12 July, 2008

Rental Analysis - Complete

This isn't a cross post from my blog, but actually I added recent data that enabled to make a bigger picture, but for the readers' sake, I am repeating the basics here below.

You see, I am in financial markets and investment. That means money, numbers, and economics. So I wanted to do a little digging that involves my better honed, albeit geeky, skills to see exactly how far the financial figures are cooked here in the UAE, and how bad things have become recently (11.1% inflation my @$$!!)

Anyway, below is a tabulated chart of my findings (I could not, for the life of me, manage to get a proper table in here, so I resorted to the old "print screen" and save as a GIF file trick):

- The salary data are median salaries collected indirectly through several agencies, and represent a sample of at least 10 people out of each country for each job listed (So at least 30 people of each country were tabulated).

- The rents data were collected directly from various sources, mostly classified listings and real estate agencies.

click on the figure for a clearer read


So what are some of the conclusion of this small research:

1- That despite having the lowest income across the board, Dubai has the highest minimum rent out of all those major cities of the World, especially in studios. What this means is that even though all major cities have quite expensive penthouses and Villas, they all present OPTIONS of lower rent for those without great means to live in those cities, supplying their economy with a vibrant middle class, which strengthens the consumption spectrum and creates a solid small and medium enterprise base. It means that even in the most expensive city in the World like Tokyo, you DO have the option of landing a $500 a month studio. A 10% lower limit of $950 per month did not exist in ANY city checked, this is the HIGHEST in the World, a serious issue that has to be handled if Dubai expects to grow its community and economy and attract more businesses to fill those rising office and residential towers.

2- Dubai was the only city out of all checked (with the exception of Jeddah and other Saudi cities though still not even close to being as widespread as in here), that had the abominable quarterly to annual rent payment system. Right now more than 60% of offered properties demand single payment for the whole year. In addition to being the only city that now bans sharing and regulates carpooling with heavy fines, this must be one of the biggest cash-flow challenges facing individuals here and a needless hurdle to prosperity.

This is actually where the numbers cannot match: The best (legal) option a person can find for accommodation is around $4000 (1000 for security deposit and 3000 for three months on a cheap $12,000 a year studio), yet the average monthly income for an average 5 year experienced office manager or accountant is $2,500 (MANY take less, some a LOT less). This way, it will take two months for a new recruit to pay the rent while eating one meal a day and sleeping on the cold hard floor as they can't afford buying or even renting furniture at this point, and the third month will have to be all saved to pay the next quarter's cheque of $3000!!

Additionally, basic sense shows that there is sound economical reason for such high rents over there, and that is a combination of two factors:

1) In Tokyo, New York, and Hong Kong there is a large native population that can more than fill all the properties. Expats form less than 30% in those cities, and if they leave, the natives who work for hundreds of billion dollar national businesses groups will always more than fill the void and will be willing to pay the high rent thanks to the strong income. Tokyo has 12 million citizens, and Japan totals above 125 million over the country. Hong Kong, Singapore, New York and London all have large native populations desiring to build lives in their major cities. Dubai has 250,000 citizens out of around 2 million population now (90% expats!!), and the whole country has less than 1 million citizens, most of whom DON'T like this city's lifestyle because it doesn't match the Emirati culture, so if expats leave, few will fill their place, but never the whole void.

2) In all those cities, space is LIMITED. As in nowhere else to grow the city. Hong Kong and Singapore are islands built to the maximum, Tokyo is absolutely closed and has nowhere to go. London is stuck in the green belt, New York is squeezed between the sea and New Jersey. So everyone compete for the limited space left. Dubai has all the empty land it can ever want to use for expansion, both towards Jebel Ali and deep inland towards Al Ain. There is no reason whatsoever for properties to have exorbitent prices.

Based on this and from the authority of my profession I am giving this professional conclusion that might be unpopular albeit true:
Real estate in Dubai is over-inflated by other factors non-related to actual demand or long-term actual supply limitation, and therefore it has formed an inflationary bubble that WILL burst and leave thousands of empty property units and millions in lost value as prices crash.

You probably did NOT hear it here first. :)

Dubai Warrior

45 comments:

jomster said...

Hey! Good job. Though i really doubt the salaries you have shown for Dubai. i would bet that its much lesser than what you've shown. But thats just my gut feeling and I'm not an economist.

Cheers
jomster

Tainted Female said...

The real question is, how long until you predict it's going to burst? ie, when should I sell my flat?

aK said...

