Property Dubai : Investing in a soft real estate market
There are great investment opportunities for those who undertake strategic investments
I have always been a fan of Warren Buffet, one of the world’s most successful investors. In short, his general strategy is to invest for the long term and look at investments whose prices are lower than their intrinsic worth and especially look for quality that is marked down. And one of his best quotes is “Widespread fear is your friend as an investor because it serves up bargain purchases.”
Well, that is today’s real estate market here in Dubai and much of the GCC. The pandemic has brought widespread fear and will serve up some bargain prices. Thus, that means there are great investment opportunities for those who undertake strategic investments. But the question is, where to invest? Follow Warren Buffet and look for quality properties whose price is lower than its intrinsic worth. In real estate, quality could also be the location.
When the market recovers and there is new construction, where will it be? If there is a lot of development land, then those areas will start to attract developers who will compete with your property. But if you look for those locations that cannot be easily duplicated, but still in high demand you are not likely to get that direct competition. Think of places like the Marina or Jumeirah Beach Residence, but also look for quality properties where everyone wants to live.
Once you have considered a location, you need to look at the economics of your investment. Is the property undervalued? Look at its historical value and look at its rental history. Is your investment going to give the same net rental yield (annual income less expenses/price)? Unless you have deep pockets, you should only invest in properties that give a reasonable return when you buy it. If it makes economic sense in a declining market, then it will make sense as the market recovers.
The author is Assistant Professor in Real Estate, School of Energy, Geoscience, Infrastructure and Society (EGIS) at Heriot-Watt University Dubai