Buying Property in Abu Dhabi Six Months update

Finally something to see for our money!!!! Our apartment is located on the ninth floor.

Six months ago we posted an article citing top ten reasons to buy property in Abu Dhabi. We have decided to provide an update to let you all know how things are going. All the points we made then are still valid, but considering turbulent international financial markets, I felt a new post was required.

News Flash:

Well it's hardly news but the dollar has continued its steady trend downward against the euro. The UAE dirham is pegged to the dollar so any downturn in the dollar will affect the UAE/EUR rate. Since we began paying for our apartment in May 2006, the dirham has fallen by 33% against the euro. This means our property has cost us far less than we initially anticipated.

Obviously, were we to sell or rent out the apartment, the income or profit converted back to euro would suffer the adverse exchange rate. We are hoping to hold on to the apartment for a number of years and would expect either the dollar to begin some sort of a recovery, or failing this, the GCC ( Gulf Cooperation Council) or the UAE government may be forced to depeg from the dollar as inflation soars in the region.

Our experience so far has been in the most part positive. We purchased through First Gulf Bank and as such have some degree of additional security through the bank's reputation. However, problems still exist, and while we have received receipts and confirmation for all our payments and a purchase agreement, as yet no final contract is available. The reason we are being given is due to the new freehold law which has delayed the issue of contracts. While this would seem incredibly unusual in western property markets it's par for the course in the UAE. Again if it's high reward you are after (as we are) there will always be considerable risks associated.

The worst stories emerging from the Dubai market concern properties that have not been built, as rising construction costs make them unprofitable for the construction companies. In these situations investors were given back their money plus a modest return on investment (6%-8%), and while far from ideal this does give some degree of security on investment. The majority of people appear to have a positive experience of investing in Dubai and one would expect the same reaction from Abu Dhabi.

The demand for rental property in Abu Dhabi has increased at an alarming rate, so much so the government has had to introduce rental caps as the market struggles to cope with shortage of supply. Rental yield in 2007 exceeded 20% in some cases, and are expected to grow further in 2008.

Capital growth has steadily increased with a secondary market beginning to become more relevant.

For further information Arabian Business news has produced an excellent survey of property in the area.

March 2008

Evaluate your habitual spending patterns. A lot of our spending is a daily, often unnecessary habit and could be easily reduced.

If you buy a takeaway coffee everyday, why not invest in a coffee machine?Try taking your own lunch to work - if a shop bought lunch costs on average £7 (EUR10), by making lunch at home you could save around £25 (EUR35) a week!

This could buy you a nice meal out at the weekend or, if you're feeling really virtuous, you could have £1,250 (EUR1,750) in your savings by the end of the year.

Great Business Show

The link below is for the Sunday Business show which is on today fm every Sunday. The show comments on the latest news from the world of finance in an intelligient humourous manner. Dolmen stockbrokers also give some investment advice which is quite useful, although it must be remembered that their clients are some of Ireland's largest listed companies so their advice is not 100% impartial!

Enjoy the Sunday Business show.

Brits get hit on the Continent!

It wasn't until we reviewed our bank statement after a recent wedding in the UK that we realised just how weak the British Pound is against the Euro. Great for us living in Luxembourg with debts in the UK, but for any of the 5 million Britons planning to escape the never ending winter in Blighty they can expect a bit of a shock if they venture to Euroland this Easter.

One Euro will now cost 81p compared to just 70p this time last year. That means your holiday will be nearly 16% more expensive than in 2007, assuming Euro prices have stayed the same.

Don't be put off

To keep costs down, try and avoid paying any commission when buying your currency.

Lloyds TSB, the Post Office and Marks & Spencer are among the high street options that don't charge, but it's worth checking and comparing their exchange rates to make sure you get the best deal. You may find that the rates offered by 'Commission free' deals are so bad you might be better off paying the commission for a better rate!

Travelex promises to offer the best rate to those buying online or refund the difference, and there's no commission charged http://www.travelex.co.uk/uk/.

Consider buying online. Most online companies do not charge commission and will deliver to your home, your work, or you can collect your currency at the airport.

Buy high/Sell low

This is a catchy phrase that's useful when determining which of the prices quoted by an exchange dealer is the one you will get. The general rule is that you will get the worst option!

Take for instance the following rates that you might expect to be quoted when buying currency:

"We sell: GBPEUR 0.80"
"We buy: GBPEUR 0.75"

From your point of view however:

• If you are buying Euro you will have to buy at the highest price ie you'll pay 80p per Euro

• If you are selling Euro you will have to sell at the lowest price ie you'll get 75p per Euro

Thus, if you bought EUR 1,000 it would cost you GBP 800, and if you sold them straight back again you would only get GBP 750.

Commission

Commission may be charged in addition at a flat rate of a graded rate. This is worth considering, because if you are exchanging large sums of money a flat rate may be a better option.

Also, if you're travelling with a group, consider making one combined currency purchase to minimise the additional charges.

Come prepared

Don't leave buying your currency until you get to the airport, you won't get the best rate and you will pay commission. Not only that, but they may not have the amount (or even any) or the currency you want.

