Just over one year ago, I stopped over in the United Arab Emirates (UAE) on my way to France to attend the first ever Dawn Service at the Australian War Memorial at Villers-Brettoneaux.

I arranged to visit the UAE (Abu Dhabi & Dubai) because I had heard it was the boom area of the Middle East, and we felt there was the possibility of introducing a Management Rights model to the amazing number of apartment buildings that were being built there.

Having been in the property business for nearly 30 years, and having gone through enumerable booms and busts, my "bull-dust" antenna was soon working overtime when I looked at the UAE situation! This looked and felt like a speculative real estate bubble that might end in tears, so we decided to steer clear.

Speculative real estate investment is like a game of "Pass the Parcel". Buyer One buys a unit off the plan two years before commencement of construction; sells to Buyer Two at increased price; Buyer Two sells to Buyer Three at an additionally inflated price; if lucky, Buyer Three unloads to Buyer Four and also shows a profit --- but by now,

the building is approaching completion and Buyer Four has to come up with the actual cash to settle! In other words, Buyer Four has been caught holding the parcel when the music stops! There are currently some very hot and nasty parcels being juggled in Dubai!

Recently, we have heard a lot about real estate bubbles! The Middle East, the USA, Ireland, Spain --- all have suffered from this malady. Some "doomsayers" in Australia suggest we are also in a bubble and our prices will drop 30%. To which I say, "hooey!" The fundamentals in Oz are very different from the countries mentioned above.

But should the rampant speculation (and subsequent crash) that occurred in some parts of the world be of concern to management rights owners in Australia? Should it give us all the jitters? Should we all be battening down the hatches? Should we be rushing our properties to market before the sky falls in?

I don't think so, because people who buy into management rights are not speculators; they are investing in solid, almost recession-proof businesses (particularly permanent letting rights), and can expect to weather most economic storms. In fact, actions taken by the Reserve Bank, e.g. dramatic interest rate reductions, designed to cushion the economy from the fallout of those overseas excesses have made our businesses more viable, not less!

It is possible that some holiday complexes in out of the way places might feel the cold breath of lower occupancy, but overall even the holiday market is bearing up.

It is interesting to note that in the so-called "worst recession since the 1930's", the management rights industry is thriving. Enquiry rates from potential newcomers to the industry are up, and after the very quiet period in the second half of 2008, sales are once again buoyant. The future for management rights is looking good!

If you would like to comment on anything you have read in The RAAS Report, please write to PO Box 1325, Sunnybank Hills, Qld 4109 or send an email to mike@raas.com.au.

www.raasrights.com.au • www.raas.com.au