July 2013 - eZine

Last month at a glance: • • • • •

Emaar Properties and Meraas holding to form joint venture Sharing accommodation gets costlier in Dubai Strata owners could also tap third-party help Dubai’s office market may finally see a balance Dubai property recovery spurs demand for auto parts Issue No. 7 - July 2013

Spain

International property market

Latest From the Economy

International Monetary Fund sees UAE finances strengthening but warns of risks Dubai Design District to make city the Middle East fashion hub World Expo 2020 bid and new market status buoy UAE economy Dubai World makes first major asset sale Dubai Freehold Property

Jumeirah Beach Residence International Property Markets

International Property Markets - Spain Real Estate Investing Lessons

Lesson 5 - Get the money to start the game of Real Estate (Part II)

Prepared by: Mo. Asadian

VALORAN MEMBER

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Valoran Real Estate Brokers Issue No. 7 - July 2013

News Digest

Last month at a glance

Emaar Properties and Meraas holding to form joint venture Meraas Holding, a leading Dubai-based development company, and property developer Emaar Properties, announced a joint venture to develop the master-planned mixed-use community Dubai Hills Estate, the first phase of the Mohammad Bin Rashid City (MBR City), the largest of its kind real estate development in the Middle East region.

gardens, winding walkways and extensive open areas, Dubai Hills Estate will serve as a rejuvenating getaway in the heart of the city, with the rolling greens and fairways of the golf course assuring a serene ambiance. Overlooking the golf course will be the stylish Dubai Hills gated villa community, with the opportunity for customers to design their luxurious homes to their bespoke considerations.

A premium lifestyle community, Dubai Hills Estate will be set on prime land, spanning over 11 million square meters (2,700 acres) located centrally by the junction of Umm Al Sequim Road and Al Khail Road, 10 minutes drive from Downtown Dubai.

The project is expected to generate long-term wealth enhancement to the economic and social development of Dubai. It will also boost the tourism sector of the city, with its array of leisure amenities complementing MBR City’s objective of boosting family tourism.

The project will host a series of neighborhoods set around an 18-hole championship golf course.

Featuring vast stretches of landscaped parks and

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Sharing accommodation gets costlier in Dubai Increased rentals have impacted low income residents as rents for sharing accommodation have risen by 10 to 50 per cent in many Dubai areas.

Property agents and residents said sub-letters are also increasing the number of tenants per room or home to cover increased rentals. A glance at online classifieds reveals a hike in shared accommodation rents. Areas most affected include Bur Dubai, Nahda and to a lesser extent Deira and Al Barsha.

An executive bedroom with an attached bathroom in a shared accommodation would cost Dh2,500 to Dh3,500 a month in Bur Dubai, whereas in Al Barsha around Dh1,400 to Dh3,000, in Discovery Gardens around Dh1,300 to Dh1,800 and Dh1,300 to Dh1,800 in Satwa, depending on the type of accommodation. However, bed space costs have not increased much and in most areas like Satwa, Tecom, Al Barsha and Bur Dubai sub-letters are still charging between Dh450 and Dh650.

Sharing accommodation has risen by 10 to 50 per cent in many Dubai areas.

Source: Jones Lang LaSalle

Dubai, United Arab Emirates

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Valoran Real Estate Brokers Issue No. 7 - July 2013

Strata owners could also tap third-party help Selling out to a single owner might not be the only solution opening up in the local commercial property market. The issue with strata ownership is that the building gets spread into multiple owners all having multiple thoughts, unlike a single owner landlord who has a management company managing the space and leasing. If owners get their act together and bring in a management firm to manage their assets as a whole, it will allow for one thought process on the leasing, as opposed to now, where all owners are competing with one another to lease out. It causes a perfect asset to become fractional.

The only way to solve the multi-strata owned properties is to get landlords to understand and hire one management to lease and administer the whole portfolio. This will bring greater value to the asset, as a whole, and put in place a management clause to any new investor to relinquish control on the asset and let the management handle the property and be accountable.

consultancy. “But with a single owner now holding all of the title deeds and engaged in the leasing process, tenants will be more willing to negotiate.”

Business Bay has been a prime beneficiary of the upturn demand for offices, as is Dubai Silicon Oasis.

Prospects for offices in Jumeirah Lake Towers (JLT) are kind of mixed, according to market sources.

Locations in Dubai International Financial Centre (DIFC) continue to command a premium, as Dubai reasserted its status as being the most expensive office space in the region, based on CBRE findings.

Tenants with smaller requirements between 500 to 1,500 square feet look for budget deals, which might not be possible in a single owned commercial building, as they will have set standards in terms of rent and generally only have larger space available for lease. Similarly, for tenants with larger lease requirements it is convenient to deal with singleowned buildings. A right mix of both is necessary for equilibrium. It is believed that this will be the trend in buildings where large stocks are held by single owners/developers.

Dubai’s office market may finally see a balance Developers or strategic investors are now offering to buy up the interests of individual titleholders of office units, with too many landlords or strata titleholders chasing too few prospective big-ticket tenants within a commercial high-rise, and then repackage the space thus made available to suit the needs of corporate tenants. Dubai’s commercial property market, going through a major demand upturn, is in urgent need of larger Grade A office spaces in the 100,000 square feet and above range.

