FAQ - Real estate market
Present Situation
There is a huge demand on the real estate market, which is due to the newly established companies and the massive immigration. The number of inhabitants of the country has grown by 22%, thousand of companies were founded in all Emirates! There is a huge lack of apartments and offices, 99% of the completed projects are rented out. The lack of properties is especially significant in Abu Dhabi, where the rental fee of apartments has risen with an average of 87 percent in 2008. More than 10.000 companies were founded last year in the capital. A lot of companies are using villas for official purposes, existing companies are not able to extend due to the shortage of available offices.
The Cityscape Abu Dhabi 2009 real estate exhibition has seen more than 27,000 visitors. More than 300 companies from over 30 countries participated in the event. Several new projects were launched – including the 22 billion USD Masdar City Free Zone project, which will be the new free zone of Abu Dhabi, a zero-emission city, using only renewable energy sources.
Projection
According to the analysis of Jones Lang LaSalle, Abu Dhabi will be the strongest and most profitable real estate market in the Middle East in the next 12-24 months.
Property ownership
The Dubai real estate market opened new opportunities for foreign investors in 2002 through the so-called “freehold” projects, which means that residents and non-residents can own properties in the territory of the Emirate.
Abu Dhabi opened a little later and launched several freehold projects in 2007. The most reputed ongoing project in Abu Dhabi is Al Reem Island, a 30 billion USD development, an ultra-modern metropolitan “city within a city”, constructed on a natural island. The first buildings are going to be completed by the end of 2009 at the Marina Square area. This will be the first opportunity for a foreigner to own a ready property in Abu Dhabi! As there is a huge shortage in both residential and office properties, and there was some price correction on the market because of the credit crunch (will be discussed later), this is the right time for investment!
Property ownership
How do I buy?
The process is simple and there is no set requirement for conveyancors or solicitors. Once a price is agreed you will need to pay a holding deposit of the sale price to take it off the market. The full deposit of 10% to 30% will need paying usually within 7 days. The balance, if the property is ready to move into will be due to handover. If you buy off the plan, the developer may offer a repayment plan over the period of construction. There are lending institutions that will provide mortgages of approx 70% of the value to resident investors. Mortgage repayments only start when you take possession of the property. You can sell at any time and do not need to wait for completion.
What is a premium?
All property experiences capital growth: the amount of growth is expressed as a premium. The premium is the difference between the original (developer) price and the current market price. (Example: if the original purchaser bought a property for $1000 and decides to sell a year later at the market rate of $1100 then the premium to the next purchaser on the original price is $100.)
What about off the plan?
There have been bad experiences of off the plan projects all over the world, mostly connected to the builders getting into financial difficulty and not completing the building. This is very unlikely to happen in the UAE due to the restriction on the foreigners to buy only in the Freehold areas. These Freehold and Free Zone areas are huge projects often running into the billions of dollars. The Master Planners such as Emaar, Nakheel, Aldar, Tamouh and Sorouh are amongst the largest and most credible construction / development companies in the world and are responsible for the overall planning and design of the master development. Do some googling and you will see the enormity of these organizations.
The Master Planners will then allow certain development companies to construct approved buildings within the master development. Once again, the pure size and experience of these developers provides a great level of security.
What is an Escrow account?
In 2007, it became law in Dubai that any money paid to a developer for an off the plan property had to be deposited to a trust account (Escrow). Funds may only be withdrawn with approval from government auditors to be spent on that specific project only. This gives security a confidence to investors.
Why is off plan the best investment?
The reason to buy off the plan is simple; you buy at today’s price and if you invest wisely will enjoy capital growth while the project is being built. You would normally only need to pay a deposit and either finalize payment on completion or pay installments over the construction period. You can sell the property at any time, pay off the developer and keep any profits realized.
For example, buy an office for $1,000,000 with a construction period of 2 years. The developer requires 30% deposit = $300,000 with balance on completion. You sell after 2 years for $1,300,000 an increase in value of 30% over 2 years (this is very conservative for the current market). You pay off the outstanding $700,000, giving you a 100% profit on your initial outlay of $300,000.
The key is selecting the right project to invest in and that’s where Light House Real Estate comes in.