Welcome period of low property prices stoking more interest in Emirate
A welcome period of low property prices has stoked more interest in Dubai for many investors, who are increasingly expressing an interest in the many off-plan projects across the city.
According to Reidin, off-plan properties are discounted relative to completed units and accounted for about half of all Dubai residential property deals in 2015-16. Experts say that developers are continuing to tempt buyers and investors with low upfront and even back-ended payment plans.
Emaar sold $1.65 billion of Dubai property in the first quarter, up 44 per cent from a year earlier as it launched seven projects totaling 2,923 units in the emirate. Damac, Dubai’s largest privately-controlled developer, booked first-quarter off-plan sales worth Dh2.2 billion, up 11 per cent year-on-year and 29 per cent higher than in the final quarter of 2016.
“In theory, buying off-plan allows investors to take advantage of historically-low Dubai property prices for a very low cost and a get a foothold in the market, but this strategy does not come without risk,” says Propertyfinder Group CCO Lukman Hajje.
“Projects are often delayed and buyers have little option but to wait. Also, the finished product may not be what they expected – glossy brochures can look amazing but market conditions and political or economic situations change, as do the price and availability of certain materials. All these can impact what’s eventually delivered.” While market leaders demand some of the toughest off-plan payment schedules, it is the smaller companies that promise the best terms of all.
An investor in Downtown Views II must pay 70 per cent of the unit cost during construction, with the final 30 per cent due upon completion, scheduled for December 2020. Damac’s Casablanca Villas, a part of Akoya Oxygen and launched in May, allows buyers to pay 60 per cent of their property’s cost upon completion, as does Dubai Properties’ Mudon Views, with one-bedroom apartments starting from Dh766,000.
Danube’s Bayz, on the other hand, requires payments totaling 25 per cent in the first 120 days. Then from October 2017, buyers pay one per cent a month through December 2023. Ggico’s Topaz Premium Residences in Silicon Oasis allows for 30 per cent payment up to handover, with the remaining 70 per cent paid over three years following completion.
Rizwan Sajan, founder and chairman of Danube Group, has noted that developers have to be innovative with their offerings in order to grab market share and the attention of potential buyers.
“Buyers these days have the option to choose from many and factors such as guaranteed rental returns and payment plans helps customers get added value in the offerings available.”
Hajje cautions potential buyers to be aware of potential difficulties in securing financing.
“Except for those who plan to pay 100 per cent in cash, most off plan buyers will eventually require a mortgage,” he adds. “And just because you may be eligible for a mortgage today doesn’t mean you’ll qualify in the future, particularly if your employment circumstances or lending criteria change.”
Consultants Cluttons predict that Dubai’s off-plan market will remain upbeat despite predicting in a recent report that sales prices will fall a further five per cent correction. “The emergence of favourable payment plans continues to tempt buyers and perhaps investors to a greater extent,” Cluttons wrote.
That outlook is partly due to many banks now offering some sort of under-construction financing, although this is mostly limited to a specific list of developers on which the lender has completed due diligence. Unsurprisingly, banks favor the master developers such as Emaar over independent sub-developers. Banks are also more willing to lend the closer to completion a project gets – at final payment and hand over stage, banks that weren’t financing during construction become involved because the risk is lower.