Savings special

If you're lucky enough to have saved up money during your time in Dubai then you may now be wondering what to do with it.

If that's the case then thousands of dirhams could be sitting in your bank account right now going nowhere because you simply don't know about the options on offer.

And your lack of knowledge means you are wasting the opportunity to make your money work for you.

Because the fact is that no matter how much money you have in savings - there is always the opportunity to make your money grow, whether through putting it into a high interest account, investing in property or dabbling on the stock market.

In this savings special we give you a menu of options for your savings - concentrating on three main courses of action: depositing it in a high interest savings account; investing it in funds, stocks and shares; or buying property.

Saving accounts

For those who have savings but don't know how to spend them - or haven't saved enough for an investment plan or to buy property - the best option is a savings account where your money is kept secure and accumulates interest.

Experts also advise that ideally everybody should have a proportion of their annual salary saved in a separate bank account as an emergency fund.

Sandi Saksena of Nexus insurance brokers says: "Experts recommend putting aside ideally three to six months worth of your salary in a bank account.

That can be used for unexpected expenses such as sudden medical costs."

There are three types of savings accounts to choose from: A basic instant access savings account; a fixed term deposit account; or an offshore account.

An instant access savings account gives you quick access to your money, but usually requires a minimum balance, charging a fee if this is not maintained or adjusting the interest accordingly.

HSBC Middle East for instance offers a savings account with a minimum balance of AED5,000 and charges AED100 if the balance falls below this amount, while RAKBANK charges AED75 if the customer's balance falls below AED5000.

Lloyds Bank however offers different tiers of interest depending on the balance a customer has in their bank account.

Kirsty MacPherson, head of marketing at Lloyds TSB Middle East, explains: "As an example anyone with a balance of under AED50,000 gets an interest rate of 1% per annum. Then the next tier goes up to 1.5% interest and that's for a balance of up to AED99,999. For a balance from AED100,000 to AED149,000 you get 2% interest. And the top tier is 3.5% per annuu for balances over AED 250,000."

She goes on to say that instant access savings accounts are most suitable for those who want to save and add to the account regularly.

"Instant access savings accounts are best if you want to add to the money quite regularly so for instance you could set up a standing order from your current account to the instant access savings account. You can also put lump sums into it so it's quite a flexible way of saving for people who want to add to their savings but also access it at any point in time. This account is suitable for someone who is not saving up for anything in particular."

Fixed term deposit accounts offer higher rates of interest on savings but less access to your money.

They usually require a minimum balance and you are only allowed to access the money after a fixed period of time, as Saksena explains: "The rule with savings accounts is that the harder it is for you to get access to your money, the more interest you will earn. Whereas you could earn around 2% interest per annum from money you keep in a savings account, with a fixed deposit account you could earn between 4 and 6%. With a fixed deposit account, you could put the money in then lock it up for a full year, or you could arrange for it to be renewed every three months, adding money if you can at the time of renewal."

Saksena goes on to say that such an account is most suitable for those who have upcoming expenses within the next year.

"This is ideal for anybody who is going to be using that sum of money in the coming year - it could be for their child's school fees or for putting a down payment on a house for instance. Or let's say you suddenly have a windfall. You could put that into the fixed deposit account that's renewable every three months, then you could earn interest while you're deciding what to do with it."

MacPherson adds: "Fixed deposit accounts are ideal for somebody who has a lump sum initially to put away - rather than someone who wants to add to their savings on a regular basis.

"Also because you have a time frame it's ideal for if you have a clearly idea of what you are actually saving for such as a deposit for a house."
Offshore bank accounts offer even higher interest rates - and they usually allow customers access to their money wherever they are in the world.

They can however require substantial minimum balances, as Ben Lester of GlobalEye Group explains.

"Offshore accounts offer good rates of interest but the charges on these accounts can be higher as well.You would also typically need a minimum balance of US$5000 and in some cases you would need up to US$15,000."

This is not the case with all offshore accounts however. Lloyds for instance offers an offshore savings account that requires no minimum balance or initial deposit.

The account, like the Lloyds instant access savings account has a tiered interest rate structure that varies according to the customer's balance.

