E&T Valuations - October Property Basket

Welcome to the Edwards and Towers Monthly Property Basket. We have selected 8 apartments and 8 villas which are trading frequently in the Dubai marketplace, and have been tracking their values since the start of 2013 as part of the operations of our RICS-qualified Valuation Department.

Each month we will release a new Property Basket with the latest prices, and the percentage changes. The values in the basket are based on actual transactions we have witnessed, and not list prices (which can sometimes be distorted).

Apartments

The residential market in Dubai underwent significant changes during the month of October. The introduction of the 4% transfer fee has imposed a notable restriction on buyers, who are typically being made to pay the full 4% despite the Government guidelines. Additionally, the announcement of the 75% mortgage cap from December 1^st will further increase the initial capital requirements for mortgaged buyers. Already, this has had a negative impact on transaction volumes of certain sections of the markets, specifically the higher-priced properties.

Another notable impact throughout October has been the looming Expo 2020 decision. Ironically, this has had a negative impact on the market because sellers have raised their prices significantly beyond current market levels in the expectation that prices will rise following a successful Dubai bid. However, we anticipate that the impact of a decision either way will have a minimal impact as the event is 7 years away.

As apartments are generally lower in terms of capital required, they have continued to transact at a reasonable rate. One of the most notable patterns emerging is that there has been more of an improvement in properties at the lower end of the price spectrum, which we anticipate is because of the increased transfer fee. The Greens has witnessed the most activity from the basket, as affordability is increasingly becoming the most important factor in the apartment market.

Villas

Activity in the villa segment was notably more subdued than the apartments, primarily because of the higher capital lot size required. First time mortgaged buyers, even for a villa of AED 2,000,000, will have to find AED 500,000 deposit, AED 80,000 transfer fee and AED 40,000 agency fee to enter the market as of December 1^st. This upfront cash requirement of AED 620,000 is simply too much for many young buyers looking to enter the market for the first time.

Additionally, the mortgage cap regulation stipulates that for properties over AED 5,000,000 the LTV will be capped at 65% for expats. This will again increase the capital required for villas in some of the more popular expat areas such as Arabian Ranches and Victory Heights, where the average price is above this level.

Overall, the properties surveyed in the basket remained flat, and the growth since the start of the year is now at a similar level to the apartments as the lower end of the market begins to catch up in terms of growth. The sellers of Garden Homes on the Palm Jumeirah are becoming increasingly ambitious with their price expectations, and volumes here have suffered as a result. At the other end of the market, however, there is still some activity with townhouses where entry levels are lower.

For more details, or to request a copy of the latest research note, contact our Director Simon Kennedy on simon@edwardsandtowers.com or +971504515226.

www.edwardsandtowers.com/valuations

Dubai Transfer fees

Dubai Land Department Transfer Fees to change again???

The new transfer fee of 4% has now been running for the past 3 weeks and it seems to be coming accepted by the property fraternity that the buyer will pay the full amount.

This was confirmed at my last transfer on Thursday when the transfer office actually refused to give 2 receipts for the 4% split 2% and 2% for the buyer and seller. One receipt for 4% to either the buyer or seller is all they will produce.

There is also a rumour floating around that there is going to be another change to the transfer fees...

Now that the 4% transfer fee has been accepted the DLD look like they might introduce a fee specifically for off plan sales in Dubai.

The speculation is anticipating a 9% transfer fee for off plan sales in Dubai and 4% for completed property.

This would be a dramatic change to a market that was only charging 2% 4 weeks ago and some will think that it will dampen the market too much.

I am not convinced it will dampen the market like people think but I do think it could influence the profile of buyers that are active.

I won't bang on too much  but my little theory runs like this.

If you take a recent Emaar launch in Downtown we all remember the mega queues and scuffling that took place to get a ticket. As agents we also know that a lot of the tickets were sold to agents who hustle and do anything required to get to the front of the queue so that they can get a ticket to either sell on or put a deposit down with the intention of immediately selling at a profit/premium. It's only a guess but I would think that at least half of all off plan launch sales are sold to a second buyer at a premium within 4 weeks. These second string buyers then keep the property until completion.If you could stop the brokers and hardcore flippers from getting to the front of the queue then in theory you may get a much larger percentage of genuine buyers putting deposits down at launch and holding until completion.