Hi,

A fair analysis which is rather basic. There are three basic questionable assumptions in your analysis, that I would like to point out:

1. Effect of taxation. All these countries have an average of 30% tax on salary (and about 8% on average on daily commodities). This seems to be ignored.

2. Property type. All properties you mention are predominantly new construction, that have a longer life as an investment. Even with higher rents some properties in the US and UK are old and ageing homes.

3. General cost of living in these places are substantially higher - think food, gas, medical insurance and education.

Let me know if I misread anything,

aK,
New York/ Dubai

Dubai Warrior said...

Tainted Female, two of my office's clients are trying to sell their properties for 3 months now and are not getting decent offers. My advice is to sell it now if you're an investor and not living in it.

AK,

1- Effect of taxation was taken into consideration and the numbers were adjusted. Outside the US it is closer to 15% thanks to allowances, and in the US it is 20 to 25%. The salaries listed are average net-take-home.

2- Your property remark is inaccurate. The new dubai properties actually have a shorter life span of 50 years like most modern developments. Most of the foreign older properties have a longer lifespan of more than a 100 years. This is about rent anyhow so age is not an issue, but the quality and facilities available were comparable.

3- You are mistaken if you think that cost of living in Dubai is in any way lower than anywhere else right now. Food, medical, and education cost is higher than all the listed cities with the exception of Tokyo. Dubai right now has a very high retail price index, with electronics, food items, consumer goods and fashion around 10% higher than Singapore, Paris, New York, or London, and that is AFTER 5 to 10% VAT. People now buy from those cities cheaper than Dubai and collect an additional rebate at the airport.

Homework was done properly.

DW

Tainted Female said...

I've watched the prices increase (in Gulf News Classifieds, so they may not be that accurate) over the past year, to more than 33% on top of the purchase price, and it looks like they're still going up? I'm not in the UAE anymore to sell it off immediately, however I do have people asking to rent it from me even though there is someone staying in it, paying me rent right now (By the way, he pays me monthly - and not quarterly or annually and I charge him way below the prices you've quoted). Are you sure selling as soon as possible is the best professional advice to offer investors & not renting out for a few years until we're closer to the 'pop'?

By the way, I have NO economic experience, and initially bought the flat to live in. So in no way am I trying to argue with what you've said. I just want to make sure you're sure that selling now is the best option as I've been considering it, recently.

Dubai Warrior said...

TF, a specific sell or keep decision requires looking at the numbers and certainly a confirmed rental arrangement makes a difference to your expected income.

However, when dealing with properties you need to recognize that it takes a lot of time to exit an investment from the time you make the decision to put it on the market, now it appears to be months.

I'll respond to your email with more details for your specific case.

Anonymous said...

Bubble ends can sometimes be explained by the admittedly non-scientific "Greater Fool Theory".

As long as enough people believe that there is a positive expected value for flipping the property when risk weighted for the chance that everyone is going to bail out of the market, everything should move along fine.

The only danger is that investors start to questions that the expected returns of buying are not sufficient to outweigh the risk that everyone else pulls out. When that happens, the game is over.

Signs of the end:
1) Sellers start to promise higher rate of returns (presumably because the likelihood of no buyers has increased); or,

2) New buyers start to dry up, which requires the remaining buyers to believe in higher expected returns.

Other bubbles to reference: Russia/emerging markets mid-1990s, US telecom/internet 2000's, recent US real estate in distant suburbs.

In short, the end is when there is no Greater Fool.

Kyle said...

Dubai Warrior:

I address this purely from a curious point of view; so bear with me this rookie approach:

Part 1

That $161K package – what’s that include? Is it fair to say that it includes:

Basic / HA / COLA / Kids Schooling?

Or is it just a basic package excluding the other 3 expenditures that may be disbursed separately?

Part 2

When you address the NY package, you shouldn’t forget taxes that end up in state coffers unless that $254K is a net take-home package after deductions? If not, I’d say (after deductions) it could be as close to the local figure of $161K, yes? Of course, major expenditures such as housing and kids schooling is not a major issue for us back home, as here.

Part 3

Almost a year ago, I was toying with the idea of purchasing property here. But after internal discussions within the family and community, I dropped that idea completely. Call it a hunch, gut feeling but there’s something just not right about the real estate market here. To some extent, it’s echoed in your synopsis of this label.

Editor said...

I agree: correction of the property prices will be in the near feature.

And it's true that there are no clients even for prime properties now a days and owners are reducing the prices slightly... Perhaps the speculators have taken their money from the real estate and are currently betting on the oil prices.......

And I think that summer is not the right season to sale, better wait until November!