Lester says one of the advantages of offshore savings accounts is that they allow expatriates to save money in the currency of their choice as well as being able to access and maintain the account wherever they are living in the world if and when they leave the UAE.

"The benefit of offshore is that you can get accounts in different currencies - dollar, sterling or euro generally," he explains.

"Another benefit is that wherever you live in the future your offshore account can always be serviced - whereas if you have a locally based dirham account you have to close that when you leave and open up a new account somewhere else."

MacPherson adds that another advantage is being able to enjoy the benefits of keeping your savings in a tax-free jurisdiction.

While many don't have any option but to save their money in a bank account, Lester warns that doing so in the long term could mean your savings lose value as the rate of inflation in the UAE rises.

"The downside of savings accounts is that your money can be eroded by inflation. The percentage of return that you would get on your savings would generally be less than the rate of inflation, depending on what country you are living in. Cash deposits don't usually have the ability to outperform inflation unless inflation is very low," he says.

Investment plans

One way to counteract the effects of inflation and earn higher interest - is to take the risk and invest in the world's financial markets through funds or by trading in stocks and shares.

The idea of taking a gamble and putting money into stocks and shares or managed funds coupled with the financial jargon that goes with it can seem daunting to first time investors.

But with the help of a financial advisor to point you in the right direction you could take a risk with your money that really pays off.

There are two broad categories of investment fund that you could choose to put your money into - a mutual or a structured fund.

Mutual funds can be accessed through life insurance providers such as Friends Provident, which act as fund platform providers.

The actual fund would be managed by a company such as Investico, Prudential or Merrill Lynch.

It is possible to access mutual funds directly and without a platform provider but investors would have to pay an entry fee to enter the fund - usually around 5% of the money they are investing.

In the case of structured funds there are no platform providers. Investors can go directly to the fund management company.

In both cases a financial advisor can recommend which fund to go for given your financial means and objectives for the future.
A structured fund is regarded by financial advisors as more suitable for the more cautious investor as it offers guaranteed capital returns.

This means that you are guaranteed to get the lump sum that you originally invested in the fund back, plus any other return on your investment.

These funds are also best for those with a lump sum to invest as they only allow for a one off lump sum investment.

As this type of fund's name suggests the fund is structured for a set period of time and you can't have access to that money during that period without paying a penalty.

"A structured fund is generally for a set period of time - generally for up to ten years," says Craig Holding, a financial advisor at Acuma Wealth Management. "So let's say you invest AED50,000 and you can't get that money back for say five years. You know what you are getting at the end of the day - but you may forgo the higher returns that you would get on a mutual fund."

Lester adds: "Structured funds are most suitable for someone with a lump sum to invest rather than regular savings and for conservative people who are looking for a cautious investment. Because it's a structured fund, capital guarantees can be built in so you can be guaranteed to get that lump sum back - plus any growth in the fund."

Mutual funds are unstructured so are open for any period of time without reaching maturity and investors can put money into the fund at any time.

Because the risks are higher with mutual funds, investors can get higher returns.

This type of fund is most suitable for those who save regularly and who want easy access to the money.

"Mutual funds are typically open ended," says Lester.

"The fund never matures, you put the money in and take out when you want and there's no capital guarantee built in,"

Holding adds: "There's no guaranteed returns from mutual funds but they are a lot more flexible in terms of liquidity - you can get access to your money on a daily basis from such a fund."

When you put your money into a mutual or structured investment plan you don't necessarily know exactly where it will end up. But broadly speaking it will be invested in bonds, equities or property funds.

Equities are commonly known as stocks or shares and are usually in private companies anywhere in the world.

Bonds are issued by governments and are effectively where the investor's purchase acts as a loan, which is later, paid back with interest.

Property funds are where your money is invested in property developments.

Investors can also leave part of their investment in cash, which then accumulates interest.

"Typically funds are any spectrum of the four asset classes, stocks, properties, bonds or cash," says Lester.