If done correctly the 9% transfer will stop 'some' people/agents from even bothering to stand in line and fight like WWE wrestlers for a ticket.What the DLD need to understand is that some developers will allow the first buyer who puts down a deposit to  change the name of the buyer to a nominee which actually defeats the object the DLD are trying to achieve. In this instance the agents would still turn up as they know they can change the name on the contract before the DLD would charge the 9%. I would advocate a large fine to the developer who participates in this practice. It currently happens on nearly every launch.

We are definitely going through a period of change in the property market and as it evolves to the next level of maturity I hope the new regulations, whatever they may be, have the desired effect and close all potential loopholes ensuring that right people have a chance to purchase at the beginning of the cycle.

4% Transfer fee for title Registration

Dubai Lands Department increase Registration  Fee 2013

It has now been  confirmed that the new land department registration fee will increase to 4% on the 6th October.

It looks as though this will be enforced on the said date although there are plenty of agents lobbying for an extension to the timescales.

The idea is to cool a market that has shown no signs of slowing down in 2013. With 30% plus increases in values this year it is clear to see why the dubai lands department have introduced such a measure. Will it work? I am not convinced that it will have the desired effect. After all we are talking about a market that has increased by 30 % already so an extra 2% shouldn't make too much difference to eager buyers keen to invest into an emirate with a healthy GDP and other strong fundamentals.

There are other measures that could also be implemented if this action does not have the desired effect and it will be interesting to see what happens over the next few months as these are traditionally our busiest times of the year.

12 Month Notice to Tenants

As the rental market gets stronger we will see more and more landlord and tenant disputes appearing in Dubai. I thought I would share our  latest issues with the blog and try and put some clarity on a few tenancy questions that are often asked of us.

Many landlords are seeing that the current rent they receive is less than the current market price and then  try to either put the rate up or ask the tenant to leave so they can put in a new tenant at a better rate.
We saw this a lot in the peak of 2007/08 and since then new restrictions were put in place to safeguard the tenant. 5 years on these safeguards are once again being used by the tenant to protect themselves from rent hikes or eviction.

In a nutshell the following rules apply to the  Dubai rental market.

1. A tenancy must be registered at Ejari
2. The tenant cannot sublet without consent.
3.Short term rentals will not be registered with Ejari and follow a different set of regulations ( call me if you want more information on short term).

At the end of the tenancy contract the following rules apply:

1. The tenant has a right to renew on the same terms.
2. If the landlord wishes to change anything in the contract then he should give 90 days notice to the tenant.
3. If the tenant rejects the new terms then the course of action for the landlord is the Rent Committee.
4. What is 'allowed' and 'not allowed' by the rent committee is very clear and both landlord and tenant should try and negotiate around the table before resorting to this.

If the landlord wishes to 'evict' the tenant he must either be selling the property or moving into it himself. The procedure to evict is as follows:

1. Serve a 12 month Legal Notice to the tenant. This has to be notarised by the court and sent by courier. It is quite an easy process and protects the landlord.
2. The landlord must state if he is selling or moving into the property on this notice. The text is standard at the court. Total cost for this if done in Dubai is about 500 dhs ( notary stamp 85dhs; translation 250 dhs plus 60 dhs ; courier 100 dhs.)

It is important that everything is done according to the regulations set out by RERA and the Lands Department of Dubai.

As property managers in Dubai our two biggest problems are always maintenance issues and negotiating the rent renewal.

It is important to follow the rules and then both landlord and tenant can co exist knowing that the correct procedures are in place.

Let us know if you need any advice on these matters by contacting the property mgt team.