“Feelers are being put out to these individual landlords and there are more instances of these investors making an exit rather than hold on and try to find a tenant on their own,” said Matthew Green, head of research at CBRE, the real estate www.valoran.ae

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Dubai property recovery spurs demand for auto parts The recovery of the Dubai property market has led to a boost in the consumption of auto parts, according to exhibitors at Automechanika at the Dubai International Convention and Exhibition Centre. As developers launch new projects and expand existing malls, manufacturers and suppliers of auto parts are beginning to see the pre-2008 demand coming back.

“As more projects launch, more people will come to live in Dubai. So, all these people need cars,” said Ahmad Pauwels, CEO at Epoc Messe Frankfurt, the organizer of the exhibition.

Dubai’s auto spare parts foreign trade was valued at Dh37 billion in 2012, up by Dh8 billion, compared to Dh29 billion in 2009, according to Dubai Customs. Additionally, research by Frost and Sullivan indicated that the consumption of auto components across all types of vehicles in the GCC amounted to around $8.85 billion (Dh32.5 billion) in 2012. It is expected to reach $14.4 billion by 2016. The UAE and Saudi Arabia are the largest auto component markets in the GCC, accounting for 78 per cent of the total market share.

6

The UAE and Saudi Arabia are the largest auto component markets in the GCC, accounting for 78 per cent of the total market share.

Valoran Real Estate Brokers Issue No. 7 - July 2013

Other headlines in brief •

World’s most sustainable building can now be found in Dubai: New record awarded to The Change Initiative for scoring 107 out of 110 points

•

The Oberoi opens its doors in Dubai: Indian’s group’s first property in UAE - to be located at The Oberoi Centre

•

Dubai sees launch of two prime London properties: Chesterton is unveiling two properties in London worth over Dh1.4 billion in Dubai for possible UAE investors - Barratt London’s new Dh800 million ‘Queensland Terrace’ project and ‘Altitude’ a Dh600 million 27-storey residential tower

•

68 housing units to be constructed in Barsha: Units are a part of the 1,040 house project in Barsha

•

Arabtec - led JV signs $629m contract in Jordan: The group of companies includes Dubai-based Drake & Scull International

•

Arabtec wins Aldar’s Dh4b contract in Kazakhstan: Joint venture led by construction major will build a mixed-use project

•

Dubai office space is 25th most expensive in the world: Excess capacity cannot hold back the surge in commercial tenant costs

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Latest from the economy

International Monetary Fund sees UAE finances strengthening but warns of risks As per the IMF, the UAE is succeeding in strengthening its state finances by restraining spending and managing to reduce the oil price last year for balancing its budget. But the possibility of another boom-and-bust cycle is a risk for the UAE economy in the medium term, the IMF warned. The IMF’s report, released after annual consultations with the UAE, indicated the country is doing more than other Gulf Arab oil exporters to rein in growth of government spending and reduce its vulnerability to any steep fall of oil prices.

The UAE began curbing its spending last year, more than doubling its total fiscal surplus - the combined surplus of the federal government and all of the emirates - to 8.8 per cent of gross domestic product from 4.1 per cent in 2011, the IMF calculated. This lowered the oil price, which the UAE needs to balance its combined budget to $74 per barrel last year from $84 in 2011, the IMF said. Brent crude oil is now around $103. In contrast, other Gulf Arab countries continued to increase state spending substantially last year and their budget break-even prices have been rising.

The IMF said it welcomed the UAE’s plans to continue consolidating its finances: “For 2013, continued fiscal consolidation of around 2 per cent of non-oil GDP is planned. Fiscal consolidation is expected to be driven by a rationalization of 8

capital spending and subsidies and transfers, while spending on goods and services, defense and security, and the wage bill are expected to increase.” Because of lower oil prices, the IMF predicted the UAE’s fiscal surplus would shrink to 8.1 per cent of the GDP this year, before narrowing gradually to 5.1 per cent in 2018. Despite its approval of the UAE’s overall policy direction, the IMF warned of risks in Dubai, “At the emirate level, a faster pace of consolidation in Dubai would be desirable,” the IMF said.

Dubai Design District to make city the Middle East fashion hub His Highness Sheikh Mohammad bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai on Saturday announced that a new integrated facility - Dubai Design District - will be created adjacent to the Business Bay area of Dubai, dedicated to developing the emirate’s fashion, design and luxury sectors.

The district will be operated by Tecom Investments, a member of Dubai Holding. Dubai Government had earlier created the region’s first knowledge clusters - Dubai Internet City, Dubai Media City, Knowledge Village, Dubai Studio City and International Media Production Zone. The creation of the Dubai Design District is a natural progression to these clusters and will help realize the government’s vision to create a world-class

Valoran Real Estate Brokers Issue No. 7 - July 2013

hub. Analysts say, Dubai might not replace Milan or Paris as the world fashion hubs, but could create a new hub — where investment is flowing in.

“The new fashion, design, and luxury goods district builds on Dubai’s strengths in tourism, which is expected to double the number of visitors to 20 million by 2020, and in retail, which is estimated to grow to Dh151 billion in the next two years,” a Dubai Government statement said. “These strengths coupled with Dubai’s strategic location and business-friendly environment, have encouraged major industry players like Prada, Louis Vuitton, and Ralph Lauren to set-up operations in Dubai.”

With this move, the emirate will now attract investment in developing creative fashion designs for the global luxury and consumer markets and will contribute to the industry’s growth.