"Ultimately you are investing in the shares of companies around the world or in property or bonds. Some funds are quite specific. For example a UK equity fund would, as its name suggests, involve investing in the shares of UK companies, whereas a global equity fund would involve the shares of companies across the world.Others are quite specific as to the sorts of companies you would be investing in, such as global energy funds, which invest in companies linked to the extraction of raw materials."

According to financial advisors customers differ as to how much involvement they want to have when it comes to choosing what sort of funds to invest in.
But, says Holding, they should all have a broad idea of the direction their money is going in.

"It really depends on how much involvement customers want to have," says Holding.

"But you should have a general idea of where your money is going - say for instance if it's going into energy companies or emerging markets for example.

"And you have a good awareness of how those markets are going."

Although it's impossible to predict exactly what sort of companies or markets will make good investments - it is always possible to seek the advice of experts such as stockbrokers or financial advisors.

Both Lester and Holding strongly recommend investors to consider funds linked to renewable energy companies.

"I've been doing a lot of new energy stuff with my clients," says Holding.

"There is good demand for things like bio fuels and other renewable energy sources such as unfortunately nuclear power," he adds.

Lester says: "New energy is a good area to invest in. There's a lot of government support around the world backing measures to stop global warming and looking for new sources of energy. So funds that invest in that will do well."

Ajit Karnik, professor of economics at the University of Wollongong, advises investors to consider buying stocks in renewable energy sources but also in the services industry.

"The renewable energy types are important. Getting into technology, a lot of the major car manufacturers have started to move into hybrid types of cars for instance.

"Those kinds of industries are worthwhile investing in.

"The services industry I think, is also going to keep on growing particularly the hospitality, medical and tourism sectors.

"The future is very aggressively in the services industry particularly as far as Dubai is concerned. Those are the kinds of sectors one needs to target."

Karnik along with Lester and Holding also advises consumers to consider investing in emerging markets in places such as India, China and South America.

"India is doing very well and there are a large number of funds that are doing extremely well in India," says Karnik.

"China of course is always an important country.

"The emerging market funds can be very aggressive and I don't see either of these two big countries suffering a serious reversal in the near future," he goes on to say.

"The emerging markets have been pretty good recently and have provided very strong returns in recent years," said Lester. "India, China, Latin America and South East Asia, are the ones to watch."

However he warns investors to proceed with caution.

"They are all quite volatile markets though so people have to be quite careful with those that they are not over exposing themselves," he goes on to say.
Holding adds: "If you go into Latin America or other emerging markets you can make huge returns but you have to be prepared to take risks. I wouldn't recommend a huge percentage of your portfolio to go into that."

When it comes to where not to invest Holding advises clients against putting money into UK or US property funds.

"The negativity that's coming out of the US marketplace, the jobless figure that came out recently and the housing market slowdown all make it a risky market to invest in. The UK property market has recently seen an extra half percent increase in the interest rate and investors are starting to see that the rental yield they get is not that great."

Lester advises clients to be wary of investing in any funds that have been doing particularly well in the recent months - because what goes up must come down.

"One thing to be careful of is not to look at a fund that has been doing very well because it could be moving towards the end of its success story," he says.

"For example property funds have been doing particularly well in recent years - but that could see a correction in prices so just beware of chasing the best performing funds.

"The fact is that this year's best performing funds could turn out to be next year's worst."

Knowing what sort of funds or stocks to invest your money in isn't easy which is why many investors often seek the advice of an experienced financial advisor who can point them in the right direction.

When selecting a financial advisor customers are strongly advised to ask to see the advisors UAE Central Bank license which indicates that they are qualified to give advice on investment products.

Those with some knowledge of the markets may prefer to go directly to a fund manager such as Merrill Lynch or to a life insurance company offering investment products such as Friends Provident.

Again customer should check that the company is licensed to provide investment products before parting with any money.

"Any company offering products or investments here needs to be licensed or registered with the Ministry of Economy," explains Sandi Saksena, of Nexus.

"If they are registered or licensed you have the protection of the law.

"Otherwise you could have a fly-by-night operator who sets up an office in a free zone, takes their clients' money then leaves."

Going it alone and trading on the stock market either at a financial exchange or online is another, albeit far riskier way, to invest.

