Given the dynamic nature of the market in the UAE and the volume and speed of the construction, any investor assessing an acquisition in the Dubai property market is likely to come across plenty of enticing off-plan properties.
Like any investment off-plan properties can be ultra lucrative or struggle. Investors should make themselves aware of all the factors that can assess the success of off-plan acquisitions, but previously these have been some of the strongest performing in Dubai’s history.
What is an off-plan property?
An off-plan property is one that is still under construction (even yet to begin), and the developer commits to completing and delivering it by a specific date – known as the completion date.
How popular are off-plan properties in Dubai?
Off-plan properties are a popular option for Dubai property investors. The off-plan market had been a significant segment of the real estate industry for several years, attracting both local and international investors. Many buyers were drawn to the advantages offered by off-plan properties, such as lower prices, flexible payment plans, and the potential for high returns on investment.
Dubai’s real estate market has historically been dynamic and fast-paced, with numerous new projects and developments constantly emerging. The off-plan sector, in particular, saw significant activity, as developers unveiled exciting projects in prime locations across the city.
The appeal of off-plan properties was further amplified by Dubai’s growing reputation as a global business and tourism hub, attracting a diverse range of investors seeking both residential and investment opportunities.
Additionally, Dubai’s dynamic real estate market, coupled with stringent regulations implemented by the Dubai Land Department and the Dubai Real Estate Regulatory Agency (RERA), provides investors with confidence in their off-plan investments. These regulations aim to protect buyers from project delays, cancellations, and fraud, ensuring a secure investment environment.
Off-plan market statistics
Based on the full-year data from the Dubai Land Department, last year saw a total of 35,370 off-plan sales transactions in Dubai. These were worth over AED 71 billion.
This was a marked 47.9% increase on the preceding year with the sales value actually rising a significant 60.3%.
Most off-plan purchases were apartments and these were the most popular sub-markets in Dubai:
- Jumeirah Village Circle
- Business Bay
- Downtown Dubai
Investors were keen to purchase off-plan villas in the following sub-markets:
- Town Square
- Dubai South
Advantages of off-plan investments in Dubai
Higher return on investment (ROI)
One of the primary draws of investing in off-plan properties is the potential for high ROI. As these properties are purchased at pre-construction or early development stages, the initial asking prices are often lower compared to completed properties.
As the project nears completion and the market matures, the value of the property is expected to appreciate significantly, offering investors substantial returns in just a few years.
Staged payment plans
Off-plan properties in Dubai typically offer attractive and flexible payment plans.
Instead of paying the entire purchase price upfront, developers often allow investors to make staged payments, linked to construction milestones. This approach eases the financial burden and provides investors with more time to manage their finances effectively.
It often works very well for investors in conjunction with cash purchases.
Choice of prime locations and premium amenities
Off-plan projects are frequently launched in prime locations across Dubai, offering investors a wide range of choices ahead of the rest of the market. Moreover, developers often incorporate state-of-the-art amenities and modern designs, catering to the preferences of the contemporary real estate market.
Luxury specifications can be integral to a successful Dubai property investment. Investing in off-plan properties presents an opportunity to have some input in the design and layout of the unit, allowing for potential customisation for a particular market or tenant type – subject to the developer’s terms and conditions, of course.
Risks of off-plan investments and how to mitigate them
Project delays or cancellations
The most significant risk associated with off-plan investments is the possibility of project delays or cancellations. To mitigate this risk, it is crucial to conduct thorough due diligence on the developer’s track record and financial stability.
Investors hold opt for reputable developers with a proven history of delivering projects on time. Many of Dubai’s major developers have established track records of delivering off-plan projects on time.
Real estate markets are subject to fluctuations, and Dubai is no exception – even though most experts agree it will outperform other prime real estate in the coming years. While off-plan investments have the potential for high returns, there is also a risk of market downturns. It is essential to have a long-term investment perspective and be prepared for market cycles.
Changes in regulations
Dubai is seen as a transparent and well-regulated market. However, investors should always aim to keep abreast of any changes in real estate regulations in Dubai, as they can impact off-plan investments. Engaging a reliable real estate advisor or legal expert can help navigate through regulatory complexities.
Some developers in Dubai may have specific policies that require the investor to pay a certain percentage of the property’s value before selling.
How to buy off-plan property in Dubai
Research and selection
Begin by researching different off-plan projects in Dubai. Analyse the location, developer reputation, payment plans, and potential for capital appreciation. Shortlist projects that align with your investment goals, budget and portfolio needs.
Arrange financing for your investment, either through personal funds or mortgage options available to non-resident investors in Dubai.
Reserve the unit
Once you’ve chosen a project, reserve your preferred unit by paying the reservation fee to the developer. This is often the first stage of a developer payment plan.
Sign the sale agreement
Review the sales agreement carefully with the help of a legal advisor. The agreement should outline the payment plan, completion date, and other crucial terms and conditions.
Make payments according to the agreed-upon payment plan, linked to construction milestones.
Completion and handover
Upon project completion, a final inspection is conducted, and the property is handed over to the investor. This is often the final stage of the payment plan.
Registration and Title Deed
Complete the property registration process with the Dubai Land Department to obtain the Title Deed, confirming your ownership.
Costs of buying an off-plan Dubai real estate
Transaction and registration fees are very similar to those required to purchase a completed property in Dubai. Investors are required to pay the following to the Dubai Land Department when buying an off-plan property:
- Property Registration Fee: 4% of property value
- Oqood Registration: AED 3000
Where to source off-plan opportunities in Dubai
Numerous off-plan developments are available across Dubai, we can help source properties suitable for your portfolio needs.
What happens if investors cannot complete the payment plan?
It may depend on the specific of the purchase. Investors should initially review the terms and conditions outlined in your Sales Purchase Agreement (SPA) to ascertain any liability or the potential to acquire a refund.
In some cases, developers may retain a percentage of the payments already completed in the even of future non-payment.
Are there any restrictions on renting out my off-plan property in Dubai?
Yes, there might be some restrictions on renting out your off-plan property, depending on the developer and the specific project. Some developers may have clauses in the Sales Purchase Agreement (SPA) that limit or require approval for rental activity until a certain stage of completion is reached. It is crucial to thoroughly review the SPA and inquire with the developer about their rental policies. If you plan to rent out the property, ensure you are aware of any limitations and comply with the developer’s guidelines to avoid any potential issues in the future.
Can I get a mortgage to buy off-plan properties in Dubai?
Yes. However, most investors using individual leverage will find that that mortgages in Dubai for off-plan properties are limited to 50% loan to value.