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31
Mar
2011
Care while you invest in real estate

March 31 2011 – 12:30 am

Investment in real estate is not something new. The history of real estate investments is as old as human beings started making homes. Property basically serves security and investment needs of the human beings. This makes her so special, emotional and critical.

It is even not a simple investment phenomenon in today’s age as financing & structure of realty transactions have already made investment in real estate a technical concern. But sometimes people who have investment objectives consider property as same as the speculative equity stock transaction. This works sometimes and sometimes it can’t.

Even the way Dubai properties had been growing till October 2008 it was all so robust and jumpy. But end of the day reality lies in the fact that the demand of the property is always connected to the probability of people to live in it. They can be owners or tenants.

Yes somewhere property is also dependent on the availability of finance or mortgage but the selection of her location is always vital. You can plan your cash outflows over your property investments in anticipation of a residential outfit that bring more tenants who potentially can locate themselves in your targeted area.

The residents would like to live there for various reasons. It might be a great locality to live in due to the facilities available for families. It might be near to their offices. It might be a potential circle of economic or residential activity in next 5 years if it is not today.

This is how we can evaluate the worth of property in long run horizon or sometimes the effect of this long run impact over short run real estate investment market. The market of under construction property provides greater investment opportunities in short run. Off plan property actually provides a chance to investors for making handy returns in form of premium as they just have to pay a minor percentage of the total property price.

In above context and as per my experience of dealing in Dubai Properties investment portfolios, I have following recommendation for my readers. This is based on physical & psychological factors of risks, returns & the risk management framework. On note the perspective of my recommendation is mostly related to UAE properties.

If you are a household with investment level of $10,000 with no backup funds never invest in properties as it doesn’t match your risk level. If you are willing to bear loosing your money for a chance then you can do whatever you want.

If you are a small short term investor; never try to put your money in new projects that are building over the suburbs of the city. It can take a lot of time to be settled with infrastructure and then people shall start living in them gradually.

If you are a small or short term investor so better put your money in the under construction properties in the center of the city. They usually have a quick secondary market and the premium over purchasing price accumulates much faster than other properties.

Property prices are always connected to the overall economic position of the city and the performance of stock exchanges. The returns made in robustly performed stock exchanges generally flow towards properties that can increase investment activities and absorb supply of property in short run. So better worth watching economic and stock reports over television or newspapers to catch up with market trends.

If it is anticipated that interest rates will get up it is highly probable that the new projects shall not be commenced due to expensive finance and this can certainly decrease the supply of property over demand. It is better to work your chances of acquiring mortgage on cheap rates currently to invest in property. You can get advantage of cheap financing and increasing property prices.

In your property selection always give weights to economic activity in surroundings of property location. If the government has announced to establish free zones, financial centers or trade areas nearby your targeted area, it is the best of investments. Even you can select areas where these sorts of announcements have not been made but the surface suggests that it can trigger these activities shortly. It is really important because it increases the probability of people acquiring this property in future to live on rent as they are near to their work places.

If you have sufficient money to invest then better diversify within real estate over land, off plan property, ready property, commercial apartments, residential apartments, shops etc. Even investing 100% over real estate is not recommended.

Your holding period is the most important factor. If you are targeting to sell off some property on premium in six months you better have to have a threshold of a year.

While investing in a mega projects that accommodate population more than 20% of total population of the town; work your economic analysis of the town’s economic & employment prospects. If the employment opportunities are lesser for new population then it must have to have roadways to economic centers of other towns.

If you are an international property investor then better evaluate the ease of property transfer and transactional affairs while living out of the investment country. You indeed need to have a trusted broker that would not like to put their cuts in property price. It can be the dangerous affair if you are acquiring property for investment purpose.

Never try to play a game of 1000 if you have 100 in your pocket. It work sometimes and sometimes it can’t. It is even better to stand on zero rather standing in negative or liability in the time of crises in property markets.

If you are a middle tier investor on risk taking, it is always better to invest in a under construction projects that reaches 30% construction level. This can give you a fair idea of methodology of construction and parallel infrastructure development by the government or municipality.

If the market is grown 100% from the opening price and the numbers of properties available in the market is going to increase above from the demand then it is not a best time to invest. Better wait to buy the same property when market carries reversals.

Never get disappointed from the investment in properties. The world shall carry increase in population and property will always be required. There are bad times and there are good times. Bad times are there for buying and good time is for rotating the same property. Just keep watching your finances and chances.

All above are basic recommendations for property buyers of investment purpose. I am using easy to understand communication so it can benefit common investors who have no financial or valuation background. I even have far more in my arsenal of experience and knowledge that are connected to different types of investors & scenarios in realty. I shall keep writing on real estate as it is one of my likings and professions. Even I would love to answer your queries if you have any via comment boxes or emails.


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Mr. Omer

Mr. Omer [1982 born] started  his professional career as a commercial / investment banker after achieving Gold Medal in Finance at master level from University of Karachi in 2006.

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