Jun 21 2020   | Source: Gulf News 

A reclassification from hotel apartments to residential does make sense

The reclassification of hotel apartments to residential may not necessarily be a terrible idea. 


Given the rise of vacation homes as an asset class, residential apartments have gained considerable momentum. Thus, a developer's good faith move to reclassify will favor the buyer as returns on “holiday homes” returns are higher than on individual-owned hotel apartments.  


If a developer is handing over a project with finishing as good as hotel apartments, investors can easily save on upgrades or renovation costs required for holiday homes. In general, it will cost investors between 10-15 per cent of the property’s purchase price to upgrade it for use as a holiday home. 


The operational cost for hotel apartments is between 35-45 per cent, while the same on vacation homes is between 20-25 per cent. 


In general, a higher operational charge or leverage results in lower profits, and the owner ends up spending more on maintenance instead of generating more income. 


Residential apartments ensure a steady RoI (return on investment) variable through different rental seasons. And investors could later on enjoy some good capital growth when at the time of selling.  


Let's take them on their word

Developers are also trying to deliver what is in the interest of the buyers, especially those with a successful track record on handovers. We need brokers who will work towards generating solutions in investors' interest rather than have them make decisions to accept a major loss on RoI. It should not be used as a basis for making a decision.


Talking of wilful project delays by developers when escrow accounts are a reality is misleading investors and could hurt future investments. Dubai Land Department has raised the trust factor through the escrow system. Why would developers then delay projects intentionally?


A developer usually expects a profit of up to 30 per cent from a project upon completion, and over the years we have seen completion payments are between 20-30 per cent. We should focus on the positives of the real estate sector to keep investors and developers motivated and support more developments.


The Dubai Land Department and Real Estate Regulatory Authority have done a great job in the last 10 years to instil confidence. This system needs more appreciation, not further confusion.


- Hamid Shabir Khawaja is Sales Director at Foot Print Real Estate.


Source: Gulf News

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