World Expo 2020 bid and new market status buoy UAE economy In Paris, the UAE ramped up its bid for World Expo 2020 with an impressive presentation. Dubai is competing against Turkey’s Izmir, Brazil’s Sao Paulo and Russia’s Yekaterinburg following the disqualification of Thailand’s Ayutthaya.

The UAE also announced a €150 million (Dh726 million) aid package to support the developing countries’ participation at the Expo 2020, in addition to the €100 million Partnership Fund to support innovative ideas for creating opportunities, mobility and sustainability as part of Dubai’s bid. His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, was present at the presentation at the General Assembly of the Bureau of International Expositions (BIE). In the presentation by Princess Haya Bint Al Hussain, wife of Sheikh Mohammad Bin Rashid, the UAE announced a key initiative, Expo Live, which includes funds to ensure greater participation and aid innovation. BIE officials were full of praise for Dubai’s presentation.

The final decision will be made at the next general assembly in Paris in November. In New York, the UAE was awarded the coveted emerging market status and inclusion in the MSCI Emerging Market Index. Both the UAE and Qatar were upgraded in a move that could see an infusion of $800 million in local markets, according to estimates from HSBC in London.

Dubai World makes first major asset sale Dubai World has sold one of its UK assets. A unit of Toronto-based investment company Brookfield Asset Management has bought logistics warehouse developer Gazeley, from Dubai World subsidiary Economic Zones World (EZW), the Canadian firm said in a statement.

The sale is the first major divestment of a foreign asset by Dubai World since it agreed on a debt deal with creditors in 2011. The restructuring agreement promised full repayment to creditors through a series of disposals of overseas assets bought at peak prices in 2006-07.

Gazeley is one of four businesses held by EZW, which operates technology, logistics and industrial parks as well as the Jabel Ali Free Zone (Jafza), a business district, under the Dubai World Group umbrella. Its portfolio includes 524,000 square meter of assets and land bank of 1.3 million square meters. Proceeds from the sale of Gazeley are expected to go towards the repayment of a $1.2 billion (Dh4.4 billion) loan secured by associate firm Jafza in June last year.

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Dubai Freehold Property Jumeirah Beach Residence Jumeirah Beach Residence (also known as JBR) is a 1.7 kilometers (1.1 mile) long, 2 square kilometers (0.77 sq mile) gross floor area waterfront community located against the Gulf in Dubai Marina in Dubai, United Arab Emirates. It is the largest single phase residential development in the world and contains 40 towers (35 are residential and 5 are hotels). JBR can accommodate about 15,000 people, living in its apartments and hotel rooms. The Project has 6,917 apartments, from 900 sq.ft (84 m2) studios to 5,500 sq.ft (510 m2) penthouses. JBR is the place where residents enjoy prime waterfront location, up market apartments, spectacular Mediterranean and Arab architecture, and all the allure of city and beach-side living at one of Dubai’s most exclusive addresses.

The developer, Dubai Properties (a subsidiary of Dubai Holding), launched JBR in August 2002. This 6 billion dirham project was completed in 2007. “The Walk at JBR� restaurant and shopping strip, which is adjacent to the beach behind JBR, is a very popular location for Al Fresco dining. There are five hotels, rated either as 5 star or 4 star, three of which are purpose-built hotels, while the other two are converted residential towers.

The Walk at Jumeirah Beach Residence is a 1.7-kilometre strip at the ground and plaza level of the complex. It was developed by Dubai Properties which was completed in 2007 and opened officially in August 2008. Currently there are around 330 occupants at The Walk, covering a wide range of services and venues, from a number of world 10

renowned brands strewn across the stretch, to many franchised and local venues, including restaurants, clothing stores, boutiques, department stores, cafes and gyms, among many others, located over two levels Ground and Plaza.

The Beach at Jumeirah Beach Residence is a retail complex being constructed on the actual beach in front of JBR by Meraas Holding, a company owned

by Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. The development, comprising four distinct plazas, will occupy the bulk of the beach between the Hilton and Sheraton hotels. The complex will house a number of levels of parking as well as seventy retail, food and beverage outlets, together with entertainment facilities.

Valoran Real Estate Brokers Issue No. 7 - July 2013

Construction of the project began in the second half of 2012 and is expected to be completed by the end of 2013.

The scenic value of JBR Dubai is overwhelming as serene shades of blue, green, and gold dominate its surrounding. The place serves the newlywed, business class families, group of friends and middle-aged folks alike. Be it water games, or dining, or even the nightlife, Jumeirah Beach Residence has a huge stock of all fine things to offer to travelers and residents. The quality of infrastructure and its well-planned features is one of the many reasons why Jumeirah Beach Residence is such a precious property in Dubai.

For those interested in living here, the residence choices range between single to 4 bedrooms, as

Area

Jumeirah Beach Residence

well as studio apartments.

Since Jumeirah Beach Residence is one of the most sought after residences in Dubai, real estate investors are always on the lookout for properties here. It is also interesting to note that the apartments of all sizes and types in JBR are very popular among the buyers and tenants. The range of services and raving amenities, offered to the residents of Jumeirah Beach Residence, makes it a very secure property in Dubai for investment as well as residential purposes.

