Buying real estate in Dubai can be a good investment. According to the 2023 UBS Global Real Estate Bubble Index, Dubai real estate is in high demand, has some of the sharpest growth in rental, and is fairly valued. Current property prices, moreover, are still a quarter below the peak prices recorded in 2014.
You can buy both ready and off-plan properties in Dubai. If you're considering the latter, read on to find out what makes them sound investments and what risks they carry.
What Are Off-Plan Properties?
Off-plan properties are planned or under-construction real estate projects sold or marketed before they are built or completed. They are the opposite of ready properties, i.e., properties you can move into or occupy immediately upon purchase.
When you buy off-plan, you're essentially buying sight unseen. You can, however, use the architectural drawings, architectural models, and completed model units as visualization tools. The developer or real estate agent can also provide you with all the essential information to help you decide. Such information includes:
- Where it is going to be built
- When it will be completed
- What floor it will be in (if it's an apartment unit)
- Which way it will face
- What view it will have
- What the floor area is
- How many bedrooms and bathrooms it will have
- If it has a balcony
- What features and amenities it will come equipped with.
Why Buy Off-Plan Properties?
Why buy off-plan when you can invest in ready property instead? Investing in off-plan properties can bring the following benefits:
1. Great Value for Money
Buying off-plan means you pay less per square foot. You'll get more property for your money.
Off-plan properties are typically sold at lower prices than ready properties. The fact that you don't get the property immediately upon purchase is sufficient reason for a discount on the total purchase price.
Thus, an off-plan 400-square-foot studio-type apartment in a luxury development in Jumeirah Village Circle (JVC) may currently sell off-plan for approximately AED 450,000. Once the apartment building is completed the following year, that price may become AED 600,000. It can be higher. In fact, secondary-market, studio-type residential apartments of approximately the same size and class in JVC are selling for greater.
2. Capital Appreciation
The difference between your purchase price and what the property can sell for once it's completed is capital appreciation. It can be yours when you purchase an off-plan property.
Barring extraordinarily disruptive circumstances, you can expect property prices to go up once an off-plan development is complete. To use the example above, buying off-plan means purchasing an apartment for AED 450,000 but getting an apartment valued at AED 600,000 one year later.
In effect, your AED 450,000 will become AED 600,000. That's a capital appreciation of AED 150,000 or 33.33% in just one year.
3. Low Upfront Costs
Off-plan payment plans require an initial deposit and installment payments. This translates to lower upfront costs for you, allowing you to manage your finances better. It also makes it possible to let your money earn interest somewhere else and use interest earnings to defray the cost of your off-plan property purchase.
Developers in Dubai offer different payment plan options. Among them are 80-20, 60-40, 50-50, and deferred. Ask your developer which applies before you buy.
All payment plans typically require a downpayment. This can be 10% to 20% of the total property value. The rest is usually payable in installment. For instance, in the 80-20 payment plan, you must pay 80% of the total property value while the property is under construction, while 20% must be paid as a lump sum upon property handover.
The amount paid while the property is under construction is divided into installment payments. These installment payments may be milestone- or time-linked. In the former, you will pay a set installment amount when the property developer attains predetermined construction milestones. In the latter, you will pay a fixed installment amount at set intervals (e.g., quarterly).
4. Incentives
Buying off-plan properties will let you enjoy extras or bonuses that won't be free or available once the development is completed. Some developers sweeten their off-plan deals with incentives to attract off-plan buyers. These incentives can include deep discounts, low downpayment plans, registration fee waivers, free furniture, and amenity packages.
5. Location
When you invest in an off-plan property, you can secure property in a prime Dubai location and for less than it would cost you to buy a secondary-market apartment or villa in the same address. Want an apartment in a modern mixed-use neighborhood with leisure and recreational facilities like spas with ice baths, sports clubs, a golf course, an equestrian club, a theme park, and parks? Choose off-plan projects that provide such amenities.
Even if the off-plan apartment you're buying is not significantly less expensive than a ready apartment of a similar class and size, it might still be a good investment. After all, it is newer, probably has excellent views, and is likely equipped with modern and better amenities.
What Are the Risks of Investing in Off-Plan Properties?
As mentioned earlier, investing in off-plan property means buying sight unseen, before the property is ready. Naturally, that comes with risks, including the following:
1. Project Delay
Off-plan projects come with estimated completion dates. However, the project developer may overshoot the target completion date due to a shortage of funds or changes in construction plans, which means delayed utilization (and thus returns) on your part.
2. Expectation vs. Reality
Upon handover, the apartment you bought off-plan may differ from your expectations. For instance, it may not have the view you expected or it may not have the finish you were hoping for. Taking your time to research the area and other nearby ongoing developments, as well as due diligence with the architectural plans and small print from the developer, should mitigate the risks in this respect.
3. Market Fluctuation
If the Dubai real estate market experiences a downturn or a development affects the progress or value of the off-plan project you invested in, the value of your off-plan property may decline. In this case, the property may be worth less than your purchase price at handover.
To Buy or Not to Buy Off-Plan in Dubai
Dubai is an excellent market for real estate investments. It has a thriving off-plan property development sector, so you can consider investing in an off-plan property and seek the assistance of reputable real estate agencies in Dubai.
Off-plan real estate purchase brings many benefits. Just exercise caution and due diligence when choosing an off-plan investment because purchasing off-plan properties carries risks.
