Lots of residents own their cars in the UAE but far fewer own their houses. Undoubtedly, houses are more expensive than cars so I will not address my thoughts to the people who simply cannot afford a down payment on their own home, but more to those who have the deposit, own a car but do not own their house.
On the face of it cars and houses occupy very similar places in our lives. They are both essential (a place to live more 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 very expensive or that they will not need for long enough for it to be worth owing them.
People choose to own their cars for a variety of reasons: they like having their own car; they are pretty easy to finance and paying that finance is cheaper than renting a motor. 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) but many are not buying at the moment because the market is still falling.
I have always wondered why people buy cars when they know that when they sell it will definitely be for a loss. Yet they don’t buy property because they think it might go down in value. Property, unlike cars, almost always comes back up (believe it or not history shows we will probably see 2008 prices again eventually).
For me there are several reasons for this, your property is probably worth 20 times what your car is worth, so a 5 per cent drop in value of both would be a much bigger hit on the property. Another reason is that maybe we see property as only having value as an appreciating asset. If the value does not go up, what is the point of having it? We know cars always go down in value, so we see buying them more as a saving on car rent rather than as an investment.
In reality, buying property is both saving money on rent and investing in an asset. However, it cannot be denied that in the current market if you buy property, tomorrow it will be worth less. But, there is a way to never lose money on a property purchase. Just make sure you only sell when your property 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 part with it, you can get the price that is right for you, and in the meantime your property investment will be working for you by reducing your living costs.
Many get worried in the UAE about not having a choice over when they sell, as they may have to leave and go back to their home country fast (if they lose their job for example). If you do need to leave, in an emergency or otherwise, you do not have to sell your 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 apartment or villa for you and you can sell it whenever suits you – preferably at the top of the market.
It really is that simple. Banks will manage the letting of your property for as little as 4 per cent of the annual rent (this would only reduce your yield by a fraction). You will keep making your mortgage payments and exit your investment when it suits you.
Ben Crompton is the managing director of Crompton Partners Estate Agents