Gulf News 5 June 2010
06 June 2010
Gulf News: "Investing in UAE Commercial Property"
Q. If I want to invest in commercial property in Dubai, what are the steps I have to take? Also, if I cannot manage the property myself after purchase, are there firms in Dubai that manage such properties?
The first step before making any investment is to do your homework thoroughly and to understand the pros and cons of that particular investment. I assume you have already done this and have good, sound reasons for choosing commercial property as an investment. If you have the funds readily available to you, with no need to leverage, buying real estate in a down cycle at a good price and being prepared to hold it for five to seven years is potentially a good start.
Apart from capital growth, you will be looking for an income from letting the property to a tenant. This will provide you with a return and will cover your liability for service and maintenance charges. Dubai has no shortage of commercial space and it is apparent that supply is set to surge over the next few years. This will make for a challenging environment and is relevant as it may affect your ability to secure or retain a tenant for your office space at a reasonable rent. Finding a tenant in advance, agreeing a medium terms lease and fixing the rent for the term are all ways to minimise risk. In terms of protecting and managing your investment and the legal relationship with your tenant, a professionally drafted lease is essential.
An issue that is often overlooked at the pre-planning stage is how to hold title to the property. Will you buy as an individual or establish a company for the purpose? There are a number of relevant issues to determine when considering this, such as your own personal or family circumstances and, in the event of your death, your intentions so far as bequeathing the property and other assets. By using a special purpose vehicle you can avoid probate and ensure a seamless transition to your chosen beneficiaries. Also, where a number of investors are contributing collectively to the purchase price of real estate, it is essential to establish a suitable vehicle.
In terms of actual procedure, buying commercial property differs little from buying residential property. You should be buying completed or about to be handed over property either direct from a developer or in the secondary market. Title issues are always of paramount concern, so ensure that you understand the position regarding registration of title and ideally have a lawyer check all the paperwork.
It is also important that you understand your legal obligations, for example, in terms of the fit out and maintenance of the commercial space. For property handed over on a core and shell basis there are rules about how the space must be fitted out, and time deadlines to observe. Penalties can be imposed for breaching these requirements and deadlines.
In terms of managing the property, you can assign this task to a professional firm of property consultants or brokers if you have neither the appetite, or the time, to deal with this. However, these services come at a price and the fee is calculated as a percentage of rent for a basic service or, for a more bespoke service, on an individual basis. Finally, an alternative to buying real estate direct is to invest in authorised and regulated real estate funds. An independent financial advisor can assist you in investing in a portfolio of properties in different sectors and locations. Generally speaking, this is less risky than concentrating all your capital in one building or location.
Mark Nierada, Solicitor and Senior Estate Planning Consultant with Nexus Insurance Brokers LLC, www.nexusadvice.com