Mix and match

It's best to take a mixture of cash, debit and credit cards when going on holiday. Most cards add on 2.75% for use abroad and you may find yourself paying as much as £4.75 for every £100 withdrawn, so limit the number of times you take cash out and don't withdraw small amounts as flat rates may apply.

Cards are of course a smart option to limit the risk of losing cash - make sure you get travel insurance to soften the blow of this unpleasant situation.

Bon voyage

You just have to look at the headlines to know how fluid and unpredictable the exchange markets can be. There's nothing we can do about it, so I say pack your bags and get away from it all, just bear in mind the above tips to help keep costs down as much as possible.

Enjoy.........

Rules of work; How to get that pay rise

While not strictly a finance issue, many people often wonder why they are not getting their just rewards at work. The following points are taken from a book called ‘The Rules of Work’ by Richard Templar.

1. Walk the talk, get your work noticed.

2. Know that you're being judged at all times.

3. Set objectives.

4. If you can’t say anything nice, shut up.

5. Look after yourself, never lie, keep records.

6. Blend in, know the company culture.

7. Act one step ahead. Talk using the ‘we’ word and not the ‘I’ word.

8. Cultivate diplomacy.

9. Know the system and milk it.

10. Handle the opposition

February 2008

Check the interest rate you are paying on your mortgage. Be certain you are getting the lowest rate from your bank and if not shop around. Faced with increased competition many banks now have business continuity departments which aim to retain customers, often when faced with losing a customer they will offer a better rate. CHECK YOUR RATE!

Risk Averse?? Pigs or Parrots

Greetings Blogger,

At the moment we are just getting our house in order for a prosperous new year. This is the time of the year when accountants are faced with auditors with the inevitable increase in workload. This time every year I have a good think about my career and future and try and get things in perspective for the next 12 months.

Anyway enough serious talk today. I recently came across a great comment on an Irish website http://www.askaboutmoney.com/ which I highly recommend for impartial financial advice. While explaining about risk the poster had this to say about investment:

In 12 months time imagine your portfolio down 40K. Sick as a parrot I would say - out of 10 how many parrots?
On the other hand, and no more likely, you may be up 40K - Happy as a pig... Out of 10 how many pigs?
If more parrots than pigs then you are short term risk averse and better off investing your money in a high interest deposit account- these days the depositor is king - appreciate your power!!
If no parrots or pigs then you genuinely have a long term view - go for your choice of mixed investments.

Not only is this very funny but really highlights the point that investment decisions are not merely determined by current or even future market conditions but rather a whole range of issues.

January 2008

Transfer £40 (EUR 60) into a high interest rate savings account each month and you'll have enough money to head off on holiday next Christmas.£480 (EUR720) plus interest could mean you spend the next festive season skiing in Switzerland or sunbathing in the Seychelles......

Sole Traders - You're Not Alone

As the deadline draws near for filing self assessed tax returns in the UK, and only days after a family member secured her first order for her new business, I thought it might be useful to summarise the key requirements of a sole trader.

For many, the very thought of tax returns and record keeping can be daunting enough to put them off following their dreams, but it's important for people to realise that there are plenty of ways to get answers to your questions and that with a bit of organisation you can easily manage the financial aspects of your business.

Registration

You are required to inform HMR&C when you have become self-employed within 3 months of starting your new business. You will be asked to provide the details laid out in form CWF1 either over the phone (0845 9 15 45 15) or by post.

Filing Requirements

Once registered, you will be required to file an annual self-assessed tax return. The tax year runs from April to the following March ie. the current tax year runs from 01/04/2007-31/03/2008 (2007/08).

If you were registered before the end of the tax year, you have to file the return no later than the end of January following the tax year, in this case 31/01/2009. If however, you wish to simply submit your documentation and ask the revenue to do your calculation for you, the deadline is the end of September in this case 30/09/2008.

While this may sound like a long way off, I would strongly advise tackling this important step as soon as possible while events are still fresh in your mind and before the pile of invoices gets even bigger!

Don't forget, a late filing will result in a fine of GBP100.

National Insurance Contributions

As a self-employed person, you may be required to pay two different types of NIC:

(i) Class 2:

This is a fixed weekly amount that can be paid monthly or quarterly through a direct debit. The current amount is GBP2.20 and this will go up to GBP2.30 from April 2008.

NB - if you earn less than GBP4,635 in this tax year (GBP 4,825 in the next tax year), you are entitled to apply for a Small Earnings Exception (SEE). See form CF10. However, be mindful that any gaps in your contributions could reduce the pension amounts you are entitled to upon retirement - see blog entry "Bridging The Gap".

(ii) Class 4:

This is a variable that is determined by the amount of annual taxable profit you make.

• If you make less than GBP5,225 in this tax year (GBP5,435 in the next tax year), you are exempt from this tax.
• You must pay 8% on taxable profits between GBP5,225 - GBP34,840 in this tax year (between GBP 5,435 - GBP40,040 in the next tax year).

