The developers are coming back: Abu Dhabi Cityscape 2015 saw the return of the off-plan sale to Abu Dhabi.
Several projects were launched at this event, on Reem, Saadiyat and even Yas. A few of these schemes were sold out after a few days but they went mostly to private placements, wealthy investors getting preferential rates. Retail investors were slow to come to the market, but they came. The floodgates didn’t exactly open, but they are creaking.
This was the first time really since 2009 that new off-plan projects have made it to market. Many investors lost their shirts in 2007-8 and painful memories are still fresh in their minds. Billions of dirhams were spent on off-plan sales, particularly on Reem Island, which either never got built or are being handed over only now, eight years later.
So what are the pros and cons of buying off-plan in this newer, more confident market – and what do you need to look out for?
Price
Because you are paying for something you can’t take possession of yet, developers will incentivise buyers to put their money down by offering a price discount. This is good for buyers who can’t afford to purchase in the built market and a big draw for investors looking for bulk stock at great rates.
When you buy off-plan you are gambling that your unit will turn out to be worth what the developer said it would be worth. Inflation in Q2 2015 is running at around five percent, so that gives you a 15 percent rise over three years even with no actual market appreciation. That is some buffer, but real estate in the UAE is a fickle mistress.
Financing
Most banks will only finance 50 percent of an off-plan unit, so developers are having to offer very generous incentives to get retail (non-investor) buyers to part with their money. A current example is the 30-70 payment plan on a Reem Island development: customers pay a 10 percent deposit, followed by four instalments of five percent each in the run-up to handover, when the final 70 percent has to be paid.
Some projects in Dubai are even financing the units after completion as well, meaning you don’t have to pay the full balance upon handover.
Attractive financing is very good for retail investors who can’t afford the 25 percent deposit needed to get financing. Note that not all banks finance all projects; it’s advisable to pass on a project that no banks are financing.
Make sure you are clued up about the timeline of the project so you can plan your finances. You will need to make staged payments through the life of the project and be able to get a mortgage at the end of it. Talk to your bank about your eligibility for a mortgage; if you can’t get one when the property is handed over you could lose your deposit for non-completion.
Unit
One of the great things about off-plan sales is that you get to choose from a range of units. You can select the type, view and floor. The downside is that you can’t see the finished article – what you end up with might look very different to what you thought. There’s no misrepresentation law in the UAE, so redress will be very difficult to obtain.
Development
Buyers should ensure the developer is reputable (some may have insurance so that if they go bust you will get back your deposit). If your property is going to be part of a wider development, find out when the other towers will be finished, otherwise you or your tenants risk living in a building site for the first few years.
Finance now or save for the future?
Off-plan buyers need to ask themselves a couple of questions: Should I buy off-plan, put money down now and slowly add to it finally getting bank finance on handover? Or should I save for a deposit for three years and buy something completed?
In the end this will be a personal decision. The safer option is certainly to save and buy a completed unit; the off-plan purchase is riskier but with a bigger upside.
Completion risk
When you buy off-plan you are taking a risk that your unit it will not be completed. Several projects sold off-plan between 2007 and 2008 were never built and investors are still struggling to get their money back. The larger government-backed developers, however, largely delivered on their units and that is why they are still able to sell off-plan now. Check the penalty clauses if the project doesn’t complete on time.
For more advice, contact Crompton Partner Estate Agents: [email protected]
