To keep or to sell?

[samsaf]

Dear All,

I consider myself as rather "safe" investor...

Surely, like everybody else, I was after the big bucks and I went ahead and got myself an appartement in Dubai while I still could! with Union Properties (UP)... The location: Motor City - Uptown

When? Last June

The price? 1,600,000 I was told that it a very good price as it was directly from the Developer..

I got it though a 95% mortgage with adjustable interest.

Now, I can see that I will probably have to hold the unit to wait until the storm of the global eco. meltdown is finished before I could think about getting it sold for a profit.

My biggest concern is that I might not be able to rent it out to breakeven with my monthly installments (amounts to around 150,000 AED/year, including maintenance fees.

What are your predictions about a unit of this type? Do you think that it is best to sell it with a loss and get out of the game or hold my grounds, move-in, enjoy the apartment and pay the mortgage from my pocket?

I wonder...

Or... rent it out for an amount less the mortgage? (I don't want to do that because it means that I have to settle for a less amount for the next 3 years)

Your advice is highly appreciated

 

[jags]

Dear All,

I consider myself as rather "safe" investor...

Surely, like everybody else, I was after the big bucks and I went ahead and got myself an appartement in Dubai while I still could! with Union Properties (UP)... The location: Motor City - Uptown

When? Last June

The price? 1,600,000 I was told that it a very good price as it was directly from the Developer..

I got it though a 95% mortgage with adjustable interest.

Now, I can see that I will probably have to hold the unit to wait until the storm of the global eco. meltdown is finished before I could think about getting it sold for a profit.

My biggest concern is that I might not be able to rent it out to breakeven with my monthly installments (amounts to around 150,000 AED/year, including maintenance fees.

What are your predictions about a unit of this type? Do you think that it is best to sell it with a loss and get out of the game or hold my grounds, move-in, enjoy the apartment and pay the mortgage from my pocket?

I wonder...

Or... rent it out for an amount less the mortgage? (I don't want to do that because it means that I have to settle for a less amount for the next 3 years)

Your advice is highly appreciated

if you can afford that kind of mortgage from your own pocket for long time.you need not to worry. you are rich. but market is not going to turn around soon in forseeable future. sell how? market is dead.no buyers out there. no cash.you wont be able to sell at a considerable loss also because of lack of liquidity.best option is to rent and recoupe as much as you can.rest pay from pocket.

 

[samsaf]

Renting out for a loss or move-in

I guess moving in would be better.

What's the point in renting it out for, let's say, 80 or 90k per year and paying 40k the the rest from my pocket? Plus another rent for me for 32 or 35k in Sharjah??

Doesn't sound good to me..

 

[jags]

I guess moving in would be better.

What's the point in renting it out for, let's say, 80 or 90k per year and paying 40k the the rest from my pocket? Plus another rent for me for 32 or 35k in Sharjah??

Doesn't sound good to me..

thats the best thing to do. you never mentioned you were renting in UAE.i got the impression you are from abroad and and want to use it as a holiday for couple of times in a year. you have solved your puzzel.

 

[sasherwani2]

Yea you should move in. By the way AED 1.8M .. thats for a 2 bedroom right?

 

[MASHH]

do not even think of selling at this moment, just keep it or rent it or move in it... wait till the market matures again in a years time hopefully and then sell it....

Rgds,

 

[Arno Salzl]

Dear All,

I consider myself as rather "safe" investor...

Surely, like everybody else, I was after the big bucks and I went ahead and got myself an appartement in Dubai while I still could! with Union Properties (UP)... The location: Motor City - Uptown

When? Last June

The price? 1,600,000 I was told that it a very good price as it was directly from the Developer..
Or... rent it out for an amount less the mortgage? (I don't want to do that because it means that I have to settle for a less amount for the next 3 years)

Your advice is highly appreciated

Samsaf,

- what is the status of the construction? and the expected delivery?
- have you been in touch with other buyers in the same building?

 

[georgihh]

Dear All,

I consider myself as rather "safe" investor...

Surely, like everybody else, I was after the big bucks and I went ahead and got myself an appartement in Dubai while I still could! with Union Properties (UP)... The location: Motor City - Uptown

When? Last June

The price? 1,600,000 I was told that it a very good price as it was directly from the Developer..

