FAQ - Risk and Return
RETURN
Light House Real Estate is specialized in "off plan" projects (which are currently under construction), which provides the highest return on investment. Two key factors needs to be considered when deciding about the right project for investment: 1. the payment plan, and 2. project handover date.
If an investor does not wish to keep the projects until completion, but wishes to resell prior to handover, the highest return on investment can be realized with those projects, which has a highest instalment payable on completion. In the market at the moment the best offers are 70-80% payable on completion.
A unique feature on the UAE market is the premium: this expresses the amount of growth between the original (developer) price and the market price. The lower the paid in instalment, the higher premium we can realize at re-sale.
Let’s see a specific example: the investor purchases a property for 1.000 USD per square feet with 2 years construction period. The developer requests 30% instalment during construction (300USD); with 70% payable on completion. The investor sells the property some time around the completion for 1.300 USD per square feet, so the value of the property has increased with 30% (in the present market it is a cautious assumption). The investor pays the remainder 700 USD to the developer. The price rise is 300 USD, which means that compared to the original investment amount of 300 USD the investment realised 100% return on investment in 2 years, i.e. 50% ROI per annum. Please note that the remarkable return rate is due to two important factors: 1. excellent payment plan (70% on completion), 2. the property has to be resold around handover (thus the ROI calculation uses as a base the amount paid in during construction).
The higher the price percentage payable on completion, the higher the return on investment is. Using the same example if the payment plan is 20-80%, the 200 USD investment with 30% market price rise (300 USD) results in 150% (!) return for 2 years, i.e. 75% per annum!
If the investor wishes to keep the property on a long term and rents it out, the rental fee in Abu Dhabi is payable in 1 or 2 instalments in advance! According to the present rental prices in Abu Dhabi, a property returns its price in 5-8 years. The return of office properties is exceptionally significant at the moment!
RISK
Escrow account: the money of the investors is protected by the law effective from 2007, when a so-called „Escrow” account was established in Dubai. The investors are paying the instalments of the property to this account, which is monitored by the state. The developer is entitled to withdraw from the account only to cover the costs of the construction. The transactions are checked by government auditors.
Bank side: according to the new law, effective from November, 2008 the bank deposits are 100% guaranteed by the state. Dubai and Abu Dhabi are considered to be among the safest cities in the world, which also refers to the law compliance of the business partners.