Immobiliare: passività o attività?

This made me think once again:

Is buying a real estate property a liability or an asset?

Coming from an Italian working-class family, I was taught by my parents that you only buy what you can afford and have enough money to buy.

I know, very old school but has so far served me well.

If that was the case however, most of us will never be able to afford a property and the answer would be very straight forward.

Purchasing a property is a "liability" and it should not be done.

When in actuality, purchasing a property must be considered an asset when done, taking the right precautions and advices.

Let's analyze the different situations that make a property purchase an asset:

• Cash Buyer

If the cash you have is sitting in the bank or at "home", well, investing in a property is definitely a better use of your money.

Banks these days are paying a profit so low that keeping it there makes no sense.

Moreover, as witnessed lately, there is a general consensus that accessing your own money deposited in the bank is becoming more difficult than ever.

Therefore:

1.) By using your cash to purchase a ready property, it will create a higher return than any money left in any bank of the world.

2.) By purchasing a property under construction or off-plan - although unable to produce any returns during the development phase, will guarantee a return higher than a bank despite the initial temporary loss. Moreover, you will be able to purchase something at today's price but with tomorrow's value, which, by just considering the current inflation will provide higher returns than expected. Plus, a property with a higher value once ready.

In-fact, when we consider point 1, purchasing a ready property, despite the immediate returns, will deliver a property that is already at the maximum market value for the moment.

Instead, by purchasing a property under construction, point 2, you will be able to ensure yourself a property of higher market value once ready, more modern and with increased returns as result.

Someone might comment that buying off-plan could be risky because the developer might run away.

However, this is not the case for Dubai.

In-fact, the money paid are deposited into an escrow account monitored by the government and released to the developer only upon achieving expected milestones.

• Mortgage buyer

Purchasing a property with a mortgage implies that the investor is lacking the funds necessary to buy the property cash.

However, it might be the case that the investor does not want to tie up his/her cash to just one thing and prefers to share the funds available in different investments.

Therefore, deciding to enlarge their portfolio.

In both cases the purchase of a property must be considered a liability, although there are exceptions that can transform this investment into an asset from the very beginning.

1.) The Equated Monthly Installments (EMI) are lower than any rent that should be paid for renting the same property type from someone else.

2.) The returns received from the rental are higher than the EMI due to the bank. Hence, creating a surplus of income VS the expenses.

3.) The investor has enough money to pay the initial downpayment request by the bank. Therefore, in the case of Dubai, 20% minimum for residents and 50% minimum for non-residents.

However, few considerations must be taken for the above points:

• Mortgages are only available for ready properties here in Dubai.

• Dubai's banks are very strict with the requirements needed to access mortgages. Therefore, plenty of documentation is required and rarely, especially for non-residents, the full 50% is granted.

Therefore, buying with a mortgage is convenient when:

• Taking the right precaution and considering point 1 and 2 above.

• The investor has the down-payment available in cash to pay the initial deposit without the need of accessing a loan. This is possible as long they have the capability to pay for both down-payment and mortgage in addition to a completion of a proper calculation of their monthly expenses.

• If the investors opt for a ready property or if the property is under construction, they must have an income that allows them to cover their installments due to the developers and cover the rest of their expenses until the property is ready.

Conclusion:

• Purchasing a property, whether cash or with a mortgage, must be considered an investment towards the creation of an asset.

• Properties when re-sold will generate an influx of cash that even in the worst situation will create a zero-sum game.

• Purchasing a property under construction is a better and still very safe investment here in Dubai.

• For those who do not have enough cash and do not have the possibility to access a mortgage, if they have a steady income, we can find alternative solutions.

In-fact, we can find a developer that provides a payment plan that extends after the handover of the property.

This is between 2 to 6 years, and so, allows investors to use the property and pay the remaining balance to the developer directly without interest. Or alternatively, to rent the unit, receive a steady income and pay the installments due to the developer without any interest.

1.) You need to choose the right property depending on investors' objectives, final goal, unique necessity and financial situation. Therefore, my famous reply to the question of what the best investment is: "it depends".

2.) You need an honest and reliable realtor who can provide the right guidance and advises for all of the above points. Someone who is interested in your wealth creation rather than just the mere commissions.

Contact us, we are here to assist you.

Choose well, choose Just Bespoke.

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