Things to know before buying an off-plan property in the UAE

January 12, 2023 | 5 min read

Things to know before buying an off-plan property in the UAE

When you purchase a house or apartment "off-plan," you do so before it has been constructed and is only a set of plans. There are many benefits to buying a home off-plan, including a brand-new house, a fixed price, and a customized finish. Off-plan purchases come with rewards and risks. The risks and rewards can change depending on the stage of the property and your plans for it—are you buying it to live in or as an investment?

A lower price is typically the main advantage. For properties that are off-plan and still being built, developers typically offer discounts ranging from 10% to 30%. The cost rises as construction nears completion.

Developers are enticing customers with more alluring and adaptable payment options these days. And while large developers like Emaar continue to request and receive up to 80% of the total cost during construction, the most common payment schedule today is 50% during construction and 50% after it is finished. However, there are other things about buying an off-plan property that you should be aware of and be prepared for, such as the following:

Delays in Projects

Project delays are a common issue in the world of off-plan properties. When you purchase off-plan, the most frequent problem is a delay in your project. It's been reported that more than 50% of projects started in the UAE since 2008 have reportedly been completed at least a year later than expected, sometimes much more, and in some cases have even been abandoned.

Contrary to earlier times, the majority of off-plan payment schedules are (or should be) linked to construction milestones, which somewhat reduces the risk of delayed handovers. The situation is still not ideal if you intend to move into a new home while renting. Despite these measures, buyers should bear in mind that investing in off-plan properties is a long-term investment, and they should be well aware of the risks involved.

Market Threat

One of the main risks associated with off-plan investments is market risk. As a relatively new market, the boom and bust cycles in UAE real estate have been largely influenced by hype and a herd mentality rather than the basic laws of supply and demand. This is changing as the market develops into a traditional end-user/long-term investor-dominated market.

However, the market risk exists in every market around the world, and when you purchase off-the-plan, you run the risk of a general decline in real estate values between the time you hand over your booking fee and the time you receive the keys. The exact opposite is also true, in contrast. If prices increase, you can leverage substantial gains on a modest initial investment. Therefore, purchasing off-the-plan is a decision that requires some research, as it carries both risks and rewards.

Alteration in Your Financial Situation

A 20%–80% down payment is required when purchasing a property off-plan, with the remaining balance due upon completion. 50/50 payment plans are currently the most popular. If you intend to pay the entire amount in cash, your worries will be limited to the aforementioned risk, which should be enough for most people. However, if you need a mortgage to complete it, you also run the additional risk that your financial situation may change in the future.

Your employment may be terminated, interest rates may rise, or banks' lending practices may change. In the future, even if you currently qualify for a loan, it's possible that the bank won't give you the money you need to finish the purchase.

To lessen this risk, you can apply to borrow up to 50% of the purchase price for certain developments. This loan is guaranteed to be paid back at construction and was pre-approved at the time of application. Therefore, you can be sure that you'll get the money you need to finish the purchase regardless of what happens to your personal financial situation—assuming, of course, that you can pay 50% in cash.

Please be aware that not all developers and initiatives qualify. Each bank has a list of approved developers and projects. For specific projects, some will finance off-plan initiatives, but many won't. A very wise first step is to speak with a licensed mortgage advisor before you commit and pay your booking fee.

For finished properties under AED 5 million, you may apply to borrow up to 75% of the property's value (80% if you are a citizen of the UAE). which means that if you paid 50% cash for the construction, you can withdraw up to 25% or 30% cash. Furthermore, if the value of the property has increased, it might even be possible to borrow 75%–80% of the higher property value and withdraw even more money.

If the numbers add up and you'd like to access some cash for any reason at low mortgage rates, this is an appealing option. However, it will necessitate a new mortgage application and a revaluation of the property

Popular searches in UAE