At Jumeirah Beach Residence, the average price and rentals expected by investors for various apartment categories are given below:

Approximate price, in USD

Approximate rent per year, in USD

Total

Per sq.m

Total

Per sq.m

Total

Per sq.m

Studio(65 sq.m)

238,000-260,000

3,600-4,000

16,500-17,800

250-300

2,900

45

1BR(82 sq.m)

330,000-383,000

3,700-4,250

22,000-27,000

250-300

3,700

45

2BR(115 sq.m)

410,000-520,000

3,550-4,500

30,000-35,000

260-300

5,200

45

3BR(162 sq.m)

520,000-685,000

3,200-4,200

37,000-48,000

230-300

7,300

45

No. of Bedrooms

Approximate service charges, in USD

Jumeirah Beach Residence, Dubai, United Arab Emirates

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International Property Markets Spain Commercial Sector Occupier Focus Leasing activity continued to steadily weaken in many markets in the first quarter of 2013, although Madrid and Barcelona’s office markets are doing better, despite lease negotiations taking longer and decision making remaining slow. Much of the

demand is focused on modern, high quality space, with some occupiers looking to improve their real estate conditions and take advantage of more attractive rental levels and incentive packages in prime markets. Rents in Madrid are stable, although Barcelona CBD rents fell 1.4% over the quarter.

The situation in the secondary market is considerably different however, where there is very little demand. Very often, the available space does not meet occupier requirements and with supply increasing, rents have continued to fall accordingly. In general, there is less demand for lower-quality stock and stock in less central areas across Spain.

Investment Focus

Spain Flag

12

It was a very poor start to 2013 for the office investment market, with just â‚Ź63 million transacted. Investors - particularly international players - remain very cautious and risk averse, and this coupled with the economic uncertainty is impacting negatively on the market. Any activity is largely driven by local institutional and private investors, although very often there is a large disconnection between vendor price expectations and submitted bids. There is also a lack of prime product in the market, with owners of long leased, well-located buildings unwilling to sell at the current prices. Prime yields are stable at 6% in Madrid and 6.25% in Barcelona.

Valoran Real Estate Brokers Issue No. 7 - July 2013

Market Outlook Prime Rents

Prime rents to remain relatively stable, with some submarkets facing downward pressure.

Prime Yields

Prime yields are expected to remain firm against a backdrop of weak investment activity.

Supply

Supply levels will remain stable,due to a limited development pipeline.

Demand

Demand is expected to weaken further, due to the weak short-term growth outlook.

Prime Office Yields - March 2013 Market (Sub-Market) (Figures Are Gross, %)

Current Quarter

Last Quarter

Last Year

10 Year High

10 Year Low

Madrid (CBD)

6.00

6.00

6.00

6.00

3.5

Madrid (Decentralised)

7.25

7.25

7.00

7.25

4.75

Barcelona (CBD)

6.25

6.25

6.00

6.25

4.00

Barcelona (Decentralised)*

7.75

7.75

7.50

7.75

4.75

Market (Sub-Market)

Euro

SQ.M/MTH

Euro SQ.M/YR

US$ SQ.FT/YR

Growth% 1YR

Growth% 5YR

Madrid (CBD)

24.50

294

35.1

-5.8

-10.2

Madrid (Decentralised)

15.50

186

22.2

-8.8

-9.5

Barcelona (CBD)

17.75

213

25.4

-2.7

-8.7

Barcelona (Decentralised)

13.75

165

19.7

-8.3

-10.2

* NOTE: 9 year record

Prime Office Rents - March 2013

Barcelona, Spain

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Housing sector We see no signs of improvement in Spain’s housing market given the heavy weight of unsold housing stock. What’s more the recent liquidity injection in Spanish banks is likely to accelerate balance-sheet clean-ups and disposal of real estate foreclosed assets, and so contribute to a further decline in housing prices this year. We currently forecast that the nominal house prices in Spain will fall by 7.8% this year and by another 6% in 2014, having already lost an expected 9.5% year on year in 2012.

Recent Trends The rapid increase in unemployment, alongside severe fiscal consolidation, and tight financial market conditions are fueling the plunge in the residential housing market. Nominal prices plunged by 9.6% in the third quarter of 2012 from a year earlier. Prices have fallen 26% from their peak in March 2008. The number of transactions also dropped to 245,000 for the first three-quarters of 2012, down by 14.8% from the previous year.

The Spanish market is still saddled with excess supply, with the number of unsold homes on the market estimated at between 700,000 and 1 million in 2012, according to the IMF Financial Sector Assessment Program. Housing starts last year dropped to 70,000 from a peak of about 760,000 units in 2006, suggesting that the adjustment process is now under way.

Madrid, Spain

June 2012 versus 87.4% of GDP in June 2009. In September 2012, as the unemployment rate reached 25.8%, doubtful loans rose to 3.2% of total housing loans. This ratio appears still low compared with the country’s total non-performing-loan ratio of 10.7%, which is in part driven by doubtful loans in commercial real estate. Few Spanish households are defaulting on their mortgages. The house price-to-income ratio in third-quarter of 2012 is still 25% above its long-term average.

Future trends We believe it will likely take up to four more years for supply and demand in, to balance out Spain’s housing market. The price-to-income and price-torent ratios lead us to expect a further 20% drop in housing prices. Yet, given serial correlation, there could be some degree of overshooting in house prices before they return to their long-term equilibrium, in our view.

