Why Buy Off-Plan? "Off-Plan" property means property that has not yet been constructed , completed and handed over . Often the Development is even still at the plans stage , hence the term "Off-Plan" .
Developers offer off-plan property to buyers / investors as a way of securing the finance needed to cover the costs of each phase of development as the project progresses toward completion.
Investors buy off-plan property in order to get access to prime units of their choice at advantageous prices versus market conditions , to benefit from extended payment terms , and with the expectation of serious capital appreciation.
The PROS AND CONS of OFF-PLAN PROPERTY INVESTMENT : ADVICE FOR INVESTORS :
THERE ARE MANY ADVANTAGES TO BUYING OFF-PLAN INCLUDING:
1. LESS EXPENSIVE: MORE AFFORDABLE OPTION
NORMALLY OFF-PLAN PROPERTY IS SIGNIFICANTLY LESS EXPENSIVE THAN READY PROPERTY BECAUSE DEVELOPERS NEED TO PROVIDE AN INCENTIVE FOR BUYERS AND THEY APPRECIATE THAT THERE IS MORE RISK INVOLVED THAN FOR READY PROPERTY, AND BUYERS CANNOT EITHER OBTAIN IMMEDIATE RETURNS NOR ENJOY PERSONAL USE OF THE PROPERTY . PRICES CAN BE UP TO 30% CHEAPER THAN EQUIVALENT PROPERTIES .
IDEAL FOR FIRST TIME BUYERS.
2. HIGHER CAPITAL APPRECIATION
IT FOLLOWS THEREFORE THAT INVESTORS IN OFF-PLAN PROPERTY WILL ENJOY HIGHER IMMEDIATE CAPITAL APPRECIATION ON COMPLETION AND HANDOVER OF THEIR PROPERTY . USUALLY IT IS NOT POSSIBLE TO RESELL OFF-PLAN PROPERTY BEFORE COMPLETION , BUT IN SOME CASES THIS IS POSSIBLE .
CAPITAL APPRECIATION FOR OFF-PLAN PROPERTIES IN THE UAE ONCE COMPLETED IS CONSISTENTLY 20% OR MORE , BECAUSE IT IS ONE OF THE FASTEST GRWOING ECONOMIES IN THE WORLD.
CAPITAL GAINS IN DUBAI OUTSTRIP THOSE IN ANY OTHER MAJOR WORLD CITY SUCH AS LONDON , NEW YORK , HONG KONG ETC.
3. NO TAXES / HIGH YIELDS
NO CAPITAL GAINS TAXES , NOR NO RENTAL INCOME TAXES ARE PAYABLE IN DUBAI.
RENTAL YIELDS IN DUBAI ARE AMONG THE HIGHEST IN THE WORLD
AT 7 - 8 % GROSS PER ANNUM.
4. EXTENDED PAYMENT TERMS
OFF-PLAN PROPERTY DEVELOPERS ALWAYS OFFER EXTENDED PAYMENT PLANS , WITH A DEPOSIT OF TYPICALLY 10 % TO SECURE THE PROPERTY , FOLLOWED BY EQUALLY SPREAD INSTALLMENT PAYMENTS THROUGH TO COMPLETION TO PAY OFF THE BALANCE. SOME DEVELOPERS OFFER "BACK-WEIGHTED" PAYMENT PLANS EXTENDING SEVERAL YEARS AFTER COMPLETION , ALLOWING INVESTORS TO OBTAIN RENTAL INCOME WHILE THEY ARE PAYING OFF THE BALANCE OWED.
DUBAI LAND DEPT REGISTRATION FEES, OQOOD AND ADMIN FEES NOW ARE PAYABLE AT TIME OF BOOKING ( THIS IS FOR THE INVESTOR'S PROTECTION )
5. WIDER AVAILABILITY / CHOICE OF UNITS
MUCH WIDER AVAILABILITY OF UNITS TO CHOOSE FROM AT THE EARLY STAGES OF DEVELOPMENT COMPARED TO BUYING WHEN BUILDING IS COMPLETED OR BUYING FROM THE SECONADRY MARKET
BUYING OFF-PLAN PROPERTY ALLOWS MORE TIME TO PLAN AND ORGANISE FURNISHINGS , FITTINGS ETC AND ALL THE OTHER ASPECTS OF PROPERTY OWNERSHIP , WHETHER YOU ARE AN INVESTOR LOOKING TO RENT OUT THE PROPERTY OR A HOMEMAKER LOOKING TO MOVE IN AND MAKE A NEW LIFE.
