Invest in ready-made housing or in a project that is under construction? Many investors, who are interested in buying property in Dubai Marina or another promising community in the emirate, face this choice. Although off-plan properties cost almost 20% less, not all buyers are ready to invest in off-plan. As a rule, the volume of home purchases at the development stage does not exceed 40% of all real estate transactions. Why investing in housing under construction is a good idea and what risks you may face after the conclusion of the transaction – we will analyze below.
Off-plan projects in Dubai
Off-plan real estate is property that is under construction. Buying off-plan means making a deal before putting the facility into operation. When purchasing residential units under construction, investors can count on a convenient installment payment plan. Developers themselves almost always offer to split the payments, which allows buyers to deposit cash gradually.
The minimum installment period is 1 year, the maximum is 7 years. A prerequisite is the initial payment, the amount of which usually varies between 20-25% of the total cost of the property. And here a lot depends on the developer and the building itself: in some cases, the down payment can reach 40%.
When buying off-plan under construction, the same contract of sale is concluded, as in the case of ready-made housing. First, the buyer makes a down payment, thereby booking the apartment or villa he likes, and only then both parties sign the contract. The further payment schedule is determined by the developer company, and the stage and timing of building affect the amount of payment.
Reasons to buy off-plan property
Off-plan real estate loses to secondary housing only in one case – the buyer will not be able to use the housing immediately after the conclusion of the transaction. In all other situations, it is more profitable to buy an off-plan project, since it has a whole series of advantages:
1. Low cost. The average cost per square meter in housing under construction is AED 7,100, in the finished property – AED 13,000. Moreover, the price rises as construction progresses, so it is more profitable to buy real estate in the earliest stages of development.
2. Opportunity to profitably sell the housing under construction before it is put into operation. This advantage follows from the previous one: even if the construction is not yet completed, the property can be resold at a higher price and make a profit.
3. Wide choice. In the early stages of the project, the choice of residences is much greater than at the completion of development, and it is possible to choose the best option. This is especially true for limited collections, when the project provides for only a few dozen apartments or villas. By the time of commissioning, all residences may already be sold out.
4. Convenient payment scheme. Many developers set a very small amount of advances – about 5% of the total cost. Such payment plans allow you to distribute costs over the long term, gradually allocating the necessary amounts from the budget. In addition, some developers offer additional bonuses, such as paying half the amount of the DLD registration fee or taking full responsibility for these costs.
Risks when buying off-plan real estate in Dubai
Buying real estate off-plan has a number of disadvantages that must be taken into account. These include:
1. Delay in completion of construction. This is one of the most likely risks when buying housing under construction. Project building does not always go according to schedule. To protect yourself from possible delays, you should choose reliable developers with a good business reputation. It is also important to make sure that the sale and purchase agreement indicates the deadlines for the implementation of key stages of work and a specific date for completion of building.
2. The onset of an unfavorable situation in the real estate market. Buying a home under construction is a long-term investment that will generate income only after a few years. In the event of adverse market conditions, the real value of an asset may decline. This means that the actual market price of housing will not cover the funds invested in it. In order not to find yourself in such a situation, it is recommended to purchase housing under construction in a growing market. This is exactly what is happening in Dubai right now.
3. The finished housing does not correspond to the declared plan. To secure your investments and get really high-quality real estate, you need to carefully select a developer with a good reputation and the availability of well-implemented projects.
4. Inability to resell the property. At the moment, many developers require the investor to pay a certain part of the declared value of the property before authorizing its resale to third parties. If the buyer initially intends to make a profit by selling housing at a later stage of creation, then you need to clarify with the developer the minimum payment threshold, after reaching which it is possible to conclude a new sale and purchase transaction.
5. Closing the project. To minimize the possibility of shutting down and freezing off-plan projects, the government of the emirate issued Law No. 8 of 2007 on Guarantee Accounts for Construction Projects in the Emirate of Dubai, according to which all developers wishing to work with real estate under construction are required to open a guarantee bank account (escrow), which will receive all the funds invested by investors. Access to them will be open only after the developer completes a certain stage of creation. Also, in order to minimize the possibility of bankruptcy, DLD obliged the developers to reserve at least 20% of its estimated value in the target bank account before the start of the project. In the future, these funds can be used to carry out any stage of building work.
Assistance with buying property in Dubai
A wide range of finished and off-plan real estate in various configurations and price categories is presented in the AX Capital website. Contact the highly qualified specialists of the agency to get help with the selection of the optimal residential property, support at all stages of the transaction and high-quality after-sales service.