Despite lower interest rates, mortgage credit growth continues to contract, and was down by 2.6% in October from the previous year. Amid Spain’s precarious labor market conditions, household debt ratios are declining. Yet, the deleveraging process is slow, at 81.5% of GDP in

Spanish Housing Market Statistics 2009

2010

2011

2012e

2012f

2014f

Nominal house prices (year-on-year change)

-6.6

-3.3

-7.1

-9.5

-7.8

-6.0

Real GDP, % change

-3.7

-0.3

0.4

-1.4

-1.3

0.7

CPI inflation (%)

-2.0

2.0

3.2

2.4

2.0

1.5

Unemployment rate

18.0

20.1

21.7

25.5

26.0

25.5

e-Estimate. f-Forcast. Source Eurostat, Banco de Espar, OECD

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Valoran Real Estate Brokers Issue No. 7 - July 2013

Total Transactions - Housing Sector (No.)

90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000

July 2012

April 2012

July 2011

Oct 2010

Jan 2010

April 2009

July 2008

Oct 2007

Jan 2007

10,000

Housing loans (% yoy change) 40 35 30 25 20 15 10 5 0

Oct 2012

July 2011

April 2010

Jan 2009

Oct 2007

July 2006

April 2005

Jan 2004

-5

Average interest rate on new housing loans

(%)

6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5

July 2012

Jan 2012

July 2011

Jan 2011

July 2009

Jan 2009

July 2007

Jan 2006

July 2004

Jan 2003

2.0

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Advantages for investing in Spain The opportunities offered by Spain as a country go far beyond the success, which it has justifiably achieved in fields such as tourism, sports and cuisine. Some of the top reasons for why should someone invest in Spain are:

of the Spanish legal institutions, combined with the investment opportunities currently available, should be attractive to investors considering diversification of their portfolios in Spain and the rest of southern Europe.

• It’s the time of opportunities

• For the current reforms

Capital values are falling more rapidly than rental values, enabling investors to benefit from increasing yields. Secured assets in prime locations, at unusually high yields, are currently available and create opportunities for investors seeking to exit in three to five years, when recovery pushes up property prices. The growing non-performing loans market should also benefit value-added funds adopting a short-term strategy of portfolio management and sale of discounted portfolios to institutional funds.

Current reforms include cutting spending, privatizing industries, and boosting competitiveness through labor market reforms.

With the restructuring of savings bank sector in 2010, the bank of Spain is now seeking to boost confidence in the financial sector by commanding banks to come clean about their losses and consolidate into stronger groups.

• For its legal framework

Due to its strategic location and its historical and linguistic bonds, Spain has played a key role in trade relations between Europe and Latin America.

It also serves as a bridge to North Africa and a gateway to the Mediterranean Sea trade. The ports of Algeciras, Valencia and Barcelona are among the main European ports in terms of maritime traffic,

Spain has a favorable legal framework for foreign investors as the Spanish law has adapted its foreign investment rules to a system of general liberalization, without distinguishing between EU residents and non-EU residents. The stability

• A gateway to Europe, Latin America and North Africa

Toledo, Spain

16

Valoran Real Estate Brokers Issue No. 7 - July 2013

and will soon benefit from the construction of the various corridors that will boost the rail transport system. • Important Infrastructure Network The extensive road and rail network, and the number and location of ports and airports endow Spain with an exceptional communication network that directly promotes trade and tourism.

In 2012, the high-speed network is 20 years old and a European leader, with over 2,900 kilometers of tracks and has become a model of reference worldwide. To add to this is the efficient and renewed public transport in major cities. • For its competitive and leading companies Spain has become a world leader in the field of renewable energy, infrastructure, telecommunications and water, among others.

As an example, Spanish companies are currently involved in the construction and management of roads, airports and hospitals in North America, Latin America, Europe and the Middle East. In addition, large textile groups monopolize the top positions as international retailers, expanding their stores worldwide.

Spain Housing Sector - Price-to-income and price-to-rent ratio Price-to-income ratio

Price-to-rent ratio

Long-term average

Index (long-term average = 100) 200 180 160 140 120 100 80 60 40

May 2011

Dec 2009

Sept 2005

June 2001

March 1997

Dec 1992

Sep 1988

June 1984

0

March 1980

20

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Real Estate Investing Lesson 5

Get the money to start the game of Real Estate (Part II) In the previous month’s report, we discussed about determining the amount when one aims to commence real time investment in the real estate market. We also discussed how these funds could be procured. We shall proceed with the advanced funding strategies in this month.

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Valoran Real Estate Brokers Issue No. 7 - July 2013

Capitalizing on advanced funding strategies Sophisticated investors who develop an extensive real estate investment portfolio can employ more complicated strategies. In this section, we outline those along with our advice for how to make them work.

Leveraging existing real estate investments Over time, if the initial properties you buy do what they’re supposed to do, they’ll appreciate in value.

Thus, you may be able to take extra tax-free cash from your successful investments to make more purchases. This tactic is called hypothecating your real estate. As we discuss in the previous month’s section about “Borrowing against home equity”, many investors begin by employing this strategy with their owner-occupied home. They buy a home, it appreciates over the years, and then they tap that equity to fund other real estate purchases.

By the same token, as you acquire more properties and they then appreciate, you can tap their equity for other purchases.

As you build a real estate empire, you must exercise care not to overextend yourself. The downside to continually pulling equity out of appreciated properties is that your fortunes may change. If the local real estate market or economy hit difficult times, as it has happened in some areas in the late2000s, you may find yourself with vacancies and falling rents. In the worst case scenario, excessively leveraged real estate investors have ended up losing some properties or even going bankrupt.