B.D. said...

Real estate in Dubai is over-inflated by other factors non-related to actual demand or long-term actual supply limitation,

Totally agree with this!

and therefore it has formed an inflationary bubble that WILL burst and leave thousands of empty property units and millions in lost value as prices crash.

Don't quite agree with this. This "bubble" has perhaps some unique properties that give it staying power. 1)oil prices that aren't likely to subside 2)Dubai, especially, and the UAE in general are immigration magnets. People may never get citizenship but they are coming in droves--not only low income workers looking disparately for jobs, but also the world's super-wealthy looking for stability , a safe environment and a place to park their cash.

Dubai, I think has created for itself a unique niche, so that even without any substantial local population it looks to the region and further afield to populate it.

But are rents and property prices unjustifiably high? YES. Lots of people are suffering as a result, some will throw in the towel and leave, and lots of properties will not get rented out. But, I still don't see a crash.

Great research and analysis.

Editor said...

http://www.dubaichronicle.info/2008/04/seasonal-housing-price-patterns.html

Aamar said...

Hi

Good analysis and I've been looking to converse with someone who has a cautionary approach not all the lalala people high on Dubai 100% of the time. I'm an owner, and I understand your points and the commentary posted, and I feel that I've risked some of your views away. I've purchased on the Palm, the price has "risen" 30% and the property completes in 2009. Ive had it on the market for about 3 weeks and have had 2 interests. My property is unique, it is a Hotel residence (Fairmont Palm Residence) flanking the actual Fairmont hotel in the middle. I figured that even though the market is due for a correction, the hotel, vacation rental business will continue to prosper. Long term rentals will bubble deflate, and there could be a host of reasons why, but vacation rentals continue to look strong despite the aforementioned weaknesses. So given the attractions, Dubailand, Atlantis, TigerWoods golf, F1 in 2009 and a plethora of other including a possible olympics play, the touristry will continue to fly high. I am both willing to sell at my price or hold till completion and rent out next July. I'd prefer to sell so that I can put my money in Gold/Silver but if I hold will it be so bad? This is in addition to what Dubai has going for it, here are a couple of more thoughts on Dubai's staying power:

1) establishing itself as the financial locale to do business for the entire ME region- one stop shopping for Islamic banking, the place to have a conference and meet
2) The place to go for the international and the ME community to party while in the ME, including India and rest of SE Asia...i know a lot of people from this region stashing money away here
3) Tax free
4) The singapore, HK, NY, LONDON of the ME....there is a place for this.

Maybe im being a bit redundant, but so be it....

From a long term perspective, I think you're right, but from this touristy, short term, fly in fly out perspective, Dubai does have staying power for the wealthy to play in a clean, and free environment.....much like Vegas without the poverty....but Dubai has what Vegas doesnt.....

My 2 cents....so should I still sell or keep? Your thoughts......

Tainted Female said...

Aamar, first of all.. I love your handle... 2nd... very good points... Got me thinking indeed.

hemlock said...

while i for one would love to see the bubble burst, and prices come to a realistic level, i doubt that will happen anytime in teh near future.

the political uncertainty in pakistan and regional instability specially with regards to iran will not let the demand for property in this area dry up.

there is a massive influx of investment from iran and pakistan in this region, and dubai with its proximity and its no-questions-asked policy is a haven.

thanks for the great post, and good job putting together the figures. finally something interesting to discuss.

Cheeky Minx said...

Aaargh, this all sounds very serious! I understood next to nothing hum.. But I sure liked the Greater Fool Theory. Twas the one piece of funny that I could giggle to! :-))

I'm going to go sit quietly in a corner now and wait till someone puts a less daunting post, then I'll come back ;)

Dubai Warrior, you sure defend your position well in battle!

Editor said...

http://www.dubaichronicle.info/2008/03/luxury-serviced-apartments-ownership.html

the real nick said...

Dubai Warrior,

There are some fundamental flaws in your comparative analysis.

London, Tokyo, New York etc. are much larger and longer established cities than Dubai. If you wanted to compare Dubai to these metropoles you would need to consider this first in terms of urban planning layout and then in terms of population numbers and catchment area (i.e. size of sample) Every city has hotspots, and Dubai is becoming the hotspot of an entire nascent metropolitan area that stretches from Jebel Ali to Ajman. This is an area of conurbation comparable to Greater London within the M25 - large enough to hold a population of 5 to 8 million people.
Within this conurbation you sure find more and cheaper rental and purchase options than the ones you include in your chart.

