In frenzied real estate markets such as Dubai, we usually
find a liberal promise of guaranty of future rental returns, given by the developers.
As a business tactics it can be described variably as sweetener, inducement or
well-intended undertaking. Whatever form it takes, this is broadly treated as
buyer incentive.
Depending on the prevailing market sentiment and
the circumstances under which developer and buyer are operating, Guaranty
Rental Return (GRR) could be a viable option. But if it is made with ulterior
motive on the part of developer then this business tactics must be treated with
a pinch of salt.
Most genuine developers structure real estate deals
for outright purchase or in limited cases rent-to-own agreement with a clause
regarding an undertaking by the developer that, in case the owner/tenant wish
to rent out, he would get a new tenant who can pay a specified rent in quantum of
money.
There are few variants practised by Dubai Real
estate developers. One popular method is for the developer to offer stated
figure, say 10% as the return on investment where the property is bought as a
cash-deal. Alternatively, this works out as ten years purchase price. However,
this buyer incentive does not take into account taxation and DLD levy or other
charges.
Damac Properties in Dubai adopts this business
tactics to off-load unsold stock in the finished inventory book. Here the GRR
can extend up to several years, the duration being a negotiable point. As the
selling price is quoted discount to the market, the buyer has the opportunity
of trading-off the subject property for another unit with the company or others
when general price level of real estate upticks.
In the case of off-plan properties there is little
bit of problem. Off-plan can be real estate where construction is yet to begin
or basic foundation is done and utilities are contracted for. The latter
attracts more buyers. In this case, in addition to GRR developers often come
out with an affordable cost plan that excludes fees for completion, waiver of
DLD charges and waiver of service charge for the first year of occupation.
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business
Strategist
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