Bringing in partners or other investors If smaller, lower-priced properties don’t satisfy your desires, you may be able to find a partner. For example, find a duplex and get a partner where you both initially occupy the property and make

the payments, because duplexes are typically more cost-effective per unit than unattached properties.

Especially to accomplish larger deals, you may need or want to invest with a partner or other investors for the sake of diversification and risk reduction. Bringing in a partner can also provide additional financial resources for down payments and capital improvements as well as greater borrowing capability.

With the assistance of a good attorney, prepare a legal contract to specify (among other issues) what happens if a partner wants out. A buy/ sell agreement makes a lot of sense because it outlines the terms and conditions in advance for how partnership assets can be redistributed.

With life events (death, divorces, new marriages) constantly changing partnerships, having a buy/ sell agreement in place at the time the partnership is initially established prevents bickering down the road. Partnership disputes often enrich attorneys and accountants, rather than the partners or their intended beneficiaries. Family members sometimes make good partners. Parents, grandparents, and perhaps even siblings may have some extra cash they want to loan or invest. But some families aren’t suited for partnering to buy and operate real estate. Disputes over management style, cash distributions versus reinvesting in the property, and how and when to sell are difficult in any partnership, but particularly in families where there may be different goals based on the age or personal desires of the family members.

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Seeking seller financing You may be able to find some properties that your research suggests to offer potentially attractive investment returns and for which the seller may be willing to extend financing. Some property owners or developers may finance your purchase with as little as 10 percent or even less down payment. This method can be an extremely beneficial way to buy real estate when your cash position is limited. You can often set up the transaction as an installment sale so that the seller has the added benefit of stretching the reporting of income over a period of time. The drawback with seller-financed properties is that you can’t be as picky about what you get; a limited supply is available, and many properties offered with seller financing need work or haven’t yet been sold for other reasons. Avoid properties that are distressed (have major problems and flaws). Don’t get sucked in by great financing alone; only consider purchasing a property with seller financing that you would be willing to buy conventionally. The seller financing should just be an extra benefit, not the only benefit!

Taking on margin debt If you own stocks and other securities in a brokerage account, you can actually borrow funds against those investments. Be careful when using margin debt. Stocks, bonds, and other investments can drop in value, sometimes sharply. When that happens as it did in 2008, you may face what is known as a margin call, where you have to increase the equity in your brokerage account, either by adding cash to it directly or by selling some of your securities. Having to sell during tough times can force you to liquidate shares at low prices. To add insult to injury, a significant stock market decline like the ones that occurred in 2008 or in the early1990s, can coincide with a slumping real estate market.

20

Financing the property purchases This section covers the financing options you should consider (and highlights those that you should avoid). We explain how to select the mortgage that is most appropriate for the property you’re buying and your overall personal and financial situation.

Taking a Look at Mortgage Options Although you can find thousands of different types of mortgages, only two major categories of mortgages exist: fixed interest rate and adjustable rate. Technically speaking, some mortgages combine elements of both — they may remain fixed for a number of years and then have a variable interest rate after that. This section discusses these major loan types, what features they typically have, and how you can intelligently compare them with each other and select the one that best fits with

Valoran Real Estate Brokers Issue No. 7 - July 2013

your investment property purchases.

Fixed-rate mortgages Fixed-rate mortgages, which are typically for a 15 or 30-year term for single-family properties, condos, and one to four unit apartments, have interest rates that remain constant over the life of the loan. Because the interest rate stays the same, your monthly mortgage payment stays the same.

Examining the pros and cons For purposes of making future estimates of your property’s cash flow, fixed rate mortgages offer you certainty and some peace of mind because you know precisely the size of your mortgage payment next month, next year, and ten years from now. (Of course, the other costs of owning investment property - such as property taxes, insurance, maintenance, and so on - still escalate over the years.) But this piece of mind comes at a price: • You generally pay a premium, in the form of a higher interest rate, compared with loans that have an adjustable interest rate over time. If you are buying a property and planning to improve

it and sell it within five to ten years, you may be throwing money away by taking out a fixed rate loan to lock in an interest rate for decades.

• If, like most investment property buyers, you are facing a tough time generating a healthy positive cash flow in the early years of owning a particular investment property, a fixed-rate mortgage is going to make it even more financially challenging.

An adjustable-rate mortgage, by contrast, can lower your property’s carrying costs in those early years. (We discuss adjustable-rate mortgages in the next section.)

• Fixed-rate loans carry the risk that if interest rates fall significantly after you obtain your mortgage and you are unable to refinance, you’re stuck with a relatively higher-cost mortgage. For example, you may be unable to refinance if you lose your job, your employment income declines, the value of your property decreases, or the property’s rental income slides. Also remember that even if you are able to refinance, you will probably have to spend significant time.

We will discuss the rest of this section in the next month’s issue!

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Properties of the month Dubai Marina

Elite Residence

Bahar 6

Jumeirah Beach Residence

RE

NT

NT

RE

Price (AED)

110,000-125,000

Price (AED)

100,000

Number of Bedroom(s)

2 ( 4 units )

Number of Bedroom(s)

1

View

Partial Sea & Marina

View

Marina

BUA (in Sq.ft.)

1,329.34

BUA (in Sq.ft.)