I got it though a 95% mortgage with adjustable interest.

Now, I can see that I will probably have to hold the unit to wait until the storm of the global eco. meltdown is finished before I could think about getting it sold for a profit.

My biggest concern is that I might not be able to rent it out to breakeven with my monthly installments (amounts to around 150,000 AED/year, including maintenance fees.

What are your predictions about a unit of this type? Do you think that it is best to sell it with a loss and get out of the game or hold my grounds, move-in, enjoy the apartment and pay the mortgage from my pocket?

I wonder...

Or... rent it out for an amount less the mortgage? (I don't want to do that because it means that I have to settle for a less amount for the next 3 years)

Your advice is highly appreciated

If you keep you lose, if you sell you lose – no way out
You have bought at the peak and now we are approaching the bottom.
The only advantage is that you have the loan and as you said flexible.
You should start negotiating with the bank to reduce the interest to 6%.
If they don’t want to and you haven’t paid more than 10% just cancel everything and walk away

 

[samsaf]

Well, it's a 1B/R with a 890sq.ft area covered area with another 890sq.ft as terrace.

I got it directly from Union Properties at that time. (around October last year)

The current interest with the bank is 8% (flexible and connected with the EBOR decided from the central bank, with a cup of a min of 6.25%)

If I walk away now, it means losing 80k Dirhams + 3% of the house value to the bank.

The house will be ready by 2nd-Q of 2009 (although the UP was promising delivery by 1st-Q)

The finishing is supposed to be very good.

How much do you think that I would eventually be able to rent the house for?

I am willing to keep the house for 4 more years and live in it if I don't get a rent, if it means that the economics will become better.... until then, but who knows?

I am considering the suggestion given by georgihh... It means cutting your losses and moving-on.

However, if you hold out, I guess there are many factors which will play to your benefit for the next coming years,

1) If your house is from a well-respected company, with an excellent finishing, it will stand-out in the market.
2) If you have a mortgage, it means what your buyer will not have to worry about finance.
3) Now that people have lost trust in the off-plan properties, the ready-to-move-in properties should become the most attractive.

Of course, all the above will mean nothing unless the economy recovers, of course, this will take at least 4 more years.. The UAE has been through some tough times before, remember the 1999-2001?

History is bound to repeat itself....

 

[Arno Salzl]

Well, it's a 1B/R with a 890sq.ft area covered area with another 890sq.ft as terrace.

I got it directly from Union Properties at that time. (around October last year)

The current interest with the bank is 8% (flexible and connected with the EBOR decided from the central bank, with a cup of a min of 6.25%)

If I walk away now, it means losing 80k Dirhams + 3% of the house value to the bank.

The house will be ready by 2nd-Q of 2009 (although the UP was promising delivery by 1st-Q)

The finishing is supposed to be very good.

How much do you think that I would eventually be able to rent the house for?

I am willing to keep the house for 4 more years and live in it if I don't get a rent, if it means that the economics will become better.... until then, but who knows?

I am considering the suggestion given by georgihh... It means cutting your losses and moving-on.

However, if you hold out, I guess there are many factors which will play to your benefit for the next coming years,

1) If your house is from a well-respected company, with an excellent finishing, it will stand-out in the market.
2) If you have a mortgage, it means what your buyer will not have to worry about finance.
3) Now that people have lost trust in the off-plan properties, the ready-to-move-in properties should become the most attractive.

Of course, all the above will mean nothing unless the economy recovers, of course, this will take at least 4 more years.. The UAE has been through some tough times before, remember the 1999-2001?

History is bound to repeat itself....

Samsaf,
both selling price and financing are high. BUT you have an attractive finance scheme and a good location. I would try to keep it.

Re UPP, pls read UPP fundamental conflict

 

[samsaf]

Arno Salzl ,

Thanks for the tip about the forum.. I was looking for some inside info about UP.

I am now on vacation in Japan, the guys over here has told me about a similar bubblebrust which took place in Japan in the 1990s, people have been high consumers (like Dubai now, or used to be) doing for the best resturants, buying the best clothing, taking taxis all the time (big luxury here),rentals where very high

Then the bubble burst...