There are some other pear-shaped conclusions in your post.

1)Dubai is a not only national city that attracts population from within one country, neither are NYC or London. Dubai is on the way to becoming a major financial and trade capital of the Arab world and attracts in the long term young population form across the GCC / MENA region, in addition to Iran and (middle class) India, i.e. a catchment area of hundreds of million people. In that sense, “Dubaipolis” is very similar to London or NYC. Remember that Western expats represent only a small percentage both in numbers and importance.

2)Space limitations. Large cities are by and large self-regulating. There is a limit beyond which cities become unfeasibly widespread, and if indeed they grow beyond these limits they spawn satellite sub centres. It is not simply the acreage of a city that determines real estate prices, but the proximity to places of business and trade such as CBDs and airports. Dubai is similar to London and New York in that it is a centre of a services industry rather than manufacturing industry. The ‘old’ Dubai of pre-2002 has become the centre of new Dubai, whether you like it or not. You cannot therefore compare an average rental value of London with the average values of Dubai – the Dubai sample is just too small. You need to compare Jumeirah and Emirates Living communities to St. John’s Wood or Chelsea in geographic terms and Downtown Burj Dubai and Sheikh Zayed road (as flawed these comparison are in terms of quality and beauty) to Knightsbridge and Islington, and you’ll find that Dubai is still relatively cheap. Carry on comparing the sleeper towns of Sharjah and Ajman to Enfield or Newham and you are again on par.
Consider that property in Dubai is on average 20% larger than in London, or Tokyo or NYC – so you should compare not ‘studio’ flats, but price per square foot, which you don’t.

Rents ARE painfully high no doubt, but mostly because of payment terms, and the lack of change of perception on part of potential tenants. There IS such a thing as being priced out of a market. So, move to a cheaper area.

I agree that sales values are over-inflated, but this is mostly down to the extremely limited, and new, availability of long leasehold property. Until supply meets demand maybe three years from now we’ll see prices rising. The industry expects values to dip about ten percent after 2011, then reach a plateau and enter a period of consolidation when people will look out for quality and location rather than novelty.

Dubai is by no means a 'nice' place to live; not any longer. But traffic is bad in any large metropolis. What is the equivalent of your daily commute from Sharjah to Media City or Jebel Ali Free Zone? Try driving the twenty five miles from Barnet to Canary Wharf in the morning, or from Staten Island to Wall Street, or Borivali to Downtoan Mumbai.

I don’t necessarily like what Dubai is becoming, but one thing is for sure: High prices are here to stay.

Anonymous said...

Even luxury items in UAE are more expensive than Europe thats for sure, some people need to see the outside world before judging.When purchasing a property in Europe you guarantee a life long apreciation, (there is always exceptions). U can not compare Dubai to such cities like Paris and New York etc, those cities are huge & have history, glamour and culture.

Cheeky Minx said...

Hmmm... I think this Cheeky Minx can safely leave her corner to second the above comment! Well done anonymous! More please, I'm getting a tad sore sitting in that corner!

All we need from you now is a name and I'm nominating you as the best contributor to this blog! :))

Dubai Entrepreneur said...

I just received an email from our friendly TECOM folks telling me about my new lease and the 15% increase. Actually, they don't mention any 'increase', but simply list the payments due.

I spoke with one of them and they politely informed me that they are well aware of Sheikh Mohammed's decree with regards to the 5% rent cap. However, apparently RERA says it's okay to get around the cap if the going market rate is significantly higher.

I do plan to challenge this raise, but what scares me is that TECOM would simply refuse to renew my trade license if I am not renting with them. So, in short, as a business, I have very little say in this. I can make noise, but it is very unlikely to make a difference.

Why are government organizations ignoring decrees made by the ruler of the emirate? I find that rather baffling. Anyone experiencing something similar?

Dubai Real Estate said...

Dubai Entrepreneur, that is unbelievable, and disturbing!

You should get in contact with The National or 7 days or some media that isn't owned by Dubai!

Editor said...
This comment has been removed by a blog administrator.
Dubai Entrepreneur said...

editor, are you serious? 320/sqft.. that's absolute insanity. That is probably one of the highest rates there is. I think Al shatha is about 215-250/sqft.. 320 is excessive.

But that's probably why they are hiking things up like that.. it must 'hurt' to see others making so much more money from new tenants when they are making so 'little' from previous ones.

I have been thinking more and more seriously about relocating to Bahrain and leaving a representative office here only. The minute you start making a little extra profit, someone comes along to grab the lion's share of it (no, it's not just rent..)

samuraisam said...

editor: No advertising.