779.73

Reference Number

AP1005

Reference Number

AP852

Agent Name

Alex

Agent Name

Alex

Contact Number

055 5075020

Contact Number

055 5075020

Burj Khalifa Tower

Down Town

Down Town

29 BLVD Tower 2

NT

RE

NT RE

Price (AED)

270,000

Price (AED)

90,000

Number of Bedroom(s)

2

Number of Bedroom(s)

1

View

Full Fountain

View

Normal

BUA (in Sq.ft.)

1,639

BUA (in Sq.ft.)

786

Reference Number

AP1145

Reference Number

AP1155

Agent Name

Alex

Agent Name

Mia

Contact Number

055 5075020

Contact Number

055 2275515

22

Valoran Real Estate Brokers Issue No. 7 - July 2013

Hattan 2

The Lakes

Al Barsha

Barsha 2

L SA

RE

E

NT

Price (AED)

Selling: 14,000,000 - Rental: 475,000

Price (AED)

13,500,000

Number of Bedroom(s)

6

Number of Bedroom(s)

5

View

Lake

View

Road

BUA (in Sq.ft.)

8,124

BUA (in Sq.ft.)

7,500

Reference Number

VI1088

Reference Number

VI1083

Agent Name

Mia

Agent Name

Mia

Contact Number

055 2275515

Contact Number

055 2275515

Down Town

Burj Views C

Springs 7 – Type 4M

Emirates Living

LE SA

LE SA

Price (AED)

2,400,000

Price (AED)

1,900,000

Number of Bedroom(s)

2

Number of Bedroom(s)

2

View

Burj Khalifa

View

Partial Lake

BUA (in Sq.ft.)

1,249

BUA (in Sq.ft.)

1,690

Reference Number

AP1074

Reference Number

VI931

Agent Name

Mia

Agent Name

Mia

Contact Number

055 2275515

Contact Number

055 2275515

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Properties of the month Business Tower

Business Bay

Down Town

The Address Dubai Mall Hotel

L SA

E

E

L SA

Price (AED)

1,000,000

Price (AED)

3,400,000

Number of Bedroom(s)

Commercial Space

Number of Bedroom(s)

1

View

Al Khail Road

View

The Dubai Mall

BUA (in Sq.ft.)

1,214

BUA (in Sq.ft.)

780

Reference Number

OF1086

Reference Number

AP1111

Agent Name

Mehdi

Agent Name

Mehdi

Contact Number

055 5075040

Contact Number

055 5075040

Balqis Residence

The Palm Jumeirah

Al Furjan

Qourtaj

LE

SA

LE

SA

Price (AED)

3,900,000

Price (AED)

3,700,000

Number of Bedroom(s)

2

Number of Bedroom(s)

3

View

Sea

View

Normal

BUA (in Sq.ft.)

2,022

BUA (in Sq.ft.)

6,000

Reference Number

AP1120

Reference Number

VI1078

Agent Name

Mehdi

Agent Name

Mehdi

Contact Number

055 5075040

Contact Number

055 5075040

24

Valoran Real Estate Brokers Issue No. 7 - July 2013

Jumeirah Park

Legacy

Arabian Ranches

Saheel 3

L SA

E

E

L SA

Price (AED)

7,000,000

Price (AED)

4,200,000

Number of Bedroom(s)

4

Number of Bedroom(s)

3

View

Normal

View

Normal

BUA (in Sq.ft.)

4,335

BUA (in Sq.ft.)

3,300

Reference Number

VI1146

Reference Number

VI1147

Agent Name

Mehdi

Agent Name

Mehdi

Contact Number

055 5075040

Contact Number

055 5075040

Springs 8 - Type 3E

Emirates Living

Elite Residence

Dubai Marina

LE

SA

LE

SA

Price (AED)

2,750,000

Price (AED)

1,850,000

Number of Bedroom(s)

3 + Study

Number of Bedroom(s)

2

View

Lake

View

Partial Sea

BUA (in Sq.ft.)

2,246

BUA (in Sq.ft.)

1,330.52

Reference Number

VI813

Reference Number

AP895

Agent Name

Alex

Agent Name

Alex

Contact Number

055 5075020

Contact Number

055 5075020

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Properties of the month Dubai Marina

Botanica Tower

Down Town

Reehan 7

L SA

E

E

L SA

Price (AED)

2,200,000

Price (AED)

6,000,000

Number of Bedroom(s)

2

Number of Bedroom(s)

Penthouse – 3

View

Full Marina & Partial Sea

View

Burj Khalifa

BUA (in Sq.ft.)

1,207.92

BUA (in Sq.ft.)

3,400

Reference Number

AP1128

Reference Number

AP1141

Agent Name

Alex

Agent Name

Mehdi

Contact Number

055 5075020

Contact Number

055 5075040

Jumeirah Islands Community

Jumeirah Islands

The Lofts, East Tower 4

LE

SA

LE

SA

Price (AED)

10,500,000

Price (AED)

1,999,000

Number of Bedroom(s)

Plot

Number of Bedroom(s)

1

View

Normal

View

Boulevard & Sea

BUA (in Sq.ft.)

15,400

BUA (in Sq.ft.)