The property prices went downhill, the rental as well and the people stopped over-consuming.. (in the 1990s)

Now, because of the economy crisis, small, medium and large sized business are going bankrupt everyday (in Japan),you can see an ad in every page of every newspaper here..

We have a saying in Arabic "To die with the people is a mercy itself.."

The thing that keeps me optamistic is that Dubai have always survived without dependance on oil, from it's very beginnings...

... whatever we are seeing now is a global economic thing... it will be unfair to blame Dubai's government or the flippers and the banks for whatever is going on...

.. perhaps the only by-product is that people will start to sit and think it over before they buy or sell, and before they line-up in numbers in front any of lunching event and buy for any price they are offered...

The market will become more of an end-user and a long-term investor-friendly...

 

[sasherwani2]

You cannot compare Dubai to Japan (or even Malaysia for example's sake). Japan has a 99% local population. These locals will reside in Japan regardless of how the economy is doing. Japan afterall has a GDP of 4.5 Trillion dollars and is the "2nd largest economy in the world". Chances are big that the economy will rebound. The fundamentals, afterall, are strong! Dubai, however, has a 81% expatriate population. These expats dont have any "green cards" or "blue passports" so once they lose their jobs, they are OUT! As for laws and regulations, we all saw how RERA reacted to the economic crises by changing laws overnight sinking billions of Dirhams worth of people's hard earned money.
Call me pessimistic but I dont think this (UAE'S) economy will rebound. It will definately recover but it will never be able to retain an unrealistic scenario it selfcreated for itself. There will not be any "world's biggest canals", "mile hight towers" or largest "waterfronts" anymore. Trump Tower has already started refunding the deposits to its clients as the project is about to announce cancellation. There will be a lot of "brokers" on this forum who would "like to" think otherwise, but this is the "base case" scenario I expect from the Dubai market. Things could get a lot worse.

 

[samsaf]

Not trying to win an argument here, I am seeking the best prediction, while trying to maintain an optimistic (definitely not naive) view of the situation.

I agree that Dubai is a rare and exceptional case in the world... I cannot compare it to Japan, or even to Singapore. It is a unique case.

You might be right, or might be wrong... But remember, no one has predicted that Dubai will reach whatever it has reached so far to begin with. True, the regulations are not set up in way to protect the expacts neither the laws (can you please enlighten me on the laws changed by RERA overnight, as I could not find the resources on the net).

One this is for sure, if Dubai doesn't make investors feel like UAE citizens (though issue of life-long-visa or the equivalent of green cards),investors will not pickup Dubai as their no.1 choice for investment, even if it was indeed a tax-free area...

During the next year, after all the damage is reflected, and all the smoke is cleared ... the government in Dubai is bound to find ways to make people come back to this market again... I mean, its not you and me are on stake her only... there are big players who have billions of dollars at stake who have signed a "Guaranteed 12-15% income for the next 5 years" for buyers... it is those people who will probably be hit the most and who will exert the most pressure on officials to enhance the laws..

Again, this scenario reminded me of a similar scenario which took place in Syria and Jordan around the 1998-2001... Homes lost it's values by 40-60%... everyone predicted that the prices will never recover again... My father has sold the house with a 50% loss because he needed the cash. Now our same house (right before the global economy crisis) is worth around 120% of it's original value...

I have started to believe that the whole thing is a "hold-you-breath" game.. people who can hold their breath the longest (ppl who happen to have the most relaxed financial situation {cash flaw-wize}, while everybody else is striving for cash) eventually end-up losing the least, or even cashing-in big after that...

I am open to any other opinions...