Example: if you make a taxable profit of GBP 20,000 this year, you will pay 8%*(20,000-5,225) = GBP1,182.

• Any taxable profits above GBP34,840 (GBP40,040) are taxed at 1% for class 4 contributions.

VAT

For VAT requirements see blog entry "VAT as easy as ABC"

Keeping Records

As a sole trader, you are now responsible for your tax returns and the basis upon which your tax liability is calculated.

To ensure you pay the correct amount of tax and don't risk paying fines, it is essential that you keep clear and well organised records of everything occurring in your business.

A good approach is to set up a file with the following sections, where you should file documents as you receive them in chronological order:

1. Correspondence and forms sent to/from HMR&C
2. Bank statements
3. Receipts for business expenses
4. Invoices received
5. Invoices issued
6. Business bills - electricity/telephone/heating etc

I would also advise setting up an excel spreadsheet with a separate worksheet for income and expenses, where you should input the details of each invoice and receipt. This will make filing your annual return a much less stressful experience.

Records should be kept up to 5 years after you have filed the related tax return, you never know when you might be asked to justify something you put in an old return.

Additional Support

For more information, take a look at the excellent guide provided by HMR&C - "Working for yourself - the guide" .

All that remains to be said is good luck with your new ventures and don't be afraid to ask for help...

Where has all my money gone?

We are now half way through what is widely regarded as the most depressing month of the year, January! Personally I find January a great time for rebirth, re-growth and renewal. To this end I have decided to take my own financial advice and keep a record of every cent I have spent since the start of the month. Now I agree this is hardly the most exciting way to spend those long, dark January nights when all you can think about is the hot water bottle and some comfort TV, but bear with me.

For the last number of years I have attempted to get good control and proper management of my finances. My motto has always been to try and make the money I work so hard to earn work harder for me. I have kept reasonable control on my monthly spending, but just keeping a record of everything I have spent since the start of the month has been a revelation. Two things really stand out:

1. You spend less: The simple process of recording everything you spend really makes you tighten your spending. It’s totally psychological but if you have to record everything you buy you tend to really consider all purchases. At the weekend I was about to buy yet another work shirt for EUR 55 and then I just asked myself, James you already have ten shirts for work why the hell do you need more! Having to write things down acts as a value check on your spending.

2. You identify your weaknesses: For the longer term this is probably more significant. Certain patterns emerge regarding your spending. For example I realized that I spend far more at the weekend than I thought. I have been kidding myself that a Saturday night out cost EUR50 when in actual fact I withdrew 50 at 9.30pm and another 50 at 1.30am!!!

Understanding where your money is going and where you can make real long term saving will greatly help improve your financial health in 2008.

So go ahead, start today, write down every single purchase for 1 month, I guarantee you at the end you will have saved money but more importantly will start to get a real handle on where your money is going. If it worked for me, it can work for you.

Interesting Quote!!

I picked up this quote from the Sunday Business Post Online, and while I agree with the sentiment, as an accountant I can hardly claim to be a sex guru!!!

‘‘Money management is like sex,” according to Gibbons Burke, a US technical analyst. ‘‘Everyone does it one way or another, but not many like to talk about it and some do it better than others. But there’s a big difference: sex sites on the web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find.”

Mr Burke clearly hasn't logged onto FinLowe Finance yet!!

Financial Makeover Part Two

I hope all our keen bloggers have completed their homework and now have a more realistic view of their finances.

Now we move onto the second step of the budgeting process. Allocating your income.

As we pointed out in the previous post, our philosophy is to treat personal finances the same way the professionals treat theirs. By saving and managing your money effectively over a twelve month period and by planning expenditure for the following twelve months, you can avoid credit card and other high interest debt and ensure that you can pay your bills on time and still afford that holiday in the sun.

Short term expenses: These are your regular monthly bills: mortgage/rent, phone, shopping, electricity, gym membership, car repayment, any loan repayment etc. These expenses will be paid monthly directly from your current account.

Medium term/long term expenses: These expenses, such as car insurance, house insurance, summer holiday, any planned home improvements, estimated doctor/ dentist visits, clothes, should be totalled for the entire year and divided by the number of months remaining in the year. This calculated amount should then be transferred from your current account into a “savings 1” account which you should set up through your bank.

By setting up a savings account where you have instant access to your funds, you will benefit from a higher interest rate on cash you will have transferred there during the year. As these bills fall due you can then pay them from this account.

Of course not all annual bills fall due in December, therefore you will need to plan the amount to be transferred based on when bills fall due i.e. should you require 1000 for your car insurance in May you would need to save 200 a month towards this.

Discretionary income and investment: The remaining amount should be transferred to a “savings 2” account. This account can be investment in pensions/fund/ property and should represent your long-term savings/retirement/investment plan.

It is very important that all short-term debt such as credit cards, personal loans, car loans be repaid BEFORE you begin investing. Remember the bank will always pay you less interest than it's charging you, that's why they make massive annual profits!!!

Starting this process as soon as possible will help you to get far greater control of your finances and hopefully create good financial habits that will ensure you continue in good financial health throughout 2008 and beyond.