By cutting out the middle man customers can be far more hands on in their investment activities and will have more control over the sorts of companies their money is being invested in.

And while trading in stocks and shares is riskier, it can bring higher financial returns if successful, as Lester points out.

"As an alternative to mutual funds, customers can go directly to buy shares themselves. It's much more risky than investing in a mutal fund which invests across many different companies. But there are higher returns to be had as well."

However those who do this must have a very good knowledge of the financial markets and must carefully research the companies they are investing in.

"Those who trade in stocks and shares directly must know all about the companies they are investing in," says Saksena.

"You must ask yourself whether you really have the time and the expertise to carry out this research, whether you know how to read the balance sheets and understand on what basis you would buy and sell shares," she goes on to say.
Many customers employ the services of a stockbroker to do the trading for them, as they would have far more knowledge of the markets.

However a stock broker would be unlikely to take on the task unless a substantial amount of money was involved.

"Clients can go to a stock broker and give them full or partial reign over their money," says Lester.

"But this tends to be only in the case of high net worth clients. You couldn't go along to a stockbroker with say US$10,000 and say ‘invest this' because they probably wouldn't take it on."

While investing your money in the world's financial markets may sound a daunting prospect, plenty of help is available to help you make the right decision and avoid risky ventures. So take the plunge and speculate.

Property

One of the best ways to make your money grow is to invest in bricks and mortar.

And where better to do it than in Dubai - where the real estate boom has seen the value of properties in some developments rise by over 100% in a year.

Not only are prices continuing to rise - with demand for property still outstripping supply - but new property laws and the proliferation of mortgage lenders in the market means there has never been a better time to buy real estate in Dubai.

Property laws were introduced last year, which formalized the rights of non-GCC nationals to buy freehold properties in Dubai.

And earlier this year the escrow account law was established to protect those buying property off-plan, with developers now required to hold escrow accounts with selected banks, which only release buyers' money once landmarks in the development of the property have been reached.

Dubai's mortgage market is now growing 50% year on year and there are plenty of lenders to choose from, offering mortgages of up to 95% and loan to value ratios of up to AED5million.

Some have predicted that Dubai's property bubble may one day burst - and that prices will come crashing down, particularly when some of the major developments are completed and supply comes into line with demand.

Experts agree that property prices could be affected if this were to happen - but say it is impossible to predict exactly when the correction will take place - nor what impact it will have on property values.

The general consensus too is that while the rise in property values may slow down - prices will not drop.

Professor Karnik, says he believes 2008 could be the time when the Dubai property market sees a slowdown.

"A lot of people are looking at 2008 as the time when a lot of the new property will come on stream. So at that time there might be a stabilizing of rental and property values. But there will still be a huge demand for properties then and as the various projects come on stream I think people will come into the country in even larger numbers so the high demand for residential property will continue to persist for a few years. It might not continue to go up as fast but I don't think there will be a reversal of prices," he predicts.

The type of property you buy will obviously depend on your budget.

However real estate experts recommend that if you can afford it the best sorts of properties to invest in are villas or town houses.

Puniet Singh, commercial operations manager at Sherwoods Independent Property Consultants, says: "Villas and town houses, if you can afford them are the best investment.

"There is high demand for affordable villas and town houses in Dubai and there are lot of them currently being planned for by developers."
Peter Lee, a mortgage broker with Dubai based Independent Finance, adds: "I would say that villas are the best to invest in and they will always have a higher price appreciation than apartments. When I look the property prices, villas are showing a lot more stability.

"This is because demand for these properties will continue to outstrip supply. They are more family friendly and offer residents more space and convenience."

Another hot tip from real estate experts is, if you intend to buy property for investment rather to live in, you should consider investing in commercial rather than residential property.

Singh says: "Now is a very good time to invest in commercial property such as office space.

"If you intend to hold onto the property in the long term and get rental income fromit then I think it's a very good investment."

He goes on to say that best areas of Dubai for investment in commercial property are Business Bay, Dubai Silicon Oasis, IMPZ and Dubai Investment Park.