7. LAWS WHICH PROTECT BUYERS' RIGHTS
DUBAI HAS IMPLEMENTED NEW & REVISED LAWS THROUGH THE REAL ESTATE REGULATORY AGENCY ( RERA ) AS WELL AS MORTGAGE CAPS AS A MEASURE TO PROTECT BUYERS AGAINST FRAUD AND AVOID AN OVERHEATED PROPERTY MARKET.
ESCROW ACCOUNTS ENSURE THAT MONIES ARE ONLY RELEASED TO DEVELOPERS WHEN VARIOUS STAGES OF DEVELOPMENT HAVE BEEN SUCCESSFULLY COMPLETED
THERE ARE ALSO CERTAIN ASPECTS TO BE WARY ABOUT WHEN BUYING OFF-PLAN :
1. HIGHER RISK
BUYING OFF-PLAN PROPERTY IS RISKIER THAN BUYING READY PROPERTY . THERE ARE RISKS OF DELAYS IN CONSTRUCTION AND COMPLETION WHICH MAY BE CAUSED BY PROBLEMS WITH PERMITS FINANCING ETC.
HISTORICALLY THERE HAVE BEEN CASES WHERE OFF-PLAN DEVELOPMENTS NEVER GOT COMPLETED AS DEVELOPERS WENT BANKRUPT . NEW LEGISLATION HAS REDUCED THE RISK IN THIS AREA NOW WITH DEVELOPERS BEING OBLIGATED TO PLACE INVESTOR DEPOSITS IN ESCROW ACCOUNTS ETC.
THERE IS CLEARLY MORE UNCERTAINTY INVOLVED IN BUYING OFF-PLAN. FUTURE BUILDING CLOSEBY MAY OBSCURE ANTICIPATED VIEWS . QUALITY OF THE BUILD MAY NOT MEET EXPECTATIONS . THE PROPERTY MARKET MAY DETERIORATE , MARKET PRICES MAY DROP DURING CONSTRUCTION. ONGOING MANAGEMENT AND SERVICE COSTS ARE NOT DEFINED AT TIME OF PURCHASE AND MAY BE HIGHER THAN ANTICIPATED.
BE AWARE OF CURRENT MARKET CONDITIONS SO YOU CAN EVALUATE THE PRICE PER SQ FT OF THE OFF-PLAN PROPERTY.
THE QUALITY OF THE INTERIOR FINISHINGS AND THE MATERIALS USED MAY NOT MEET SPECIFICATIONS AND IT MAY BE DIFFICULT TO DISPUTE THIS WITH THE DEVELOPER .
MITIGATE YOUR RISKS
1. CHECK OUT THE DEVELOPER
CHECK THE DEVELOPER'S TRACK RECORD . WHAT OTHER PROJECTS HAVE THEY DELIVERED , WERE THESE ON TIME , ON BUDGET, HOW WAS THE BUILD QUALITY ? DO YOUR RESEARCH .
DOES THE DEVELOPER HAVE A SHOWHOME TO DEMONSTATE THE QUALITY OF FINISH SPECIFICATIONS ?
IS THE DEVELOPER'S HEAD OFFICE IN THE UAE ? IF NOT IT MAY BE A RISKIER INVESTMENT.
ENSURE THE REPUTATION AND TRACK RECORD OF THE DEVELOPER IS SOLID AND TRANSPARENT FOR PAST AND CURRENT PROJECTS. ENSURE THE LOCATION OF THE PROJECT WILL BE WELL SUPPORTED BY INFRASTRUCTURE ( ROADS , TRANSPORT , RETAIL OUTLETS , SCHOOLS ETC ) AND IS PART OF A MASTER COMMUNITY PLAN.