Dubai Warrior said...

***Opening Scene... horse ranch...

Door opens and the vet emerges into the living room:

Mum: Tell me doctor, is our "race horse" going to be ok?

Vet: I'm afraid not ma'am. She's got an infection in her knee that was left to fester till now. We need to cut it off, I'm afraid she'll never be able to run races again.

Mum: Are you sure?

Vet: Yes I am, just got the results back from the lab.

Kind daughter: But, couldn't she... GROW ANOTHER LEG?!

Vet (smiling): No my young lady, horses don't do that.

Emotional Son: I don't believe you! She's gonna pull through it. The White Blood Cells should take care of the infecetion, shouldn't it?

Vet: No, not at this sta...

Angry Uncle: Bull$%#^! I just got these vitamins from the tarot card reading lady down the road and she said it should clear anything right up! Besides, this horse is strong, she won dozens of races, she is young and proud, she'll pull through because she wants to.

Vet: Those are useless to a gangrine....

Skeptic father: What makes you so sure that the leg needs to come off anyway?

Vet: Sir, I checked her as a professional vet, and tested the tissue from the infection area...

Skeptic father: Still, they may have made a mistake.

Vet: They didn't, they double checked and retested because she's a race horse.

Skeptic father: I don't agree with you, I too think that her immunity should take care of this.

Vet: Listen people! This is gangrine, gangrine is dead tissue and it's too late to reverse. You either cut off the leg, or bury the horse in a week after her whole system gets poisoned. You wanna create all sorts of imaginary scenarios or miraculous stories about how her leg can get better? It's absolutely fine by me. It's your horse, not mine, so it's your call. But for God's sake STOP MAKING UP CRAP AND CALLING IT POSSIBILITIES!!! This is a SCIENCE, I am TRAINED at it, and I DO THIS FOR A LIVING!

Vet looks at everyone realizing he upset them, apologizes, and explains that he understands how some people usually become like that when they feel something that was so full of hope is threatened, people are generally inclined to rationalize.

He urges them to call a surgeon from the hospital to do it when they're ready and leaves.

-Flash forward-

Family ignores his advice and the horse dies in six days.

Ending Scene***

Moral of the story: Do I really need to give you one?!

Well, ok... If you disagree with the conclusion, that's your call. If you agree, that's still your call. If you agree and act upon it, then my work is more than done, I am an ANALYST and an ADVISER. If you want to make shit up and call it scientific analysis that criticizes the WAY it's done and make up ASSUMPTIONS to call them possibilities, well I'm sorry but I don't think there'll be space to respond to every single one because they can be as many as hell, let me touch on them very quickly though:

1- Dubai is becoming a center of finance and trade: Categorically false, it’s just basic statements that were repeated by local PR machines. Dubai USED to be a great attraction to do business in the region from, and now businesses are closing up and leaving while new ones are visiting once before moving on or establishing elsewhere like Doha or Bahrain. This was further precipitated by anti-business moves like the delay of majority foreign ownership law, rapid law changes, inefficient banking environment, lower infrastructure standards, high government charges and announcement of taxes and further basic infrastructure costs. A city does not establish itself as a hub by WISHING it or announcing it, it does it by building a structure from excellent government services through a fair legal and regulatory system down to a solid efficient infrastructure that attracts business. Dubai right now is repelling, not attracting, especially that it priced itself outside the global market in more ways than just real estate. (Fact: It costs 100,000 dirhams or more in government fees just to establish a commercial license and provide visas for entrepreneur and three employees.)

2- Dubai is an immigration magnet: Not anymore. Oil is no longer a supporting industry as it’s running out in 2012. When the main profit center that provided the stem for all the other sectors to ride on falls, the rest will go elsewhere. Immigration were attached to the business to the work opportunities, it’ll go when that goes. Arab and Asian countries are rapidly growing in structure and salary opportunities and you can ask anyone running a business how easy it is to hire these days.

3- Oil prices aren’t likely to subside: is not related to real estate or rental. And will run out from Dubai in 2012 as previously mentioned anyway. As of now, it’s being spent on growing the SWF’s that is primarily used to fund welfare projects for locals.

