hefty deposit, at least 25 per cent if you are an expat.
Sales price
Price for off-plan is king. As mentioned above, this is a risky asset class so to take the risk you need to be paid for it. You will also expect a discount due to the opportunity cost of your funds. The developer pays you by offering you a much better price for off-plan than you can get in the market for built. If there isn’t a discount, then don’t buy off-plan.
Price appreciation
Again a huge draw with off-plan is not only that you are buying it at a discount to current market value but also that when it is delivered it will be worth even more, and here is where the timing matters. Off-plan properties usually take three to four years from initial launch to handover, so it is a good investment closer to the bottom of the market (but doesn’t have to be at the bottom), as if you buy near the bottom of the market the project should be delivered in a market that is already recovering. Off-plan property is not a great investment in a booming property market because these are typically near the peak, so when the project is delivered prices are on a downward trend.
You can’t easily sell off-plan property these days (they are an illiquid asset) so you have little opportunity to exit at the top, you need to hold it through to completion. So it is better to invest in off-plan when the market is bad but you can see an end in sight as opposed to when it is roaring.
Built property is better to buy at or near the bottom of the market as well, but because it is quite liquid you can keep investing in it as the recovery gets older without being too worried you will get stuck with it when the market starts to fall.
________
Read more:
Tenancy laws need a review to attract more UAE buy-to-let investors
Why buy a car in the UAE but not a home?
How buying a home in the UAE can halve your rent
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Choose your unit
One of the great things about off-plan sales is that you get to choose your unit from a wide range. You can select the type, view and floor – some developers will even let you customise it as you like. The downside is that you can’t see the finished article, so what you end up with might look very different to what you thought.
With built property you may not be able to get the exact unit you want, but you do know the general quality of what you are buying.
Opportunity cost
Opportunity cost is something not enough real estate investors understand or take into account when investing. The opportunity cost of money is basically what this money would be earning if you weren’t investing it into real estate. Chartered surveyors often use a 5 per cent return as a benchmark, as if you were putting your money in a high-interest account.
As discussed, when you make a payment on off-plan property the developer doesn’t pay you interest on that cash. Now you might think it isn’t costing you anything handing that cash over, but it does, it’s an opportunity cost. You are losing the opportunity to make 5 per cent per year on that money. That is a cost a professional investor takes into account when deciding where to allocate funds, and over three years it is 15 per cent (uncompounded). Make sure the final expected value of your investment takes into account opportunity cost, and risk before taking it.
Opportunity cost is where a built product kicks off-plan out of the park. If you buy tenanted property, then your money is “put to work” realising its earning potential and generating you a return from day one.
Ben Crompton is the managing director of Crompton Partners Estate Agents
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
- Avoid suspicious social media ads promoting fraudulent schemes.
- Only invest in crypto projects that you fully understand.
- Critically assess whether a project’s promises or returns seem too good to be true.
- Only use reputable platforms that have a track record of strong regulatory compliance.
- Store funds in hardware wallets as opposed to online exchanges.
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Super Saturday results
4pm: Mahab Al Shimaal Group 3 | US$350,000 | (Dirt) | 1,200m
Winner: Drafted, Pat Dobbs (jockey), Doug Watson (trainer).
4.35pm: Al Bastakiya Listed | $300,000 | (D) | 1,900m
Winner: Divine Image, Brett Doyle, Charlie Appleby.
5.10pm: Nad Al Sheba Turf Group 3 | $350,000 | (Turf) | 1,200m
Winner: Blue Point, William Buick, Charlie Appleby.
5.45pm: Burj Nahaar Group 3 | $350,000 | (D) | 1,600m
Winner: Muntazah, Jim Crowley, Doug Watson.
6.20pm: Dubai City of Gold Group 2 | $300,000 | (T) | 2,410m
Winner: Old Persian, William Buick, Charlie Appleby.
6.55pm: Al Maktoum Challenge Round 3 Group 1 | $600,000 | (D) | 2,000m
Winner: Capezzano, Mickael Barzalona, Salem bin Ghadayer.
7.30pm: Jebel Hatta Group 1 | $400,000 | (T) | 1,800m
Winner: Dream Castle, Christophe Soumillon, Saeed bin Suroor.
Gulf Under 19s final
Dubai College A 50-12 Dubai College B
The%20specs
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The biog
DOB: 25/12/92
Marital status: Single
Education: Post-graduate diploma in UAE Diplomacy and External Affairs at the Emirates Diplomatic Academy in Abu Dhabi
Hobbies: I love fencing, I used to fence at the MK Fencing Academy but I want to start again. I also love reading and writing
Lifelong goal: My dream is to be a state minister
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.”
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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More from Neighbourhood Watch:
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
German intelligence warnings
- 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
- 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
- 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250
Source: Federal Office for the Protection of the Constitution
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More coverage from the Future Forum
Singham Again
Director: Rohit Shetty
Stars: Ajay Devgn, Kareena Kapoor Khan, Ranveer Singh, Akshay Kumar, Tiger Shroff, Deepika Padukone
Rating: 3/5
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
TUESDAY'S ORDER OF PLAY
Centre Court
Starting at 2pm:
Elina Svitolina (UKR) [3] v Jennifer Brady (USA)
Anastasia Pavlyuchenkova (RUS) v Belinda Bencic (SUI [4]
Not before 7pm:
Sofia Kenin (USA) [5] v Elena Rybakina (KAZ)
Maria Sakkari (GRE) v Aryna Sabalenka (BLR) [7]
Court One
Starting at midday:
Karolina Muchova (CZE) v Katerina Siniakova (CZE)
Kristina Mladenovic (FRA) v Aliaksandra Sasnovich (BLR)
Veronika Kudermetova (RUS) v Dayana Yastermska (UKR)
Petra Martic (CRO) [8] v Su-Wei Hsieh (TPE)
Sorana Cirstea (ROU) v Anett Kontaveit (EST)
The six points:
1. Ministers should be in the field, instead of always at conferences
2. Foreign diplomacy must be left to the Ministry of Foreign Affairs and International Co-operation
3. Emiratisation is a top priority that will have a renewed push behind it
4. The UAE's economy must continue to thrive and grow
5. Complaints from the public must be addressed, not avoided
6. Have hope for the future, what is yet to come is bigger and better than before
Bullet%20Train
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COMPANY%20PROFILE
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20Revibe%20%0D%3Cbr%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%202022%0D%3Cbr%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Hamza%20Iraqui%20and%20Abdessamad%20Ben%20Zakour%20%0D%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20UAE%20%0D%3Cbr%3E%3Cstrong%3EIndustry%3A%3C%2Fstrong%3E%20Refurbished%20electronics%20%0D%3Cbr%3E%3Cstrong%3EFunds%20raised%20so%20far%3A%3C%2Fstrong%3E%20%2410m%20%0D%3Cbr%3E%3Cstrong%3EInvestors%3A%20%3C%2Fstrong%3EFlat6Labs%2C%20Resonance%20and%20various%20others%0D%3C%2Fp%3E%0A