The dark side of off-plan property buying
Buying off-plan property in Dubai is attractive, but this shouldn’t be an off the cuff decision.
Property prices are not cheap at all, and many would-be buyers are now turning to off-plan purchases on the premise or even the promise that the deal could be 30 per cent cheaper when the project is not up yet.
But is the market negatively impacted with off-plan purchases, and are buyers increasing their risk?
Off-plan is in force
According to Chestertons MENA, the total number of off-plan transactions in the third quarter of 2017 increased by 86 per cent from the previous quarter, while the value of the same transactions was up by 118 per cent to AED4 billion ($1.08bn).
“With reference to off-plan transactions, Dubai’s real estate market has witnessed seasonal peaks and troughs in the last year due to high levels of uncertainty. After a promising start to 2017, sales plummeted during a disappointing Q2. However they have picked up positive momentum in Q3,” said Ivana Gazivoda Vucinic, Head of Advisory and Research, Chestertons MENA.
The most transacted area in Dubai was Dubai South with a total of 1,151 transactions, closely followed by Downtown Dubai with 821 transactions and Business Bay with 686 ones.
“A slight pickup of completed unit transactions is expected, this will however have a negative impact on off-plan sales transactions which we expect to decline and then stabilise,” said Vucinic.
According to Chestertons, a drop of two per cent of apartment prices in Q3 could potentially trigger further declines in completed unit values, as investors shift more and more towards off-plan property opportunities offering convenient payment options, such as a five-year post-handover or a one per cent payment per month.
Appetite for off-plan growing
During the recent Cityscape Global, and according to figures released by the Dubai Land Department (DLD), there were over $237 million in off-plan properties sold at the event.
As soon as developers were allowed to sell their UAE-based projects, they jumped on it.
Propertyfinder Group, a UAE-based real estate listings portal, said in a statement earlier this year that it expected the boom in Dubai residential off-plan sales to continue at least until the end of 2017.
Propertyfinder data shows that median residential prices in Dubai fell 20 per cent from November 2015 to April 2017.
“Since December 2013, expat buyers of completed properties must put down a cash deposit of at least 25 per cent and they also need a minimum extra six per cent to cover the various fees,” said Propertyfinder Group CCO, Lukman Hajje.
“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.”
Another report by Global Capital Partners-Reidin said that off-plan property sales in Dubai rose by 58 per cent in the first five months of 2017, compared to the same period last year.
The data, based on the DLD registered transactions, revealed that 7,152 off-plan units were sold between January and May, compared to 4,521 units in the previous year.
Impact on buyers
Buyers may be seduced with low down-payments and lower costs for the project, but what happens when the project is cancelled or delayed like is often the case?
Market drivers, financing issues, regulatory hiccups, acts of God or simply negligence could be obstacles that delay or cancel delivery of those properties, leaving off-plan buyers out in the cold.
You might want to have a good lawyer ready for these possibilities, but also for when you are ready for delivery and the real-life products looking completely different from off-plan brochures.
In the time your flat or building is being developed, some other project or plan might come to devalue or better yet increase the value of your property, so risks and rewards come into play.
But perhaps the biggest risk of all is that a longer waiting period associated with off-plan buying means more chances for buyers to run into financial trouble, which would include job loss or an injury dangerously affecting cash flow and thus project payments, with the chance to lose already invested payments towards ownership.