4- “So given the attractions, Dubailand, Atlantis, Tiger Woods golf, F1 in 2009 and a plethora of other including a possible olympics play, the touristry will continue to fly high”: 150 dive sites, F1 Grand Prix, Rally, Largest bird park in the World, Largest Casino in Asia, Biggest Mall in Asia, a replica French Village, the Petronas Twin Towers, the lovely local population and great weather certainly attracted tourists to Malaysia, but it did not create even a 400 dirham per foot sale price or $150 dollar night hotel-rooms. You certainly may choose to hope to continue earning from the hotel suite, but please remember that very few tourists will fly and pay Dubai prices to see a theme park or a dolphinarium in the searing heat before rushing to yet another mall, where they need to remember not to touch their wives so as not to be held in contempt of local traditions. (Oh, and also, you’re comparing Dubai to Vegas? seriously? The city here riots over just one single night performance from one single artist, out of a hundred super stars that are filling the Vegas Casinos every night over there!)

5- Tax Free: Not anymore starting from next year, and the inflation more than wiped the advantage. Business setup cost for new operations is prohibitively high now (read above).

Now, regarding your post Real Nick, I respectfully accept disagreement in the end that you believe high prices are here to stay. However, Dubai not being big enough as London and New York IS MY POINT as to why it shouldn’t have such high real estate prices, so why are you saying that’s a flaw?! If you wish to include smaller developing cities like Brisbane and Kuala Lumpur, the differential will be even more against Dubai as the rents there are even lower. As for the rest of the stuff you said about catchment area, self-regulating cities (Dubai self-regulating? What do you think everyone here is bitching about?), and natural urban development, that is unrelated to this study or its objective of providing an ECONOMICAL analysis of whether it is a good idea to be here and whether the high prices are justified. If you want to make a study per square foot then you go right ahead, it’s not a research flaw to not have that, it wasn't and isn't my objective. My objective is to allow people at a glance to judge and see how much they stand to make and how much they need to shell out for housing, and to counter the PR excuses slapped in newspapers that says people shouldn't complain about rental rates because they are MUCH HIGHER in comparable cities.

Do you really think that the accountant who is asked for US$3000 for quarterly rent while making US$4000 in that quarter is going to care, or maybe even be happy and agree to gladly pay, that it turns out the small studio here has slightly higher square footage than in another metropolis?. A roof over the head is a roof over the head. Additionally, the properties in Dubai are NOT much bigger in comparison with other cities. There were many 500 and 800 square foot studio units I found available in Zurich, New York, and Chicago (London had a few on the higher end). And just like the size was not used in the study to penalize foreign units, neither did I penalize Dubai when those cities gave proper laws to safeguard tenants, better transport options, much cheaper utilities and so on.


Everyone, I really just hope that you know and understand the implications, and are aware of the risks. Look, basing on the Greater Fool Theory mentioned by anonymous: Whether you keep the apartment, or sell it off for a profit to someone else down the line, when a fall comes it will hit one of them hard with the same amount of money that previous buyers benefited. It's a zero-sum game just like the futures market. I have no benefit whatsoever in you gaining or losing on your purchased property, but people pay me to know what's going on with financial and investment markets, whether real estate or otherwise, and I am letting you know about it.

If you're working here and tired of the rents, you have every right, that is what the study is trying to show you. If you're not in Dubai and was thinking of coming here, this is what you're getting into, beware. At the end of the day, it's your horse.

If you're an apartment owner, I understand that you'ld have all sorts of feelings and rationalizing thoughts to keep hoping and find every possible reasoning that your huge purchase and investment commitment is gonna make it big like you've been told and you've thought. When I am saying here is every indication that is clearly stating that the market is at a bubble's end, it's really just that. It's your horse to deal with. If your unit is paid in full and you have no or very low service charges, or you're living in it, calculate for yourself how long you would like to keep the place. If it's on high mortgage and reselling it for a profit was part of your plan, beware. At the end of the day, it's your horse. That's all.

Dubai Warrior said...

Sorry, I wanted to respond separately on those two comments:

Kyle, part 1, the 161K is average income including all benefits. One would have 100 plus school and housing worth another 80 for example, and another would have just 140 without benefits. Average came at 161K dollars adjusted up very slightly for lack of income taxes. Part 2 Yes the taxes were included and this number was revised lower from a previously higher number to account for those taxes. Part 3 it always depends on the objective and the property. Last year still people made money by buying and selling. Every time frame and objective is different.

Dubai Entrepreneur, I just finished a rental committee case for our office and they applied the Dubai Ruler’s decree very strictly, even against an Al-Maktoum as a landlord. Rent cannot be increased above 5%, expenses cannot be added, and not even the payment structure can be shortened to one payment if you used to pay 2 or 3 per year. It went as far as I bumped into someone there who made a settlement with the landlord on 10% increase but more frequent payments, and was there to ratify it into the case, but the committee still denied it because it spelled 10% clearly and they said it's illegal, even though the tenant agreed. They told him to just get a rental contract if that's what he wants, and then he can drop the case. File a case, it’s easy, it’s the one strong and efficient application of government left in municipality.

