Simbarashe Mupfekeri Own Correspondent
The current pandemic being faced globally has brought about a unique perspective in our lives where many of us are having to adjust to a new normal and the real estate sector has not been spared.
Given its steady and less volatile nature, real estate will always be the last impacted class compared to other asset classes, as data is not immediately available and there is an inherent lag in any pricing squeeze.
The recovery of any Real Estate market be it Zimbabwe or Dubai will be determined by how all the various stakeholders will respond to the pandemic and the various measures that will be put in place.
Contrary to certain misconceptions, owning a property in Dubai is not as far-fetched as people would make you think. We will explore some of the market dynamics between Zimbabwe and Dubai Real estate space in this article.
Dubai is very attractive investment destination because of its location and ease of access to all hubs in Middle East, Asia, Africa and Europe.
The Dubai economy is driven by Tourism, Real Estate and Financial services and not oil as most people believe. Its mind boggling to think that 30 years ago Dubai was just desert but today it has the 4th highest number of skyscrapers globally.
Currently Dubai offers one of the highest rental yields globally of between 6-10 percent per annum which is higher than most comparable destinations like London, New York, Sydney and Tokyo.
Some projects offer guaranteed returns to investors for a period of 3-5 years. Any investor looks to either make a good return on investment, capital appreciation or both and Dubai offers all these options.
Juxtapose with the economic situation we have witnessed in Zimbabwe over the last 20 years has seen returns on property investments erode heavily but on the contrary property prices have remained high.
The reason for high prices can be attributed to a combination of demand and supply. Zimbabwe supply side of properties is low.
High construction costs. Lack of maturity of the market especially new property developments. High associated fees from Banks, Municipalities, agents and conveyancing fees. Inflation and exchange rate risk, hedging against the rate. Expensive finance among other reasons.
The current pandemic has shown that organization that are technology and data driven have handled the situation better than those which are not.
The Dubai real estate sector is one of the most technologically advanced spaces in the world with both government and private sector working hand in hand to achieve this.
A case in point, the Dubai Land Department, launched a new registration system for real estate transactions, which allows real estate owners to complete sales transactions for their properties remotely from anywhere in the world.
The new system allows them to complete procedures and transactions without being physically present in Dubai or delegating it to someone else.
Integration of all related services into one mobile application has meant that up to the minute real estate transaction details can be viewed, title deeds can be verified, construction project updates can be viewed, brokers can be verified, rental indexes calculated among a host of other services.
There is a lot of scope for improvement and integration of services in Zimbabwe to make the property purchase process more efficient. The Deeds office, Zimra and Municipalities will need to streamline services to ensure a smooth process for buyers and seller.
Virtual viewings have become the norm and property portals are at the forefront of bringing these digital tool benefits to the market. The first movers have enjoyed huge benefits. Through proptech, disruptive solutions are steadily transforming the way in which transactions are handled as well as how estate agents conduct business. Great opportunities can be explored in this space in Zimbabwe.
The Dubai real estate sector is heavily regulated by the government to ensure investors are protected. All developers have to register with Dubai Land Department, which oversees affairs related to lands and private properties.
Developers have to own the land 100 percent on which they intend to develop. The developer needs to have at least 50 percent of required capital to develop the project in order for construction to commence.
All payments made by purchasers are deposited in government controlled escrow accounts and funds are only released to developer on achieving certain certified development progress/milestones.
If the property is ready to hand-over then RERA (Real Estate Regulatory Authority) issues a title deed of the property, however when the property is off-plan or under construction an Oqood certificate (registration title for off plan projects) is issued by RERA under buyer’s name that ensures the property is registered under the buyer’s name. In Zimbabwe such measures and enforceability will help to bring sanity to the market.
A lot of people have been duped of their hard earned money by unscrupulous developers and land barons. Registered projects and registration of buyers in a government system will help to protect members of the public. The buoyancy and growth of the market is dependent on successful implementation of the requisite requirements and laws.
There are various types of investment properties available in Dubai ranging from villas, townhouses, apartments and hotel/serviced apartments. A larger number of the property developers offer very flexible payment terms with low down payments of about 10-20 percent and the balance paid post-handover in 5 to 10 years depending on project.
Mortgage financing is available up to 80 percent for residents and 55 percent for non-residents and is payable over a period of between 10 and 25 years. Interest rates are between 2.7-2.9 percent per annum.
Recently waivers have been introduced on application and processing fees for mortgages. Looking at the Zimbabwe market, investor usually pay cash for purchases as there are very limited mortgage facilities in the market. Banks are taking a cautious approach to lending thus the low number of mortgage loans issued out. The government has put in place some measures to make financing cheaper but the benefit it yet to be realised.
A case in point on investment, Takura 29, had a piece of land in Westgate which he contemplating on constructing an investment property on. The investment was going to set him back between US$110 000 – US$130 000 putting into account land acquisition, associated costs and construction costs. After some consultation we made some Dubai real estate investment recommendations to Takura. Takura sold his stand for USD50,000. We used the proceeds as a 30 percent down-payment on a US$140 000 apartment with a flexible post-handover payment plan of 5 years on the balance. We secured a tenant within 2 weeks of handover of the project.
The net annual rental income is US$9 800 which is 7 percent of the purchase price. Rent is paid yearly in advance in Dubai. Takura is enjoying the benefit of owning the property and receiving income after only paying 30 percent. The rental income will help him cover the 70 percent still due to the developer. Once payments made to developer are above 45 percent, Takura can apply for a non-resident mortgage should he wish to do so.
This pandemic will have major impacts on economies including major job layoffs. Demand for products and services will naturally drop, given an intrinsic drop in purchasing power as a result of lower incomes. High job losses and closure of certain business will mean that rent defaults will rise, leading to defaults on mortgages from Landlords.
The speed and magnitude of economic recovery will tell the full story. For those looking to invest in a safer and steadier market, here are some of the benefits of owning property in Dubai. Tax free rental income.
Tax free capital appreciation as there is no capital gains tax on your profit. Low mortgage interest rates. One of the highest rental returns of 6-10 percent net, short term rentals can offer up to 15 percent return.
Regulated industry with RERA (Real Estate Regulatory Authority) and DLD (Dubai Land Department) Laws to protect investors.
Government of Dubai initiatives promoting investments. Freehold property ownership. Investor visa are available for property investors. There are 1,2,5 and 10 year options available based on the level of investment.
Simbarashe Mupfekeri is a certified and experienced Real Estate Investment advisor with a strong passion for real estate. He is currently with Driven Properties LLC, one of the largest brokerages in Dubai with presence in U.A.E, Saudi Arabia, China and Canada. Simba’s areas of expertise include sales consultancy, business development, off plan selling, property management and property development. He can be contacted on [email protected]