Billy Rautenbach, director of operations at Dubai based real estate firm Better Homes, says: "One very hot property area is commercial offices.

"We're seeing a lot of activity in the commercial property space."

She adds that while commercial property is a less common purchase by individual investors, the process is actually the same as purchasing residential property.

"It's as simple to buy commercial property as residential.

"The mortgage providers have now entered into the commercial market and one can even get a mortgage for this sort of property."

In terms of where to buy property - from a financial point of view, the best way to decide is to research re-sale value on the secondary market and rental yield of properties in the different areas of Dubai.

Expatriates are limited to buying freehold property in designated master developments such as Dubai Marina, Emirates Hills or The Palm.

Of those developments and the ones that are yet to be completed real estate experts recommend certain hotspots.

One area where buyers are strongly recommended to invest in Dubai is the Downtown area around the Burj Dubai.

According to Rautenbach, prices of properties in the area have risen by as much as 160% in the past year alone.

"Where there's huge demand for property and low supply, we see premiums of up to 160% and I'm certainly seeing that in the Burj Dubai. That includes the whole area around the Burj - Old Town, The Views and all those developments."

Singh says: "Downtown properties have gone up steadily in value. Units that were sold at AED1000 per square foot there last year are now being sold at AED1,700 per square foot."

Peter Lee says: "Emaar's projects at Downtown, Burj Residences, are doing particularly well.

"There, prices have risen by 30 to 35% in a 15 month period and they are still going up."
He also recommends buyers to consider investing in property within Dubailand - particularly in the City of Arabia area.

"Last year the residential properties within City of Arabia were launched and at the time the price for a unit was around AED785 per square foot. And now they are selling approximately for AED1,100 to AED1,200 per square foot."

Jumeirah Lake Towers is another property hot spot, according to Lee who says prices there have risen 20%, in addition to Jumeirah Beach Residence where prices have also risen 20% in two years.

Singh touts Jumeirah Village South, Dubai Sports City and Dubai World Central as all being good places to invest in property.

"The ethos of these projects is urbanization and providing environments for people to invest, live and work in."

As an investment, property in Dubai is not only lucrative in terms of re-sale value but also in terms of rental yield.

According to real estate experts, rental yield across the board for Dubai properties ranges from 6 to 10% of the value of the property per year.

This means that it is easy to make mortgage payments - and a little more besides on a property you are buying for investment purposes and not just to live in.

"You can easily get 8 to 12% per year on the value of the property in rent then use that to pay off your mortgage," says Lee.

"The property prices for renters in Dubai are really very high - which is great for anybody who owns a property," he adds.

"Rental yields are anything between 6% and 10% on most properties per annum and as a return on investment that's very good," says Rauntenbach.

She goes on to say that villas are the most profitable when it comes to rental yield as they are more in demand - particularly from families.

"Villas are showing the best returns when it comes to rental yield. Because there is a greater supply of apartment tenants can negotiate on the rent on apartments whereas they can't really do that with villas."

According to Rautenbach the short term rental market can also yield high returns for investors - while involving more risk.

"Depending on the occupancy level buyers can get returns of between 15 and 20% on short-term rentals.

"There are two sectors in the short term rental sector - the corporate sectors and the holiday market. Both can offer very good investment opportunities for buyers."

The rapid growth of Dubai's real estate sector as well as the heavy demand for property in the emirate has in the past created the perfect environment for speculators who buy and sell property in quick succession making a fast buck in the process.

Experts warn however that as more properties come on line - the days of making a fast profit in a short space of time are a thing of the past and that buyers must now make a longer term commitment to ownership if they really want to see a good return on their investment.

Professor Karnik, says: "Property remains one of the most lucrative ways of investing but I would say that one needs to stay invested in the long term as more properties become available in order to make good returns.

"If one is in the market for speculation purposes then it's a high risk thing because prices might slow down in the short term. But over a longer period of time, say a few years, the direction will only be upward."

Regardless of these predictions however, there is no doubt that any investment you make in Dubai's property market will pay off.

And and by doing your research and asking all the right questions you could become the latest of Dubai's property tycoons.