Kyle said...

Dubai Warrior:

Man, you are far reaching at 23:52!

It almost flattened me!

It’s like in this age; people hear but just don’t listen – just like a hooker that goes about without inoculation. And when they do, lightning strikes but unfortunately its tad too late to realize ‘you told me so’!

nzm said...

Great information for realists wanting some pertinent, relevant info on which to analyse their personal Dubai situations.

I heart Dubai Warrior!

Cheeky Minx said...

As I said already, you certainly know how to defend your position in battle Dubai Warrior!

Anonymous said...

DW - excellent analysis and much appreciated from this household. We've been in Dubai a year and see lots of colleagues on the gravy train - not in a hurray to jump aboard myself and this analysis cements that view.

Regarding the 5% rent increase cap - what is to prevent the landlord slinging you out on your ear and then bringing in another tenant at a much higher rent?

Is this a widespread practice here or is the hassle of paying agent/finding a new renter not worth the perceived rental increases?

A Blessing in Tragedy said...

Based on this and from the authority of my profession

A. And that would be? scan your business card to back up your data. or dont bother. of course, the mounds of automatons here will bite.

B. We know rent is over inflated here. Thats why the govt instituted a price cap (A hugely stupid idea)

C. Did you include the 23ish% income tax on the NY income levels? and all the other places for that matter?

No, I dont think you did.

And as always, if you can see a better scenario, MOVE.

Anonymous said...

@ BIT

We know rent is over inflated here. Thats why the govt instituted a price cap (A hugely stupid idea)

Your described the concerned ppl appropirately! Keep it up. Few ppl have the guts to do so.

B.D. said...

Dubai Warrior, great job on the post and your subsequent comments.

Now, I'd like to respond and add further to an earlier point I made about the high oil prices supporting the current "bubble." I know, of course, that Dubai is running out of oil. But that is beside the point. Dubai benefits from the high price of oil by its neighbors being willing to park their profits in Dubai rather than continue to put it all into foreign and primarily US markets and other overseas investments. With oil prices so high and some in the region being no-doubt flush with more cash than they know what to do with, why not invest in property in Dubai?

I'm not saying that high oil prices are a guarantee for continued investment in Dubai property--as investment sentiment may change even if the oil wealth remains. But I am saying that it is one major contributing factor to the growth of this market and it would appear that this will remain an important factor as long as prices remain high.

don't give me attitude I've got my own said...

@ Anon July 14,21.45

LOL! But I doubt The Parrot will get the irony behind your words, he'll think you're paying him a compliment erm! ;)

Let's go home! :p

Dubai Entrepreneur said...

TECOM says:

"With reference to your concern regarding Rent Increase, please note that the decision of rent increase to a maximum of 5% is subject to area Rent Index. The decision was implemented by the Government to help curb soaring rents and inflation rates.

Rent Index is a set market value defined by zones in order to offer a consistent and acceptable commercial rent rate within the same zone.

In our case, our existing rates are far behind the defined Rent Index for this area, and therefore the 5% will be applicable for rates that are within the market value."

I'm not sure what to make of that. Anyone know where I can get a hold of any laws/regulations with regard to the Rent Index?

Rose in Dubai said...

Dubai Entrepreneur - speak to someone at the rent committee and get the facts from them. They will tell you if you have a case or not. They are really helpful and in my experience they don't take any bullshit. My landlord tried the "market value" argument and got told in no uncertain terms that 5% means 5%. These guys at the rent comittee are pretty tough and as they said to me, they've heard all of the excuses before but rules are rules!

On the downside there is loads of hanging around waiting for your name to be called and lots of rescheduled meetings because the landlord doesn't bother to turn up.

Dubai Warrior said...

ABIT: "{Based on this and from the authority of my profession}
A. And that would be? scan your business card to back up your data. or dont bother. of course, the mounds of automatons here will bite."

Well, you need to be more like us. You see, rather than asking you to scan YOUR business card to back up your own claims, we will take your word for it - as written by you in your profile - that you are indeed, an a-hole.

(Sorry, ABIT, but you set yourself up there, right?)