 

[sasherwani2]

Syrians knew that nomatter how much property prices may fall, these prices will bounce back because "Syrians" will always need accomodation regardless of their professional status (employed, unemployed, selfemployed)...this is not the case with Dubai. Dubai has a 81% expatriate population almost all of them are employed (or are dependant on someone who is employed). Have you heard of the 600 cars left abandoned at the airport because people left the country without paying their carpayments. Everyone who has lost his/her job has to leave Dubai. There is no "green card" or "social security" which will motivate them to stay a minute longer in Dubai.
As for the laws that changed overnight, you will have to check the RERA website. Law 13 clearly states that incase an investor defaults, he/she is bound to receive 70% of the "monies" invested. This rule changed overnight in November. The new rule stated that investors are actually going to get 70% of the contract value back. This means if someone has paid 35% of the contract value so far, he/she will receive only 14% of his "monies" as opposed to the old "law" that guaranteed 70% refunds. Whosoever blames "YOU" for investing in Dubai is someone who hasnt been stung by the lawlessness of RERA or probably is a broker.
As for 2009, I would predict a gradual stability in the prices of properties in countries that have proper regulatory authorities governing these properties and developers, in countries where the "government" isnt a developer herself, countries where accountability matters and countries where the investors "TOO" have some rights. If you believe UAE is such a country, invest in it.

 

[PropGuy]

You cannot compare Dubai to Japan (or even Malaysia for example's sake).

You can't compare either because Dubai is growing and emerging economy. Emerging economies are risky, but they have higher growth rate compared to mature economies. So demand is higher during expansion, but lower during recession compared to matured economies. As for the Dubai, current situation is fooling lot of people, there are other factors but main factor is value of US$ compared to commodities. Prices in Dubai went up with fall in value of US$, now they came down with rise in value of US$. Prices are moving exactly with inverse function of the value of US$. Prices are staying at 2007 levels because value of US$ staying at 2007 levels.

People who are not in international finance may not know this but UAE property is good hedge against US$ inflation because prices rise against devaluation of US$ + it is yield investment so better compared non-yield hedge investments like precious metals or other currencies + demand from growing economy.

Last factor would neutralize with increase in supply. These advantages are not available economies that are not pegged with US$.

 

[TommyC]

You can't compare either because Dubai is growing and emerging economy. Emerging economies are risky, but they have higher growth rate compared to mature economies. So demand is higher during expansion, but lower during recession compared to matured economies. As for the Dubai, current situation is fooling lot of people, there are other factors but main factor is value of US$ compared to commodities. Prices in Dubai went up with fall in value of US$, now they came down with rise in value of US$. Prices are moving exactly with inverse function of the value of US$. Prices are staying at 2007 levels because value of US$ staying at 2007 levels.

People who are not in international finance may not know this but UAE property is good hedge against US$ inflation because prices rise against devaluation of US$ + it is yield investment so better compared non-yield hedge investments like precious metals or other currencies + demand from growing economy.

Last factor would neutralize with increase in supply. These advantages are not available economies that are not pegged with US$.

So what will happen when the new currency linked to a basket of currencies go live in a year or so (according to newspapers)? This sounds to me like another "invest here, it's safe because rents are high", or "invest here, it's safe because demand is high" or "invest here, because we have the highest hotel rates in the world and a lot of tourists" or "invest here, because we are building the highest building". Is any of those "reasons" still valid, well apart from the fact the highest, unfinished, building is in fact here, but I can't really see how that would guarantee anything anyway.

It's a fact that people have to leave within 30 days if they lose their jobs. This includes a lot of people that have paid overpriced rents. Even cabdrivers that I've spoken to that have been here for a long time and have experienced earlier crises in the area are saying that this is the worst one. There is not many tourists here and the hotels are basically empty compared to what it used to be like, even during previous situations. Sure, it's a global crisis and people hold on to their money, but what guarantees that people will suddenly start buying "the vision Dubai" again and flock to the country. There are many places in the world that offers better value for money. Have Dubai just been living on a hype which is about to move on to another place/area? Especially as people return home and facts about the country surfaces?

Even in my home country the fall of Dubai is mentioned on national TV news.

It's currently like a bad relationship, pretending that it's good doesn't make it better, neither will hoping of a sudden change for whatever reason. But realizing and accepting it's bad and working on it will at least open the possibility on improving it.

 

[PropGuy]

@ GCC currency: that would depend on the timing, GCC monetary policy, and GCC economy.

@ this is the worst crises: this maybe the worst crises in dubai but this is nothing new to any other international metropolis, people who have been investing in rest of the world know ups and downs of economies. This is globally worst financial crises were prices have fallen of major commodities from 40% to 60% in all major economies. In 2001 UAE wasn't affected with global recession, but this time it has because it is more financially linked to rest of the world and 3 major economies are contracting at the same time (US, Euro, and Japan). You can welcome Dubai to global economy.