I also found this on the net which is quite interesting:

(My Dubai tenancy contract is due for renewal for the second year this month. Until yesterday my landlord had not made any contact with me, but I spoke to his agent and he told me the landlord wants to increase the rent. In reply, I said that according to the law, the rent can only be increased after the completion of two years. Then the agent told me the landlord wants to sell his apartment, so will add a clause allowing potential buyers to view the apartment from inside. I would like to know whether he can insist on increasing the rent at the time of signing a first renewal and if I have to agree to accept the new clause of viewing in the new contract? Finally, if he sells the apartment in the next few months what will happen to my tenancy contract? MIK, Dubai You are correct in saying that a landlord cannot increase the rent in the first two years and it is worth noting that after that there are strict provisions that apply regarding permitted increases after this time. Rera, the Real Estate Regulatory Agency, collects data across the city and has an online calculator that shows the acceptable levels and landlords must comply with this. If rent is to be increased in accordance with the permitted limits, tenants must be given 90 days'notice. It is not standard to include a clause to allow strangers to visit someone's home and you are not obliged to accept this. Tenants are not obliged to show buyers around a property and if you are asked to do so and wish to assist, you should be given 24 hours' notice. Even a landlord does not have the right to enter a property without permission or a very good reason to do so. I do not recommend you accept any such agreement and if your landlord, or his agent, persists, you should contact Rera. If a property is sold, then the rental agreement and therefore the tenant, comes with it. If the landlord wants you to leave, then he needs to give you 12 months' notice by registered mail or notary public with reasons as to why he is evicting you, as per UAE Law number 33 of 2008, Article 25, Clause 2.)

There are a few points in here I don't agree with and the author does not seem to be taking into account the fact that Law 33 over rides or updates Law 26.... 

E&T Commercial Launched!

E&T Commercial has officially launched! The new division of Edwards and Towers will offer commercial sales & leasing, property management and investment advice on commercial real estate in Dubai. We also provide valuations for accounts, lending and dispute resolution. Do not hesitate to contact us if we can help with your commercial real estate needs in any way.

So at the start of a new year, where are we up to in the commercial market?

The macroeconomic fundamentals for Dubai are improving. The Emirate’s population is forecast to exceed 2 million for 2012, and GDP growth is anticipated to be in the region of 4.5 - 5% throughout the year while inflation remains low. On the back of these improvements, several large-scale commercial projects have been announced including Mohammed Bin Rashid City, a, AED 10bn theme park in Jebel Ali, an extension of the Madinat Jumeirah and the completion of the Business Bay Canal. Significant questions surrounding the financial feasibility of some of these projects exist, but it is clear that confidence has returned to the sector.

The office market, which has lagged behind other sectors since the 2008 crash, is showing signs of improvement as more companies move into the Emirate to access the growth that is developing here. The leasing deals we are currently doing are supporting the fact that, in most areas of Dubai, rents have bottomed out for office space. There have been increases in rents in prime areas such as DIFC, Sheikh Zayed Road and Downtown Dubai. There is still a notable discrepancy between rents for fitted offices and shell & core, with the former usually commanding a premium in the region of AED 20 psf on average. Furthermore, fitted space has a much shorter marketing period. Therefore as a landlord, if you have access to a contractor at a reasonable rate, it is advisable that you fit out your office prior to marketing; even if it is to a basic standard; raised floors, suspended ceilings and provision of utilities. This will significantly improve the results of your marketing.

The retail market continues to perform strongly, benefitting from an improvement in tourism and consumer confidence in Dubai. Rents are typically linked to the sales of the tenant, and most retailers target a rent to sales ratio in the region of 10%-20% in the bigger malls. This can mean rents are anywhere from AED 300 psf to AED 2,000 psf (the latter being from tenants such as Jewellers, who can generate high sales from a relatively small space). Retail rents and values are set to continue their upward trend throughout 2013 as Dubai’s economy continues to grow.

The industrial market is fragmented in Dubai in terms of rental and capital performance. Onshore, the average rents are in the region of AED 30-35 psf in established areas such as Al Quoz and Al Qussais. Free Zone rents in areas such as JAFZA are notably higher, more in the region of AED 40-50 psf. The latter areas are set to see more growth based on the increasing levels of logistics and trade in the Emirate, which is aligned to the overall economy.

2013 is set to be a positive year for commercial real estate in Dubai. We look forward to working with you and assisting your commercial needs.

Simon Kennedy BA MSc MRICS MBA

Director – E&T Commercial

simon@edwardsandtowers.com