B.D. regarding the investment in dubai property question as to why not, it's because no smart money ever invests based on why not. Ask any money maker, manager, or financial analyst and he will tell you property AS AN investment, is only taken in its upswings and sold close to the high tip of the wave, because on a long enough term it will NEVER just keep going. The objective of property is to provide dwelling for people, it will never be too high in ANY part of the World to be too much for the majority of the community to afford it for too long. Property investments are always about taking and buying an UNAPPRECIATED or undervalued piece of property before it becomes appreciated. Sometimes it gets to be overvalued, that's when investment is over and it's time to let go because there's no one else to take it off your hand at an even higher price, it's not an investment anymore. If you hold on you will simply sit with it watching the value go down, and if you wait for the next upswing, the length of time will make your annualized rate of return really low.

Dubai Entrepreneur, listen to Rose in Dubai on that one, in our case the landlord made up his stories as well, saying he is considering knocking down the building and we don't as a group accept a rent rise to make it worth his while, he won't keep it. When we went to the rent committee, everyone there shared the plethora of stories about "we have the right to evict if we give enough notice", through "the law allows cancellation of rental contract if we keep it empty for 6 whole months" all to "Landlord is a sheikh/government and has special permission". All fell in front of what I can describe in my session as a practically BORED judge who kept on responding to the landlords' representative claims one general statement: "Yes, I hear what you're saying, but you're not allowed to raise above 5% under any circumstances."

This rental index you're talking about is nothing but a discussion right now that is not even in effect and will not be until they finish tabulating the whole of Dubai and they're still thinking on whether or not to use it in 2010. Dubai Ruler's decree stands, it is a valid one, and I don't understand why many people are not taking their cases forward. It was tedious in the waiting hall, but straightforward without any deviations.

Dubai Entrepreneur said...

Rose in Dubai / Dubai Warrior,

Thanks for your insights. I apologize for sort of hi-jacking the discussion (but it was turning south anyway :)

I did respond back to TECOM in writing, agreeing to a maximum of 5% increase. I also attached Sheikh Mohammed's decree(No. 27 of 2007). RERA finally has a site up and running, which was helpful.

I have been through the Rent Committee before, but certainly not as a business. I just thought that TECOM, being a governmental organization, would.. I don't know.. say, follow the government's rules? Is that too much to expect?

I don't expect any response from them. I will give them until the end of next week, by which time I will simply go and lodge an official complaint. I really would rather we don't go there.. but the difference is substantial enough to make it worth the hassle.

Anonymous said...

There's a new iphone! Have you friggin heard of it!?!?!?

A Blessing in Tragedy said...

ABIT: "{Based on this and from the authority of my profession}
A. And that would be? scan your business card to back up your data. or dont bother. of course, the mounds of automatons here will bite."

Well, you need to be more like us. You see, rather than asking you to scan YOUR business card to back up your own claims, we will take your word for it - as written by you in your profile - that you are indeed, an a-hole.

(Sorry, ABIT, but you set yourself up there, right?)

No I didnt, I proved that you are a douche bag who, like EVERYONE on here likes to throw out claims without anything to back them up.

Last I checked STUDIES are followed by bibliographies, and preceded by the authors name AND profession/position.

You want me to take your word based on FAITH?

I guess you should take my words based on faith when I tell you that you're going to hell, the sky will be falling, and your mom's going to die of trauma caused by a blunt object to her head.

But I dont do I? Im more realistic.

Something you are obviously not.

Anonymous said...

DW

The one villa one family thing sounds gr8 for the real estate business. Leads one to imagine will they make it one person per villa in the future for (health & hygiene of course) Married coulples may be targetted. And in the not so distant future one person per tower/building!!!
-FR

Dubai Entrepreneur said...

ABIT,

Despite the fact that I think you act like an idiot most of the time.. and enjoy your writing style.. you do have a valid point.

DW, if you wanted this study to be taken more seriously, I would highly recommend you back it up by legitimate credentials (full disclosure of who you are). Remaining anonymous does take away quite a bit of legitimacy in what you say.

It's a balancing act. If you can't, then you can't.. but I don't think it's fair to demand it of ABIT while not being able to do the same.

ABIT, do you talk like that in real life or is it just how you write?

Anonymous said...

i bought a villa to live in on the long run. the property came with tenants. there are several tenancy conditions which are not repected by them. the tenant assumes no responsibility for damage to the property asthere is a sub-tenant inside, on top of this they have not been paying rent for 1 month. i already have a dubai courts public notary notification for them to vacate my property but they dont. dubai rent committee has left the case open until september not taking action and say they will not base their decision on my contract?!?!

Anonymous said...

pure pwnage...

aufkleber druck said...

Good Job! :)

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