Regarding people getting fired, well there are people getting fired but I don't see traffic getting better on sheik zayed road. I don't see population going back to 2004 levels, population doubled in 4 years even though rules and regulations were not any better. Dubai is an important trading hub for Iran, Pakistan, India, Middle east, and Europe; and it will stay that way for a long time.

@ negative pr: news media change color with the time, before it was modernizing sheik, now it is doom and gloom Dubai. But I mentioned in another topic the steps UAE govt and developers need to take for long-term investor confidence who are dependent on UAEs local economy. Goodwill is very important, for long-term investors, otherwise, Dubai will be stuck with short-term speculators and hedge funds.

Lastly, people need to be careful with investment whether Dubai or anywhere else, and thoroughly evaluate all the financial risks. There are 2 types of people making money in this market, those who have cash and picking up properties at cheap prices and those who calculated rental yield and invested accordingly.

 

[TommyC]

@ GCC currency: that would depend on the timing, GCC monetary policy, and GCC economy.

@ this is the worst crises: this maybe the worst crises in dubai but this is nothing new to any other international metropolis, people who have been investing in rest of the world know ups and downs of economies. This is globally worst financial crises were prices have fallen of major commodities from 40% to 60% in all major economies. In 2001 UAE wasn't affected with global recession, but this time it has because it is more financially linked to rest of the world and 3 major economies are contracting at the same time (US, Euro, and Japan). You can welcome Dubai to global economy.

Regarding people getting fired, well there are people getting fired but I don't see traffic getting better on sheik zayed road. I don't see population going back to 2004 levels, population doubled in 4 years even though rules and regulations were not any better. Dubai is an important trading hub for Iran, Pakistan, India, Middle east, and Europe; and it will stay that way for a long time.

@ negative pr: news media change color with the time, before it was modernizing sheik, now it is doom and gloom Dubai. But I mentioned in another topic the steps UAE govt and developers need to take for long-term investor confidence who are dependent on UAEs local economy. Goodwill is very important, for long-term investors, otherwise, Dubai will be stuck with short-term speculators and hedge funds.

Lastly, people need to be careful with investment whether Dubai or anywhere else, and thoroughly evaluate all the financial risks. There are 2 types of people making money in this market, those who have cash and picking up properties at cheap prices and those who calculated rental yield and invested accordingly.

Fair enough. One big difference though is that in 2001 a lot of money returned to the middle east from those countries that was affected by the 9/11 terrorism. This made the middle east have an extremely positive cash flow which prevented them from being affected by that crisis. This time, the money is already here and going in the other direction, no major hidden reserves by private wealthy people to bring back. There currently seems to be more bargains to be had in other, more well-established and mature, countries than in the Middle East and Dubai in particular.

There are some potential good news though, as they cryptically have mentioned in the newspapers as well. They (the government) will probably clarify the visa rules in favor of the investors, and unlike the situation before, they will also allow Iranis and Iraqis to get a residence visa through bought property. And by that attract a number of the wealthy investors from those countries. I've heard this from a source and can't confirm this.

No matter what, it won't help investors currently stuck. Law 13 was good as it was initially implemented. At least it shared the loss between developers and investors and made it preferably to find solutions, currently investors will take the hit. Developers are building with healthy profit margins, and the only loss they possibly could be facing is less profit in the short-term but they would still have the property. Whilst an investor will lose EVERYTHING. Currently (if the POSSIBLY ILLEGAL interpretation will be applied) an investor that have paid 99% and default on the last percent can at most get 49% back. The remaining money will not only cover all costs for the property but the developer will still have it in his inventory and can resell it at whatever price he likes if he wants to, since the construction cost is already paid for (as well as costs for marketing, administration, land etc. etc.).

The worst part though, is that you can't find ANY official information about the so-called interpretation they came up with. Why is that? One of the biggest problems; there is no transparency, you can never be sure of anything, rules and regulations are made in the dark and only come into light when you get struck by them = no/less confidence among investors.

 

[fsjstar]

god help us