Strong Returns on Rentals

One of the reasons to invest in the Dubai/Ajman region is the great return on investment that you get from rentals. The philosophy in Dubai is to provide transparency for all parties and transactions to level the playing field.

The Dubai Land Department created the Real Estate Regulatory Agency (RERA) which monitor's the market, suggests guidelines for doing business, promotes transaction transparency and provides investor security. Ajman is close behind Dubai in enacting similar property laws and governing bodies. Ajman is the new Dubai. New construction and increased demand are in this area close to the Dubai community. Ajman is where the best growth opportunities are today.

An example of business guidelines that the RERA is promoting is the creation of their new Residential Rental Index due out in the next couple of weeks. This index is to provide a guideline of rental rates in the various parts of Dubai so that landlords and tenants alike can see for themselves competitive pricing and practices in the marketplace. There is no law that says a landlord must follow the guideline so they are free to charge whatever they want. In support of the new rental index, RERA says "this index is a quality step to benefit the rental market, which has seen higher returns in Dubai than other real estate markets globally."

One might suspect that a guide like this could actually put a damper on prices, but the real fear is that rents will rise too quickly. Transparency enables all parties to see the elements of the market providing insight to pricing and other business decisions. In comparison, it's much like the laws in the U.S. that govern gasoline stations having to post their prices in a conspicuous place. Everyone sees the price, buyers make informed decisions based on what they see, and competitors set their pricing based on the competition surrounding them. A gallon of gas costing $3.00 twenty miles away at Station "A" has little effect on Station "B's" business, but knowing what the guy down the street from "B" is charging makes a huge difference on "B's" pricing strategy.

Another feature of the Dubai rental market is the rental increase caps put in place over the last few years. Unlike rent control in America where municipalities put caps on rents, and do not increase the rents along with the rate of inflation or other financial factors, this causes a severe negative impact on ROI. RERA suggests caps on rent that appear to be based on prevailing economic conditions. The 2009 annual rental increase cap is set at 5%. This is the same as last year. The year before that, 2007, when things were stronger the cap was set at 7%, and in years 2006 and 2005 when the market was really hot, the caps were set at 15%. This does not give rise to creating New York tenement buildings in Dubai. RERA's hope is that the rental index will eliminate the need for caps in the future.

The typical rent for new units purchased is about 12% of the purchase price. So for a $450,000 unit one can expect to receive about $4,500 per month. Try getting that here in the U.S. Of course you do have management expenses to consider. If you figure 15% in expenses that's still a healthy 10% return on investment.

Another unique factor regarding rentals in the Dubai/Ajman region is that the tenant pays a fee to the real estate broker for finding their unit. This is unlike what we are used to here in the States where the landlord pays the broker a percentage of the rent just to find a tenant. Brokers here often charge as high as two months rent for this service. Then there is management costs on top of that.

It is customary in Dubai and Ajman for tenants to make rent payments quarterly, semi-annually or annually in advance. There are monthly rentals, but most leases are written with the larger payments. As an experienced landlord myself dealing with monthly payments, over the years I have had many tenants bounce checks on me. I am forced to deal with them in collecting the rent, putting them on a cash or money order status or having to evict. In the U.A.E. people do not often bounce checks. Should it happen the person bouncing the check could be jailed for up to three years.

All-in-all I am of the opinion that you cannot find a safer, stronger or wiser bet than to purchase residential units in Dubai or Ajman for healthy ROI. Both of these emirates are pro-investment and have real estate laws that protect buyers and owners of property.

If you would like more information about investing in property or multiple properties, Emerald View Has units that range from as low as $85,000 to $5,000,000. Send me an e-mail and I will be happy to put you on the right track.

Is It a Good Time to Buy?

Welcome to 2009! And I welcome you to my new blog, Invest in Dubai & Ajman.

I have been investing in real estate in the Washington DC area since 1976. I have been through a lot of swings in the market, and although I am no psychic in predicting what will happen and when, I feel confident in my knowledge of the outcomes of these swings. For certain, the one thing I have seen and believe in is that nothing stays the same.

