Off-plan property transaction now make up almost half of all residential sales in Dubai, with buyers taking advantage of increasingly generous payment plans, according to listings portal propertyfinder.ae.
[This piece was originally published at The National].
The company said cheaper homes and lower deposit requirements were driving investors towards off-plan deals. It said median prices for homes have fallen by 20% between November 2015 to April 2017, extending a slump that had begun two years earlier.
Yet lower prices have not affected developers’ sales of off-plan homes, with Emaar Properties and Damac Properties reporting higher sales in the first quarter of 2017. Emaar booked deals worth of AED 6.05 billion in the first quarter, a 44% year-on-year increase, while Damac sold properties worth AED 2.2bn, up 11% year-on-year.
Propertyfinder Group’s chief commercial officer, Lukman Hajje, said buyers of completed projects typically have to find a deposit of 25% of a home’s value, plus a further 6% to cover charges and fees.
“That’s a large amount of money and it’s forcing many potential purchasers away from the completed property market to off-plan, where developers are enticing them with low upfront and even back-ended payment plans.”
Emaar Properties has some of the least generous payment schedules, Propertyfinder said. For instance, at Downtown Views II it requires 70% of a property’s value to be paid during construction and the remaining 30% on completion. Damac Properties, by comparison, allows for 60% of the payment for its Casablanca Villas scheme at Akoya Oxygen to be paid on completion, and Dubai Properties offers similar terms at Mudon Views. Smaller developers are even more generous, it said, with Danube Properties requiring 25% of a property’s value at its Bayz project to be paid within 120 days, and the remainder to be paid at 1% per month until December 2023.
“In theory, buying off-plan allows investors to take advantage of historically low Dubai property prices for a very low cost and a get a foothold in the market but this strategy does not come without risk,” Mr Hajje said.
“Projects are often delayed and buyers have little option but to wait. Also, the finished product may not be what they expected. Glossy brochures can look amazing but market conditions and political or economic situations change, as do the price and availability of certain materials. All these can impact what’s eventually delivered.”
The property broker Core Savills said in its Q1 Dubai residential report that off-plan sales were enjoying a “robust performance”, especially in established areas like Dubai Marina and Downtown Dubai.
“Off-plan sales are increasingly regaining a foothold, particularly products from reputed developers – although having a detrimental effect on secondary market sales, notably in prime apartment districts,” said David Godchaux, the chief executive of Core Savills.