Buying off plan property in the UAE – what you need to know

This article was originally published on The National ]

Buying off plan has its risks and rewards. The main benefit is typically a lower price. Developers usually offer 10% to 30% lower prices for off plan and under construction properties. The closer to completion, the higher the price (typically) becomes.

Looking for properties off-plan

These days developers are luring buyers with increasingly attractive and flexible payment plans. Book now with AED5K…. Pay just 10% and move in! Pay 50% now and 50% 2 years after completion.. Pay 1% per month…! are some of the more aggressive seen recently on and on billboards hugging Sheikh Zayed Road. And while master developers like Emaar still demand and receive up to 80% during construction, the most popular payment plan these days is 50% during construction and 50% at completion.

There are risks however.

Project Delays

The most common issue with buying off plan is that your project will be delayed. It has been suggested that more than 50% of projects launched since 2008 in the UAE have been handed over at least one year later than quoted, some considerably more and some even cancelled. Unlike the heady boom days pre-2008, most off plan payment schedules these days are (or should be) linked to construction milestones so the part of the risk relating to delayed handovers are somewhat mitigated. Still not great if you’re renting and planning to move into your new property.

off-plan properties

Quality Risk

The brochure and display suite look amazing but will the developer cut corners and deliver a product less fabulous than expected? Good developers trade on their reputation and understand that the quality of their finished product will directly impact their brand and future sales, others care less.

Market Risk

As a relatively new market, UAE real estate boom and bust cycles have been largely driven by hype and a herd mentality as opposed to fundamentals of supply and demand. This is changing as the market matures to a traditional end user/long term investor dominated market. Market risk however occurs in all markets across the world and when buying off plan you risk a general decline in real estate values between when you handover your booking fee and when you receive the keys.

Conversely the opposite is also true. If prices go up, you can leverage big gains on a relatively small deposit.

off-plan properties

Change of Your Financial Circumstances

When buying a property off plan you need to pay 20% to 80% during construction with the rest due at completion. Most common these days are 50/50 payment plans. If you plan to pay the whole amount in cash your concerns are limited to the aforementioned risk (which is plenty for most) but if you require a mortgage to complete, you have the added risk that your financial circumstances may change in the future. You might lose your job; interest rates might increase or the banks may alter their lending policies. Even if you currently qualify for a loan; in the future you may find yourself in a situation where the bank will not lend you the funds you require to complete the purchase.

To mitigate this risk, for selected developments you can apply to borrow up to 50% of the purchase price which is pre-approved at the time of application and is guaranteed to be paid at completion. So regardless of what happens to your personal financial situation; assuming of course you can pay 50% in cash, you can be confidentthat you’ll get the funds you need to complete the purchase.

off-plan properties

Please note that not all developers and projects are eligible. Every bank has its approved developer/project list. Some will offer finance for off plan for selected projects, many will not. Talking to a qualified mortgage advisor before you take the plunge and put down your booking fee is a highly advisable first step.

For completed properties under AED 5 million you can apply to borrow up to 75% of the property value (80% if you are a UAE national). Which means that if you paid 50% cash during construction you can take up to 25%/30% cash out. Furthermore, if the property has increased in value it may even be possible to borrow 75%/80% of the increased property value and take even more cash out.

This will require a mortgage reapplication and revaluation of the property but if the numbers make sense and you’d like to access some cash for whatever purpose at low mortgage rates, it’s an attractive option.

Search for off-plan properties in UAE

This article was originally published on The National ]