Dubai property: Investing in a soft real estate market
When investing in real estate, consider the location
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I’ve always been a fan of Warren Buffet, one of the most successful investors in the world. In short, his general strategy is to invest for the long term, looking at assets that are priced below their intrinsic value, and particularly looking for quality that is degraded. And one of his best quotes is: “The widespread fear is your friend as an investor because it enables bargain purchases.”
Well that is today’s real estate market here in Dubai and much of the GCC. The pandemic has sparked widespread fear and will bring some bargain prices. This means that there are great investment opportunities for those who make strategic investments. But the question is where to invest. Follow Warren Buffet and look for quality properties that are priced below value. In the case of real estate, quality could also be the location.
When the market recovers and there is a new build, where will it be? If there is a lot of developing land, these areas will attract developers to compete with your property. However, if you are looking for locations that are not easy to duplicate but are still in high demand, you are unlikely to get this direct competition. Think places like the Marina or Jumeirah Beach Residence, but also look for quality properties that everyone will want to live in.
Once you’ve considered a location, you need to look at the viability of your investment. Is the property undervalued? Check out the historical value and rental history. Will your investment return the same net rental return (annual income minus expenses / price)? Unless you have deep pockets, you should only invest in properties that will generate a reasonable return on purchase. If it makes business sense in a declining market, it makes sense for the market to recover.
The author is Assistant Professor of Real Estate, Faculty of Energy, Earth Sciences, Infrastructure and Society (EGIS) at Heriot-Watt University Dubai