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Gulf Property | Economy to dictate how realty performs

Posted by MDP Admin on February 1, 2016
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The real estate landscape all over the world is fast changing. But that is not the only aspect, the investment landscape and economic environment all over the world is also changing. The way markets have been behaving ever since the beginning of this year. the way oil has been losing its value, and the outlook of the year 2016 which looks bleak or as mentioned by most economic thinkers and business leaders. will be a difficult and challenging year, poses a very serious question; How will the UAE and specifically the Dubai real estate market perform?

We all remember what happened in 2008. we all went through it together. We all have our experiences and our learning from the 2008 crash. The crash resulted in defaults, forfeited properties. abandoned workers and shattered dreams.

It is extremely important to understand that the entire social economic order has a very delicate balance to it. This balance must be maintained in order for a community. town. city or country to flourish, prosper or at the least sustain itself. Especially when it is confronted with adversity. When challenges get harder it is important that the balance is kept so as to ensure that all classes of a social set up weather the storm together and that no one particular group is burdened more then its capacity. The days ahead may pose such a question for the world once again.

Talking flashy, glorious and highly about Dubai real estate is a habit developed by local realtors by divorcing facts. reality and socio economic indicators. Primarily because realtors in Dubai are mostly those who come from varied back grounds and not from investment or financial sectors. and so miss the point altogether. However we must now analyse and introspect carefully to navigate the future.

If you want real estate sector to do well. you have to make sure that the entire economic spectrum is well balanced. That jobs are created; meaning that there are going to be people moving in to Dubai who are going to either buy properties or rent them. Forecasts suggest that value of properties will diminish because of the overall economic outlook. But for some cash rich investors this could also be a unique buying opportunity. But investors worldwide must have faith and confidence in the market.

What constitutes investor confidence? It is a combination of many factors. They need to believe in a good return on investment (ROI). they need to have faith in government policy. hence faith in the government, they want to be sure that the legal system is fair and just. Therefore it is very important that a conducive investment environment is created.

Now lets talk about the real estate sector in Dubai. The Real Estate Regulatory Authority (RERA) has done a good job in creating lots of regulations and lots of frame- works for protecting both the investor who are buying properties. protecting land- lords, tenants and so forth. But sometimes regulating a market too fast can shake the confidence of an investor.

In order to encourage investors into buying larger properties, and encouraging tenants to rent a larger property, one thing that needs to be visited by RERA and owners’ associations is the calculation of service charges.

Firstly. service charges like everything else in an econ- omy must be curbed, reduced or revised as inflation increases. It makes no sense to keep increasing service charges when people are losing jobs and rents falling. Also there should be sliding scale to calculate the service charges. The larger the unit the lower the per square foot maintenance charge the smaller the unit the higher the per square foot rate. A sliding scale must be introduced.

Also to keep mortgaged properties in positive cash flow it is necessary that with falling rents service fee must be revised or properties become a liability instead of an asset very fast when an investor has to pay money out of his pocket to meet monthly finance payments and service charges.

The other thing is a stronger support to small medium enterprise. Cost of doing business in the UAE has gone up considerably, Fee structures at free zones for the licensing and sponsorship fee for a limited liability company have gone up, the rents, the visa cost for having employees and then with that the regulations for having workers compensation insurance, 3rd party liability insurance, so forth and so on, and all of these costs start accumulating and they hurt the small enterprise.

The SME’s get affected by that, maybe the large corporations and the large companies have the capability to absorb it but the small guy can’t sustain it. When that happens, the small and medium enterprises feel the pressure and start cutting back on jobs or cut back on salary of the employees and when those compromises happen they directly affect the real estate market. So the UAE has to take a look at its entire economy as a whole and not only look at how the real estate sector perform.

We cannot judge how the real estate sector will perform by only looking at the real estate sector we have to look at the overall environment, the entire economic landscape to figure out and to see where this market is going.

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