400

Reference Number

RL1136

Reference Number

AP187

Agent Name

Mehdi

Agent Name

Mehdi

Contact Number

055 5075040

Contact Number

055 5075040

26

Down Town

Valoran Real Estate Brokers Issue No. 7 - July 2013

TWO TOWERS Building Features: • • • • • •

SPECIAL OFFER

Two residential towers with a shared courtyard Gymnasium & Swimming Pool with outdoor terrace area and landscaped sun deck Three level secure basement parking with single point access Vehicle drop off point at building entrance lobby Round the clock advanced security system Proximity to Metro Station and world class Shopping Malls

Apartment Features: • • • • • • • Unique and modern spacious 1B/R and 2B/R apartments available in Two Towers - Tecom, graced with contemporary European fittings, perfectly suited to accommodate premium lifestyle in Dubai.

Two Towers provide its residents easy access to business hubs such as Dubai Media City and Knowledge Village as well as areas such as Palm Jumeirah and Dubai Marina, Mall of the Emirates and Ibn Battuta mall. You’ll find you’re never too far from work, play, or rest and direct access to Al Khail Road and Sheikh Zayed Road make it easy to reach places farther afield.

Huge balconies offering panoramic views High ceilings Solid marble, Slate and Parquet Flooring Italian Wardrobes and Kitchen Cabinets German Quality White Goods Energy efficient Central water heating system – resulting in substantial savings in electricity bills Centralized Air Conditioning from on-site Chillers – again resulting in huge savings.

Prices start from AED 1,375,000 for 1 B/R and AED 1,800,000 for 2 B/R apartments with financing option for 10 years.

Community

Tecom -Barsha

Tecom - Barsha

Property Name

Two Towers

Two Towers

Price (AED)

1,375,000

1,800,000

Number of Bedroom(s)

1

2

BUA (in Sq.ft.)

1,318

1,745

Reference Number

AP1123

AP1124

Contact Number

04 33 22248

04 33 22248

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T W O

T O W E R S

O NE B EDRO O M F L O O R P L A N

LAUNDRY

LIVI NG/DI NING ROOM KITCH EN

EN TRANCE

GU EST BEDROOM

EN S. 1

2

TYPICAL FLOORS: 3RD TO 21ST

1

3

6

UNITS 3 & 6: 1 BEDROOM APARTMENT UNITS: 1, 2, 4 & 5: 2 BEDROOM APARTMENT 4

28

5

Valoran Real Estate Brokers Issue No. 7 - July 2013

T W O

T O W E R S

T WO BEDRO O M F L O O R P L A N

KITCH EN L IV ING/DI NING RO O M

E NT RANC E

GUE ST

LAUNDRY

BE DRO O M II

E NS. II

B EDRO O M

E NS. I

2

1

3

6

TYPICAL FLOORS: 3RD TO 21ST UNITS 3 & 6: 1 BEDROOM APARTMENT UNITS: 1, 2, 4 & 5: 2 BEDROOM APARTMENT 4

5

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FAC T S SH E E T O N E - B E D R O O M

A N D

T W O - B E D R O O M

BEDROOM L AY O U T

FLOORING

Spacious room with balcony Open outside view Floor to ceiling windows Sliding door “tilt and slide”, Italian mechanism Semi-Solid Oak Parket

SANITARY

Duravit - UK design and manufacturing

MIXERS

Grohe - German design and Manufaturing

FLOORING

Beautiful Marble

Floor to ceiling windows.

Sliding door “tilt and slide”, Italian mechanism FLOORING

Semi-Solid Oak Parket

LIGHTING

European design

B U I L D I N G

CABINETS

Functional furnished. Italian design and manufacturing

E L E CT RI CA L TEKA, German design A PP L I A NCE S German and Spain manufacturing Includes: washing machine and dryer machine, column installation

Wall design marble mosaic

KITCHEN

Spacious room with balcony Perfect distributionof areas Dining and living areas close to window

LAUNDRY

A CC E S S ORIE S Assorted mirrors, stainless steel functional, design accesories

European design

LIVING ROOM/ DINING ROOM L AY O U T:

D E T A I L S

BATHROOMS AND GUEST TOILETS

W A R D R O B E S Italian design and manufacturing LIGHTING

A P A R T M E N T

BALCONY

FLOORING

Black Slate / Mosaic slate

CABINETS

Fully furnished. Italian design and manufacturing

FLOORING

Porcelain tiles

E L E C T R IC A L TEKA, German design A P P L IA NCE S German and Spain manufacturing Includes: electrical oven, hood, touch electrical hoob, waste dispenser, dishwasher*, Mitsubishi fridge and freezer

D E T A I L S

AMENITIES

LIFT LOBBIES

Building controlled entrance

FLOORING

Fitness center

Black slate / Marble

Spa Swimmingpool Shopping center and restaurants in the Podium DU provider

AIR CONDITIONING SYSTEM CHILLERS Carrier - Europe design and manufacturing

ELECTRICAL Switches and sockets ABB - UK manufaturing

FAN COIL UNITS (FCU) Carrier - Europe design and manufacturing

FRESH AIR HANDLING UNITS Carrier - Europe design and manufacturing

GARAGE

LIFTS

Each apartment has covered parking space in the basement

Mitsubishi, highspeed

STO R AG E

6 lifts: 3 units per tower, dedicated to tenants

Available in the basement area for tenants*

2 lifts dedicated to podium

* Some exceptions

30

The above mentioned speci cations could be modi ed due to technical reasons without prior notice

Valoran Real Estate Brokers Issue No. 7 - July 2013

• • • • •

Ready, spacious and elegant 1 & 2 bedroom apartment Low down-payment Competitive interest rate of 3.85% Guaranteed rental income 10 years financing with no documentation

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