Investment is a forever trending topic and smart people have made millions by playing the game right. As we talk about people making millions, we cannot ignore the ones losing millions. Were they just unlucky or did they lack strategic approach? Successful people however have several theories, unfortunately what worked for one might fail for others. There are no set defined rules to get rich.
As more and more investors sense a market crisis in the world economy and lose their moolah, they have shifted focus on more safe and stable options without compromising on ROI. This is where Real Estate comes into the picture. Now, I know Real Estate does not make you rich overnight but it doesn’t make you poor in one night either and I’m sure that the majority of the experts will agree with me that Real Estate is the perfect balance between risk and returns.
Real Estate investment Types
There are several ways that one could slice and dice real estate types, but I prefer to group them into different categories at different levels. The first is the high level residential and commercial segregation. Many others add a third category called projects or off plan or primary at the first group level itself. But to me, it makes sense to add this as a category at the second level along with ready or secondary category. In the residential group you could have furthermore categorization like apartment, villa, etc. and in the commercial group you could add retail, office, warehouse, etc.
Let’s look at each type in detail and which type of investor do they suit.
Investing in ready units be it commercial or residential is for those seeking immediate returns in the form of rentals. One could also re-sell by buying at a low price and selling it at a high price, but such a scenario requires that the buyer holds on to his asset for a while for the prices to appreciate a little. In few other lucky cases some buyers are able to sense a distress sell by an owner and they grab such situations with all limbs. These types however have low capital appreciation situations and are suitable for those who are risk averse.
The simplest examples of commercial real estate are office spaces, retail stores, and warehouses. These are usually more expensive than residential units if you look at them from a per square feet basis but they typically generate higher returns than residential units. Commercial type has its pros and cons against residential type but for whatever reasons isn’t so popular with the Dubai people. Investing in offices & shopping centers could be more effective & profitable if done right. What you have to keep in mind is that commercial real estate involves re-registration of electricity and paying certain charges to the government.
Off-Plan has many names including primary and projects. This type can bring much more income than the secondary market. This is because the prices of the off-plan properties are much lower compared to ready units. Ergo, if you invest in real estate at the plan stage you can get the best or lowest price that project will sell for and as the project makes progress in its construction the price only keeps getting higher. I’ve seen the same project unit jump up in price within 6 months of project start and there will be ample cases which have done better.
The biggest risks with off-plan investments is the developer risk and project selection risk. If you pick the wrong developer or a wrong project of a good developer (even the best developers make poor choices in selecting some projects) then you are in eternal doom. The developer could go bankrupt or the project is sold at a very high price from the plan phase itself by creating a hype about it. The hype does not last long and the buyers are stuck with an overpriced product.
How do I Choose which type to invest in and when?
Investing in Real Estate requires a thorough knowledge of all types and the market you are investing in. The great thing about Dubai is that the government has taken impressive steps to secure the investment of every person, especially in real estate. If you follow the simple economic principle of supply and demand then Dubai will have a shortage of supply since the growth rate of population in Dubai is higher than rate at which ready properties are entering the market for occupancy.
Making the right investment choice to maximize your returns will require expertise in real estate sector and knowledge of the past, current and future market trends. A good property investment advisor can make this journey for you both peaceful and profitable.