All you need to know about buying an off-plan property in the UAE ""

All you need to know about buying an off-plan property in the UAE

If you are considering buying a property in the UAE, you will find many off-plan properties. You'll also see beautiful villas at tempting prices with affordable payment plans, but there are things you should know before committing to any off-plan property in the UAE.

What is an off-plan property?

An off-plan property is still under construction, and the developers promise to complete and deliver the property at a specific date. This type of property allows buyers to pay a certain percentage of the buying price and then spread the remaining payments throughout the construction process as agreed between the developers and buyers.

What are the benefits of off-plan property in Dubai?

  • Flexible payment plans and lower prices

    Buying an off-plan property is usually cheaper, and developers offer attractive payment plans. Developers may also offer discounts on off-plan properties, from 10% - 30% of the total price. Some developers also have payment plans that allow buyers to pay 50% of the price during construction and 50% at completion.

    The flexible payment plans and reduced properties make off-plan properties significantly more affordable than ready properties. The discounts also make off-plan properties a good investment option because the unit's value usually increases close to completion. This means you can leverage the deals, buying at a lower price and selling close to completion at a higher price.

  • High capital gains

    The recent UAE real estate trends show that this sector remains strong, indicating that the UAE is an excellent location for property investment. This is mostly the case with off-plan properties. For example, if you buy an off-plan property in an underdeveloped area with a promising future of developing into an attractive community, the property's value may significantly increase.

  • High rental yield

    The UAE has a high rental yield, and there is a high demand for housing due to the number of expats entering the Emirates. You can expect to make a high income from any property investment, whether you buy off-plan or ready properties.

  • Property regulations in Dubai

    Many people who want to buy an off-plan property are concerned about fraud or delay. However, the Dubai Land Department (DLD) has implemented stringent regulations to protect those buying off-plan properties. These regulations safeguard against cancellations, fraud and delays.

    The Dubai Real Estate Regulatory Agency (RERE), a subsidiary of DLD, also oversees the implementation of these regulations. RERA also enforces penalties on developers who do not meet the requirements of the contracts.

    The DLD closely monitors the progress of projects, ensuring they adhere to approved milestones and schedules. Buyers can also track the progress of a project through the official DLD website under the Project Tracking service. This is important as the payment schedule depends on the project's progress.

    If the DLD hasn't confirmed that a project is at a specific completion percentage as stated in the payment schedule, the buyer isn't obligated to pay at that point. This protects the buyer from off-plan project delays.

  • Many off-plan projects

    Several new-plan developments are ongoing, so you have several options regarding locations and developers, from Business Bay apartments to MBR City villas.

What are the risks of off-plan properties?

  • Project delays

    The most common issue with an off-plan property is project delays. Reports show that more than 50% of projects launched in the UAE since 2008 were handed over at least one year after the agreed time.

    However, unlike before 2008, most off-plan payment schedules are linked to construction milestones. This reduces the risk of delayed handovers, but it is still necessary to factor delays in, especially if you want to rent or move into the new property on the specific proposed handover date.

  • Quality risk

    The display suite and brochure may look impressive, but some developers cut corners and deliver a subpar property, or something less than you expected.

    Good developers have an excellent reputation and understand that the finished product's quality will directly affect future sales and their brand. This ensures they are diligent and deliver units that meet world-class standards.

    However, not all developers think about their reputation and future sales. The best way to avoid this risk is to buy from reputable developers with an outstanding track record of completing high-quality developments.

    You can request for your real estate agent to show you recent properties a developer has developed before you sign a contract with the developer.

  • Market risk

    The UAE real estate market is relatively new, and a herd mentality and hype have driven its popularity, not demand and supply fundamentals. This is gradually changing as the real estate market transitions into the long-term investor-dominated and traditional end-user market.

    However, market risk is present in all real estate markets worldwide. When you buy an off-plan property, there is a risk of a general decline in the real estate value between when you pay the booking fee and when you receive your keys.

    The opposite may also occur, meaning an appreciation in the property's value between when you made the first payment and the handover, causing significant profit making.

  • Change in financial circumstances

    Depending on the investor, you will pay 20% - 80% of the buying price to purchase an off-plan property and then pay the rest at construction milestones or completion. If you need a mortgage to complete the purchase, you need to consider a possible change in your financial circumstances.

    Increased interest rates, changes in bank lending policies and losing your job can affect your ability to get a mortgage. Even if you qualify for a loan, you may get into a situation where the bank cannot lend you the money to complete the purchase.

    However, reducing this risk is possible. For example, in some developments, you can apply to borrow up to 50% of the total cost of the property, which gets pre-approved at the application time, guaranteeing payment at completion. You must have paid 50% of the purchase price to qualify for this loan.

    This means that if you pay 50% in cash, you will get the money needed to complete the purchase, whether your finances change or not.

    However, not all projects and developers are eligible for this. Every bank also has its approved project and developer list, and some do not offer finance for off-plan projects. You can consult a qualified mortgage advisor to know your options before paying your booking fee.

  • Re-selling restrictions

    Some restrictions apply to re-selling units. Most times, you must have paid a certain percentage of the unit's price to the developer before you can sell the unit. This makes checking the minimum payment before you can sell the unit important, especially if your intention for buying an off-plan property is to sell it immediately for profit.

  • You can't rent it immediately.

    A common downside of buying an off-plan property is that you have to wait until the project is completed to rent it. However, if you invest in a ready property, you can start getting returns immediately from renting it.

    You may not always have to wait long for your off-plan property investment returns. Developers also offer discounts to investors on off-plan properties; some investors who sell their units before completion still make significant profits.

Cost of buying an off-plan property in the UAE

The following fees are mandatory when buying an off-plan property, like with a ready property. You will pay the fees to the Dubai Land Department.

  • Property registration fee – 4% of the property value
  • Oqood registration – AED 3000

Some developers opt to pay part or all of the DLD registration fee as an incentive to buy, which gives investors a 4% saving.

Where can I find off-plan properties?

You can contact Top Agents for more information on off-plan properties for a rewarding investment or click here for a wide range of off-plan property options in the UAE.

Frequently Asked Questions

What if I can't pay off the off-plan property instalments?

It is important to understand the implications of not paying off your off-plan property instalments in Dubai and the possibility of getting a refund.

The specifics of your Sales Purchase Agreement (SPA) will determine how much the developer can give back, if applicable. Generally, the developer may have the right to withhold some of the money you have paid, including the initial deposits and any instalments made, based on the SPA.

The exact percentage you can get may depend on different factors, such as the developer policies, applicable deductions or penalties specified in the contract and the construction stage. Ensure you carefully review your SPA and get legal advice. You can also contact your developer to understand the refund provisions and explore any available alternatives.

Can I re-sell an off-plan property bought with a mortgage in Dubai?

Yes, you can. You can re-sell an off-plan property in Dubai, but certain restrictions apply. Many developers do not allow re-selling an off-plan property until you have paid a certain percentage of the buying price. This could be between 30% - 40% of the unit's value, and it varies between developers, so check your developer's policy.

If you have met the minimum payment requirement, selling an off-plan property is like selling a ready property.

Can I get a mortgage to purchase an off-plan property?

Yes, you can. While you can take out a mortgage to buy an off-plan property, the minimum loan-to-value percentage is 50%. Some banks may also need you to meet specific requirements depending on the project and type of property.

However, getting a mortgage to buy an off-plan property has a downside. You may not be eligible for the discount and payment plans the developers of the unit are offering. This may differ between developers, so consider checking with your developer.