By Anil Bhoyrul
Anil Bhoyrul swallows his pride and admits he's found a real estate agent worth listening to
Over the years it is no secret I have had some differences (putting in mildly) with estate agents. Okay, yes, I have given a lot of them a serious kicking (and largely deserved). In fact, I think I once even suggested every single estate agent in Dubai should be deported.
So firstly I take my hat off to Ryan Mahoney, the boss of the region’s biggest real estate agency Better Homes, for agreeing to speak at the Arabian Business Forum last week. If anyone has good reason never to want to deal with Arabian Business in any capacity, it should be him. And I wouldn’t blame him.
But being a man who is passionate about his business, and clear in his own mind what both the good and bad parts of the industry are, Mahoney was one of the star attractions of the forum.
And I am ready to swallow my pride and say that when it comes to property, Mahoney is worth listening to, as he is talking a lot of sense.
The current property debate centres on one simple question: are we back in a bubble that is soon about to burst? When you look at the fact sale prices have risen by eighteen percent in the last year in Dubai, the answer could well be yes. Look at the desperate queues outside new launches, with even the cops being called to calm down desperate buyers, and the answer could well be yes. Look at the facts that banks are up to their old tricks again, cold calling anyone with a phone number to offer them a loan, and the answer could well be yes.
Mahoney, however, suggests that investors should not focus on the rocketing sale prices but pay much more attention to rental yields. While both continue rising (and last year rental yields went up twelve percent), then the market can still sustain this level of activity.
In fact, according to Mahoney, some of the previous “no go” areas when it came to investment are suddenly looking attractive again. In International City, smaller rental levels grew by 70 percent last year. In JLT, Better Homes has twice as many people looking to rent as it has available units. Even in Discovery Gardens, rental yields are around 8.5 percent. As long as rental yields keep rising, the bubble is unlikely (for now at least) to burst. Yields are already far better in Dubai than London or Singapore, meaning the emirate is still a good choice for investors.
As Mahoney said, “When you reach a point where the yields are stagnating and prices still rocketing, then you need to start worrying. We haven’t reached there yet.”
Though, as he told me later, at some point the music will stop and not everyone will have a chair to sit down on.
Owen is a class act
Soccer legend Michael Owen was the guest of honour at our Brits List gala dinner last week, and stole the show not just with a cracking speech, but a specially arranged penalty shootout on stage, to help raise money for a UNICEF project in Malawi.
What the audience didn’t get to see was Michael backstage. On paper: a huge, huge celebrity with more than two million Twitter followers. In reality: a thoroughly decent, humble guy who didn’t even want the complimentary limo and driver we had organised for him.
Most footballers disappear without a trace once they retire. But Owen is a class act and I am sure has a very big future ahead of him.
Thank you to everyone who attended the dinner, which you can read all about in this week’s issue. Can I also make a quick apology to Tanaz Dizadji who we wrongly stated was the founder of START. She is, of course, a director of the company.
Anil Bhoyrul is the Editorial Director of Arabian Business.
"I have never developed indigestion from eating my words."
This scribe might not be Churchill, but the sentiment is the same. Well done AB, and maybe your property investments flourish.
I have found out that many people mistake rent for yield. I pay rent 200k, the net rent would work out about 160k. A 5% yield would price the property at 3.2 mio. An 8% yield would price the property at 2 mio. Yet it is on the market for about 4 mio which gives it a 4% yield. You also have to take into consideration the sinking fund, repairs, maintenance etc and the figures do not look so attractive. Then there is the cost of money which is about 5%. So for a financed investment there is an annual loss of at least 1%.
Buy a property in Germany and you get 5% yield and borrowing rates of 2% giving a positive yield of 3%.
Property prices would have to rise by 4% p.a. just to give the same return as a German property.
There is money to be made here, but you have to be nimble, in and out quick but as a long term investment..too much risk..very expensive property.
Properties do not age well in this country due to the hars enviroment and low quality building standards.
You can't blame banks for the rise in property prices in Dubai. LTV's offered by lenders are at the lower end of the spectrum (i.e. 60-75%) compared with the 90-100% available in some European countries. Property price inflation is being driven by the influx of cash buyers from Iran, India, Pakistan, Afghanistan and, of course, Russia and the CIS countries. It is rarely discussed publicly, but the origins of much of this cash are, at best, murky.
Rubbish. Net rental yields, have been declining in Dubai this year simply because prices are rising faster i.e. an article (press release) Arabian business published earlier about Dubai Marina rents dropping, yet prices in the area increased. Thus the yield fell. http://www.arabianbusiness.com/dubai-marina-loses-its-appeal-as-rents-fall-499535.html Net yields in Dubai in prime areas are now 3-4%. Which is way too low, any sensible investor wants at least double that. Only way that will happen is if rents rise faster then prices (unlikely) or if prices drop (unlikely). Therefore investors looking solely for yield are going to stay well clear. Only be those who are prepared to factor in continued capital appreciation, looking to flip, or owner occupiers. Hopefully be lots of the latter and none of the former.
The only problem with the yield argument is that you can get a bubble in rental rates as well. This was clearly seen in the last stages of the last Dubai property boom when 3-bed Springs/ Reem townhouses were being leased at up to AED 300k before collapsing to 100 - 120k.
There will be limits to the salaries that companies will pay in order to attract or retain their employees in an environment of skyrocketing rents, after that they stop hiring or locate their staff elsewhere
Cash is cash. Why should it matter as to what is the origin? It is cash which runs economies and if you impose too many controls, you will see a Europe like situation where too much red tape ends up damaging economies beyond repair