Whether we are in a boom market like the unprecedented one we just came out of in the U.S., or a bust market like the one we're in now, you can be sure that past will be prologue to future, things will change. The markets are either getting better or getting worse. So considering this fact of an ever-changing market, here are some key questions in real estate investing: When should I sell? Buy? Hold?

The time to sell is at a point when the market is heading upwards. No one can predict the top of a market, but if an investor wants to cash out, it makes the most sense to do it when the market is in full stride heading North. Don't worry about what you could make if you just hold on a bit longer, you could lose your shirt. If you want to take profit, do it in an upturn in the market where you can expect to sell at the price you are asking (or close to it).

The time to buy is when the market is in a full swing heading South. They call this a bear market on Wall Street. Likewise, one should not worry about buying at the very bottom of this swing, as too, the market can shift quickly and leave you wishing you had bought when you could have safely done so.

This leaves the time period for holding property. It is especially important to hold through a downward swing, keeping things stable. This is not the time to upset the tenants and don't leverage the property. It's hard to sell at a profit during a downward spiral. If you hold property during this time your cash flow is stable and rents should be paying the way. Just sit tight until the market shifts Northward. If you decide to hold during the time the market is heating up, hang on and ride the wave of increased equity. Therefore, it is always a good time to own real estate, it just depends on the financial conditions under which you hold each property.

I cannot emphasize enough, one of the many lessons I have learned over the years ... that you position yourself to make money when you buy a property, not when you sell it. This goes hand-in-hand with another emerald nugget I learned, and that is the hardest thing about owning real estate is to hold on to it during rough times. What I mean with these two lessons is that because financial demands, vacancies, remodeling costs, personal situations, etc. make it hard to hang on to properties, you must buy your property with a built in profit and not count on trying to time your purchase so that the market gives you an improved equity position. Improve your equity by paying down loans and increasing rents.

So buying right means getting good terms, at good prices under good conditions. If you buy a property correctly from the very beginning you control the financial outcome. That is, when you purchase property for meeting ROI expectations, not merely hoping for a groundswell of equity improvement, you remain in the catbird seat of when to sell.

If you rely solely on an improved equity position due to market conditioned value increases, you may not achieve your desired return in time for when you must sell, and you may even lose if you happen to be highly leveraged. No one can accurately predict what the market will do and when, so make your buying and selling decisions during the up and down swings to maximize your profits.

The time is good now for buying in Dubai and even better for buying in Ajman. Prices have fallen, financing has become easier (I have seen no money down deals with interest free loans), developers and resellers are anxious to sell. Does it mean we are at the bottom, I don't think so, but we are in a good position for buying and holding while waiting for the market to swing North again. Read what Asad Khan of Shaw Group Middle East and Asia says about Dubai investing ...

"People talk about Dubai being the Singapore of the Middle East, it’s not only Singapore, it is also the Switzerland. It is the hub for the region.

"You can’t look at the current situation through a soda straw. Things have slowed down, but if you are a true investor you have to look at five years down the road, it’s not a bad time right now."

Ajman is the next hot area for owning real estate in the emirates. New cities are under construction with many projects in advanced stages of completion. Read what Suzanne Fenton, Staff Reporter of Gulf News wrote on Dec 29, 2008 ...

"Investments into Ajman's property sector have crossed the Dh400 billion mark, according to reports.

"Despite deflated markets around the world and also here in Dubai, such robust figures mark a good year ahead for Ajman and its investors.

"Property prices also saw an overall appreciation of 40 per cent in 2008."

Sattar Dero, CEO Sweet Homes Group, Emirates City added ...

"Ajman offers affordable pricing backed by developer finance packages with flexible and affordable payment terms, as an alternative to bank finance. Lastly, the land department of Ajman has started implementing the escrow account, which guarantees the security of real estate investments within the emirate ..."

There are many reasons to buy in the emirates and we will discuss and explore them on this blog in the coming months.

Get a good buy in Dubai!

Mike the Dubai Guy