2. CHECK WITH "RERA"( REAL ESTATE REGULATORY AUTHORITY) ENSURE THAT THE DEVELOPER , PROJECT AND ESCROW ACCOUNT ARE REGISTERED WITH RERA VIA THE OQOOD REGISTRATION SYSTEM. ; HAS THE DEVELOPER OBTAINED ALL NECESSARY APPROVALS ? HAS THE DEVELOPER GOT THE TITLE TO THE LAND WITHOUT ENCUMBRANCES ?
3. CHECK OUT THE CONTRACT
ENSURE THAT THE CONTRACT WILL PROVIDE THE NECESSARY ASSURANCES TO MITIGATE YOUR RISKS IN TERMS OF PENALTIES FOR LATENESS OR NON-DELIVERY , FOR QUALITY OF FINISHES , FOR CHANGES TO SIZE AND LAYOUT OF YOUR PROPERTY ETC.
ENSURE YOU UNDERSTAND THE EXACT TIMEFRAME TO COMPLETION AND PROCEDURE IN EVENT OF DELAYS.
ENSURE YOU UNDERSTAND AND AGREE THE SNAGGING PROCESS AND BUILDERS' GUARANTEES.
4. CHECK OUT THE SITE
CHECK THE SITE LOCATION AND NEIGHBOURHOOD .
SPEAK TO LOCAL PEOPLE AND BUSINESS PEOPLE TO ENSURE NO LOCAL ISSUES AND NO FUTURE PLANNED BUILDING PROJECTS WHICH MAY NEGATIVELY IMPACT YOUR INVESTMENT.
5. SEEK INDEPENDENT ADVICE
TAKE ADVICE FROM SEVERAL REAL ESTATE AGENTS AND OTHER KNOWLEDGEABLE PROFESSIONALS.
6. BUY THROUGH AN AGENT
CONSIDER MAKING THE PURCHASE THRU A REPUTABLE REAL ESTATE AGENT RATHER THAN DIRECT FROM THE DEVELOPER . IT WILL NOT COST MORE AS THE AGENT WILL NOT CHARGE COMMISSION, AND YOU WILL HAVE A PROFESSIONAL TO REPRESENT YOUR INTERESTS VERSUS THE DEVELOPER WITH ANY SUBSEQUENT PROBLEMS THAT MAY ENSUE.
Confidence has never been stronger in the Off Plan market.
RERA Chief Executive Officer, Marwan bin Ghalita claims that Dubai's Developers often give a 100% construction guarantee , the ultimate guarantee of completion.
He revealed that Dh29 billion are being held escrow accounts which reflects the confidence of developers and investors’ in the market.
It is compulsory for every developer in Dubai to open an escrow account under Law No. (8) of 2007 concerning escrow accounts for real estate development. All the payment received from investors has to be deposited in these Escrow Accounts . Money is released by RERA after it assesses the project’s construction having met the required percentage.
The RERA Chief said they were no longer afraid of projects being stalled, as developers were launching projects to build rather than merely sell.
“Developers want to complete their projects with many of them wanting to start selling only after the project nears completion. This shows that the industry has matured over the time.”
Among the guarantees sought is 100% of the land cost to be paid by the developer, a minimum of 20% of the construction cost to be deposited with Rera with contractors having to pay another 10% of the construction cost.
Ghalita said investors had become very smart and were asking questions on materials used, sustainability, finishes and service charges, which was not previously the case.
Facts and Figures
The figures for off plan from October 2016 - today, show that off plan is really popular in the Dubai Market. Investors and end users can see that Dubai is a mature market and in the coming few years, with the Ruler's future plans for the Emirate, the market will continue to stablise and grow.
October 2016 - April 2017 : 12,179 Oqood Registered Properties
Oqood is the pre-registration system applied for at the time of purchase of an off plan property
In the same period, there were 8,652 transferred sales on the secondary market (resale). This means there were 33% more transactions in off plan than in ready properties.
We saw a huge difference in the previous year, from October 2015 till April 2016 the figures were the other way around. 6,653 off plan sales against 9,262 resales transactions. This is a 32% difference with the secondary (resale) market being more popular.
As you can see from the above, confidence is really growing in the future of Dubai Property Market.
If you are interested in finding out more about the off plan market, please just CONTACT US.