Gulf News January 3, 2010
03 January 2010
Gulf News: "Calculating Home Equity Productively"
Q. I am planning to sell off my Jumeirah Beach Residence flat. How do I calculate the current equity – perhaps in the negative – and how do I go about doing it by myself?
The real estate sector in the UAE has undergone much change in the past year, with reports that prices have fallen by up to 50 percent in some parts of Dubai. In this climate there is much to consider when deciding to sell your property – selling now may seem like the quickest and easiest way to generate some urgently needed cash in the short-term, but it may not be the best solution to your financial woes in the long-run.
Getting an accurate valuation of your property is the first thing to do, so you can ascertain how much you can expect from a sale. The best way to do this is to ask three independent estate agents to view your apartment, value it, and provide you with an indication of what you can expect to get for a sale in today’s market.
Most estate agents offer this service for free, however you will find that some estate agents value properties higher than others and you may end up with three widely varying quotes. However, each estate agent will look at the size of the property, the quality of the finishing, the number and size of the rooms, the wear and tear, the local amenities, plus road access and parking. It is good to remember that the golden rule for the value of a property is ‘location, location, location’, and this will certainly impact the final valuation.
From the three valuations you can work out the average amount you can expect from the sale of your apartment and then calculate your equity. This is done by subtracting the price you paid for the property from the amount you hope to receive from the sale of it. This is your equity less of course any monies that you have borrowed, for example, on a mortgage to purchase the property.
Your mortgage lender will be able to provide you with an up-to-date figure for how much of the loan you have repaid, which will contribute to the total equity you have in the property, along with any deposit you put down on the original purchase. You will also need to take into account the costs involved, such as legal fees, when you purchased the property and when you sell it.
As long as the net sale price is higher than the purchase price you will still be in positive equity. If the amount of money you owe on the property is higher than the value of the property then this amount is known as “negative equity”.
However, selling your property may take time and should you need the cash generated from the sale of your property urgently it may be advisable to look at other ways of raising cash. An independent financial advisor will be able to help you to consider ways to do this. Instead of selling your property at a time when the real estate market has just experienced a significant downturn, you could also consider renting out your property.
It is still the practice in the UAE for landlords to ask for three, six, and even twelve months rent in advance, which would give you the equivalent of a cash advance. But, you must budget to ensure the rent covers your monthly mortgage and the cost of maintaining the apartment, before using any of the extra money to pay off debts or to make other investments.
By Gurnos Stonuary, Business Services Director at Nexus.