A comeback: Zaki Ameer, Dream Design Real Estate
Buying off-plan has been bit of a “dirty word” since the dark days of the property crash in 2008, when scores of buy-to-flip investors were left out of pocket. However, as speculated, off-plan buying is making a comeback in 2018. Most major developers now offer generous payment plans for their off-plan projects, yet in a bid to avoid a repeat of the crash, there are restrictions in place to prevent an influx of buy-to-flip investors hiking the prices up for the end-user (the people that actually want to live in the property).
For instance, the UAE Central Bank’s rule allows only 50% loan-to-value ratio, meaning you need to stump up 50% of the property value in a deposit. This avoids investors putting down low 10% deposits, only to resell the property at a sky-high price at the expense of the person who actually wants to live in the building. When it comes to purchasing off-plan, often large investment companies will be given the opportunity to buy a number of units for a discounted price pre-launch. The remainder are usually then opened out to individual investors at the launch itself.
Sometimes, agents do get pre-launch homes to sell and they will try to sell these to serious investors already on their database. Either way, the real estate agent will provide with all of the relevant off-plan marketing material and you will have the chance to assess the units on offer, usually by inspecting a show home. The show home is designed to be a typical property equipped with the level of specification you can expect from your own investment. The earlier you get access to the property for sale, the greater the chance of securing one of the better units and of getting a discount on the price.
Your negotiating position should be determined by the demand the development is attracting. The higher the demand, the less chance you have of negotiating the price down. Thinking of purchasing off plan? Below are some tips to help your decision-making process.
You don’t need as much cash as you think: While you will need a hefty lump sum in savings as a deposit, the good news is that this doesn’t always equate to 50% of the property value. In some instances, the cash deposit required can be as low as a 20% initial payment. How? Well, the not many people have as much as a 50% deposit saved and are coming up with their own payment plans to get would-be buyers a foot on the ladder. These plans include 30:70 plans where you pay 30% first and the remainder on completion, and many payment plans now allow you to pay in 10% instalments as each phase of construction is completed.
Off-plan is cheaper than ready property: Buying off-plan allows you to arrange your finances better and means you don’t have to be lumbered with a loan for the whole amount of your property. But there are, of course, advantages to buying a ready property: with house prices down, coupled with tricky off-plan mortgage rules, there has been a boom in ready property sales. However, it’s generally cheaper to buy off-plan (up to 30% below market value), and that gap is expected to get bigger as developers work to drive interest in off-plan investment.
Reputed developers are back in business: One potential stumbling block would-be buyers may face when buying off-plan in Dubai is that the UAE banks will not lend to all off-plan projects. The decision largely comes down to the developer and their credentials. But the big players – Emaar, Akoya by Damac, and Azizi – have all secured mortgage lending for their off-plan projects. Going with a reputed developer that the banks recognise will also ensure your money is safe-guarded from rogue developers.
Only legitimate developers can advertise property for sale: Since October 2016, regulations came into effect which require developers and brokers to get approval from Dubai’s Real Estate Regulatory Authority (RERA) before they advertise property in the media. The new regulation is aimed at cracking down on fake property ads, protecting both buyers and genuine developers.
The reasons for avoiding off the plan properties have been well documented with the majority of leading experts strongly advising against this kind of investment. But despite the drawbacks, off the plan properties remain to be a popular investment option, particularly amongst keen investors with little to no experience, and first home buyers as they are provided with ample time to save for settlement. Ultimately, all investors are exposed to the same risks and complications involved in purchasing property off the plan. To ensure you are wary when investigating off the plan options, what follows is some tips on how to obtain the best deal.
Beware of dodgy developers: Before entering into a contract with a developer, performing a background check is essential. You will want to research past projects and assess the chances of the developer going into liquidation before the project is complete. If you are doing this without expert assistance, visit any of the developer’s previous work to inspect the quality, and seek references from previous clients.
Choose your property agent wisely: Agents have been known to wine and dine clients, fly them to the development site, and accommodate them in five-star hotels in order to have them purchase the property. What the client doesn’t realise is that these costs and extravagances are packaged into the purchase price of the property.
Don’t be fooled by rental guarantees: Developers will often entice buyers by offering a rental guarantee for the first one or two years after completion. As tempting as this sounds, once this period is complete, many owners will find that the tenant has been paying an incredibly low rent, with the developer subsidising the difference and factoring this into the purchase price of the property. Make sure the numbers add up correctly before you accept.
Beware of potential financial risks: No property investment is immune to the fluctuating property market, including off the plan properties. Research local property prices to find out how the market has performed over the last few months and try to gauge the direction of prices. If the value of the investment property does fall, it usually occurs between the point of purchase and the point of completion. Buying off-plan in a market where prices are depreciating can put your investment at a greater risk. Gain legal advice. This point is critical, particularly for first home buyers. Before you sign anything or money changes hands, have a solicitor look over all the contracts and documents. Ensure the contract contains a “funds set” or a “drop dead” clause outlining the date the property must be completed by.
If this is not met, you should be able to withdraw should you wish to, and have the deposit refunded. Other important clauses should relate to “acquisition” and “commencement”, as well as your rights to re-sell the property.