In today’s market, the question of what’s a better option, off-plan or ready property, is all too common. Safura Abasniya, Partner & General Manager at Aston Pearl Real Estate, takes a realistic look at the pros and cons of both.
As a real estate professional dealing with both off-plan and ready property since 2007, I have witnessed market trends swing in favour of both.
After the 2008 crisis, the off-plan sector in Dubai experienced a dark phase, and it took several efforts by the government to resurrect to a point where it eventually exceeded ready properties in Q4 2017.
All investors question whether to go for an off-plan property or an established property. The reality is both investments have their pros and cons, and every buyer’s financial situation and risk appetite is unique. Therefore, it is imperative to explore and weigh the benefits and risks of both.
In selecting the most suitable investment choice it is important to consider the current market situation and outlook. This will play a key factor in short-term and long-term benefits, and your expected returns.
On a global scale, there is an element of risk associated with an off-plan property; notably risk of delays or cancellations.
In Dubai, these risks are minimised through regulations imposed by the Real Estate Regulatory Agency (RERA) and the Dubai Land Department (DLD) as well as the use of escrow accounts. Developers are required to deposit 20 percent of the project costs as a bank guarantee, and the authorities have a responsibility to ensure that the developer has sufficient funds and resources to complete the project.
Off-plan property has its benefits, both short and long-term. The first being that you can make a small down payment from 5-10 percent, as opposed to 25 percent. Payment plans are often on flexible terms and in some cases, developers offer post-handover 2-5 year payment plans. Meaning you can actually live in the property or rent it out before paying it off. Rental income can also work in your favour, contributing to payment of your post-handover payment plan; a benefit only off-plan property can offer.
Developers are now waiving the 4 percent registration fees and service charges for 3-5 years, an initiative which also assists in lowering upfront costs.
Price is the most important factor in any buying decision, and when it comes to off-plan there is often an advantage. Under-construction properties are priced significantly less than ready properties and there is a high probability of a capital appreciation near to the completion. In most of the cases we see a price increase near handover, however, factors like the popularity of the project and surrounding infrastructure – especially in entry-level city developments – will come into play in determining the overall return on investment.
The obvious downside of off-plan is your buying decision is based purely on brochures, photos and 3D videos, and you may encounter surprises regarding quality on delivery. That said, even that risk is reduced these days, as most developers have a mock-up of apartments, townhouses and villas where buyers can actually see the quality of the projects.
The main advantage of buying ready property is that you can physically see the property and get the right feeling before your potential purchase.
The catchphrase “location, location, location” uttered by investors and end-users alike has been around forever. Ready property in Dubai is often in prime locations with completed surrounding infrastructure giving them an advantage over off-plan. If you are an investor buying to lease, you can start to receive returns immediately. The price, however, will be higher, you will need to pay upfront, and capital appreciation is generally slow. Though you can expect higher returns when the market takes a sharp turn.
If you are an end-user and an expatriate living and working in Dubai, purchasing ready property is definitely something to consider. A simple calculation of how much you spend on rent per year versus current mortgage rates and repayments paints a clear picture.
Banks offer very attractive rates and benefits, not only for UAE residents but for non-residents as well, which open up the opportunity to have your ready property refinanced should you decide to return to your home country.
Dubai secondary market property prices and rental rates are on a decline and transaction volumes are lower compared to peak market times. There are several reasons for this; we cannot solely blame oversupply.
Developers are offering discounts and incentives like never before, and flexible post-handover payment plans that run years after possession are already a trend. We also see advertisements offering buyers ‘no service charge’ periods. This makes off-plan more attractive for investors and accessible to first-time buyers.
On the contrary, ready property prices have decreased and investors are picking up great deals from sellers in a hurry to dispose of their property.
There is an equal amount of opportunity for either option that needs to be analysed to make the right decision. Doing due diligence with the help of experienced brokers is key, keeping in mind the current market trends.
Expo 2020 is just around the corner and we expect the market to recover as we get closer to Dubai’s mega event. Whether its off-plan or ready property, buying when the market is at the bottom will ensure prolific returns very soon.
There is also an underlying shift in the market that is regaining investor trust and positivity among end-users.
Historic UAE policy changes like the announcement of the investor and retiree visa and one hundred percent business ownership are seen as important catalysts that can boost economic growth and integration with global markets for trade expansion. The short and long-term effects of these important policy changes will be seen among all sectors – including real estate.
Partner & General Manager at Aston Pearl Real Estate
This article was originally published in Prestige Magazine, Issue 37.