Out of the box

the hard equation

Ismail Al Hammadi

09 March 2021

Because the asset in real estate investment is the return and the profits made from it, this is often the first point of attraction for those wishing to buy real estate for the purpose of investment.

- «The return on investment constitutes a weakness that the real estate marketer can creep through to influence the purchase decision.

This is the predominant nature of buying real estate in Dubai (profit margin and return from the real estate unit), while the investment return is, at the same time, the weak point that the real estate marketer can infiltrate to influence dealers and their purchase decisions.

“An apartment of one room and hall for sale in the so-and-so project with a guaranteed investment return at such a rate.” A form of real estate advertisements that some real estate marketers use to attract the interest of dealers, and many people are often dragged behind them and conclude purchase deals that do not know their future results.

This is what is actually happening in the market during the recent period, especially at the level of regions that witness the delivery of many similar projects simultaneously or in close times, which creates intense competition between property owners, with the aim of occupying their units and attracting tenants, which leads them to reduce the value of rents. Under pressure from tenants in light of the availability of options and the increase in supply.

On the other hand, the cost of the unit remains high, so the owner finds himself faced with an equation of two limits: a decrease in the rent value, and an increase in the value of the property's costs, and the result: a decrease in the investment return percentage that was expected or planned upon purchase.

In this case: Who is to blame;

On the owner, developer, or the costs imposed on the property by the competent authorities?

The blame may fall on all of them, since the owner should not have made the decision to buy a real estate unit based on an attractive real estate advertisement that guarantees the investment return, because in fact there is no fixed return on investment in the real estate market, as it is subject to several factors, including the supply base And demand, and other general conditions controlling the real estate sector, such as the internal and global economic situation, the geopolitical situation, the movement of population growth, and other factors that affect the price of rents, so their value decreases to the extent of shock, or increases in rates that exceed expectations (both possibilities are mentioned due to a combination of Controlling Conditions).

The owner should have also based his investment decision on realistic studies of the area in which the project is located, and to know the number of similar projects that exist or will be delivered in this area, and how many similar units the project itself includes and other projects.

In terms of the developer, and as part of his contribution to providing indirect support to the owner, he must study the area and the quality of the projects offered in it, to put forward an innovative project that is different from others, thus reducing competition between owners.

As for the value of the cost imposed on the property by the competent authorities, this is another issue, and we have always dealt with it in many different topics, especially with regard to fees for services, maintenance and real estate registration, and various other costs related to leasing procedures that we hope to review, even temporarily, to balance the equation Even a small percentage.

The equation is really difficult, and it requires us to look at it to find appropriate solutions. Is there a solution?

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