Guest blog: Ben Crompton on buying cars vs buying property in the UAE
The UAE property market is one of the most exciting real estate markets to invest in the world. With the introduction of the brand new residency and company ownership laws in the UAE, it had, predictable become one of the most talked about regions for international investments, particularly in property. There is, however, still a large population of people who refrain from buying properties in the UAE as opposed to renting it. Ben Crompton, the renowned Managing Partner of the eponymous Crompton Partner real estate agency weighs in on the trend and compares the willingness to invest in a car with the hesitation to buying property in the UAE.
Buying a car vs buying property in the UAE
Lots of people own their own cars in the UAE but far fewer own their own houses. Undoubtedly, houses are more expensive than cars, so, apart from those who don’t have the funds for a down-payment on their own home, there are still plenty of people who have the deposit and could buy a house in the UAE, but don’t. So why are people still buying cars and not buying property in the UAE?
On the face of it, cars and houses occupy very similar places in our lives. They are both essential (a place to live more so than a car of course), they are both a very personal choice and they are both expensive assets. They are in fact, so expensive, that we have the option of either renting them or buying them. People only rent things that are either too expensive to buy or wouldn't need over an extended period of time, thereby providing no justification for their purchase.
Lots of people buy cars for several reasons. People like having their own car, they are pretty easy to finance and paying that finance is cheaper than renting one. If we are to use the same analogy and put buying property in the UAE into a similar context, paying the mortgage on your home is also a lot cheaper than renting it (by up to half if you take into account the repayment of the principal of the loan). It is not difficult to see why some people are hesitant about buying property in the UAE at the moment, as the market is still stabilising after the events of 2009.
I have always wondered why people buy cars knowing that when they sell them, it will definitely be for a loss - but at the same time, they cite the fact that it might devalue as a reason not to buy property in the UAE. Property, unlike cars, almost always comes back up.
There are several answers to my question of buying cars vs buying property. First, when you sell a property, it will probably be worth 20 times what your car is worth, so a 5% drop in the value of both would be a much bigger hit on the property sale. Second, it may be that we see property as only having value as an appreciating asset, and, that if it doesn’t go up in value we wonder what the point is in owning it. But, we know cars always go down in value, so we see buying them as a more saving on car rent than as an investment.
In reality, buying property in the UAE is both saving money on rent and investing in an asset. However, it can’t be denied that in the current market, if you buy property today, tomorrow it may be worth less. But, there is a way to not lose money on a property purchase - Only sell a property when it is worth more than what you bought it for. Sounds simple, doesn’t it? It is, and the trick is never to lose control of when you need to sell.
The truth is, it doesn’t matter what the value of the property is until you sell it and crystalise that profit or loss. If you control when you sell, you can get the price that is right for you, and in the meantime, your property investment will be working for you, reducing your rent.
A lot of people in the UAE get worried about losing control of when they sell as they may have to leave and go back to their home countries, if they lose their job for example. The reality is that if you do need to leave, in an emergency or otherwise, you don’t have to sell a property even if you have a mortgage on it. You can have your property managed by the bank or other property managers. The property manager can take care of the property for you and you can sell it whenever it suits you, preferably at the top of the market.
It really is that simple. If you need to leave, then the banks will manage it for as little as 4% of the annual rent. This would only reduce your yield by a fraction. You will keep making your mortgage payments and can exit your investment when it suits you. The only time you should lose money on a property purchase in the UAE is when you lose control of when you need to sell it. Property Management means that this never needs to happen!
