UAE Property Reality Check: Hype vs True Value

Tim Elliott (0:00)

This is the Morning Drive, Dubai, and the wider UAE property market continues to smash records. But whether you are eyeing an off-plan apartment or a shiny new launch, or you're sitting on a home you bought a few years ago, the rules of real estate are constantly evolving. So how do you separate long-term value from short-term hype? And what do you actually need to know before you put your money on the line? Now, last week, we were asking a question. You bought Dubai property at the peak of the cycle. Now what? And the whole conversation was really about squeezing the absolute maximum return, I suppose, out of your investment. So we covered a lot of ground.

I had loads of questions left, and Ajay Menon has kindly returned to the studio to answer some of those questions. It's good to see you.

Ajay Menon (0:52)

Good to see you, Tim.

Tim Elliott (0:54)

So, no real kind of format today. It's just I had loads of things that were in my head. I suppose it's the answers, the things you need to know if you've bought or if you're considering buying property here in the UAE. So, ready?

Ajay Menon (1:12)

Yep.

Tim Elliott (1:13)

Okay. On your marks, get set, go.

I want to start with off-plan developments. Okay, we see launch projects selling out in hours based on expressions of interest, EOIs as we know them. How much of that is genuine user demand, and how much of that is speculative kind of hype?

Ajay Menon (1:31)

Goodness, you caught me there. I mean, you have no way to know, but I can tell you from my experience.

Tim Elliott (1:37)

It's a feeling, isn't it?

Ajay Menon (1:38)

It's a feeling. There are some projects within five to 10 minutes of reading about the project, you get to know that there is going to be genuine demand.

And it comes from the experience of an investor or being a consultant. But majority of the so-called hype projects are just hype. You don't even need an expression of interest.

Tim Elliott (1:58)

Really?

Ajay Menon (1:59)

Yeah. An expression of interest is only going to help the developer, not the investor.

Tim Elliott (2:04)

Well, exactly. So you know if you know. It's one of those situations, isn't it? Okay.

Off-plan property, I think, needs, you need trust, don't you, for off-plans to work. So how do structural safeguards like DLLD, escrow accounts, occlude registrations, protect buyers in the early stages?

Ajay Menon (2:26)

Yes. So this is very important. Before 2014, we never had any of these regulations. So once the escrow came into the picture, because somebody was actually asking me yesterday, what about all those cancelled projects in DIP and those kinds of things? Those happened during the financial crisis. Yes, the market was not regulated. People ran away. The developers ran away. The projects remained cancelled. Nobody got any money. So that's a very bad thing. But Dubai always evolves. And Dubai created a very strong DLT department and the RERA regulations and also escrow. So what exactly is escrow? So the idea is that any developer, if they want to launch a project, they have to own the land 100% and they have to put at least 20 to 30% of the project cost into a joint account with the RERA, right, DLT. And what happens is like every... And then they can ask people or investors to put in the money, to collect the down payment and the installments going forward.

And what normally happens is like at 10% of construction phase, these people, they inform the DLT that we've reached 10%.

So the DLT actually sends a person to the site and physically inspects and say, oh yes, they've done 10%. And then they release only 10% of that money to the developer's own account. And the developer is supposed to use this money for that project and not for any of their other projects.

So that's the care that the government actually takes to protect your investment.

Tim Elliott (4:03)

That's right. So that is the protection outlined. All right. So for someone weighing off plan against secondary or ready properties at the moment, how should they balance flexible payment plans against immediate rental yield?

Ajay Menon (4:21)

It's not just immediate rental. Yes, you get immediate.

But I'll give you one more aspect, one more risk of off plan. See, off plan, yes, you get very flexible terms. You get the latest of the latest, the new codes, whatever is being built, a lot more amenities. There's a lot of advantages for off plan, but it also comes with an execution risk. It's not whether your project will be completed or not. You will. Most of the projects will be, unless you're going for some new random developer. But even if they fail, the government will make sure that it is given an auction, some other developer takes it over, and it does it. But the biggest risk is the delay risk.