Under-construction or finished? Which property to choose for your first purchase in Dubai

For several years now, the world has been watching the UAE property market in awe. In 2023 alone, more than 133,000 transactions were completed here (37% more than the previous year), and the cost of housing has risen by 4.6–22%, depending on the type. Nikolai Kuznetsov, head of the Investor Relations Department, talked about which property is better to choose as a first purchase, when it is more profitable to buy under construction, and when it is better to consider ready-made.

Content:

• What is the current ratio of under-construction to off-plan properties in the Dubai market?
• Will this trend continue?
• What type of property is being bought more these days? And why?
• When is it better to choose a finished property? When under construction? Are there any factors other than personal preference?
• What are the advantages of under construction and finished properties? What are the risks? Is it safe to buy an under-construction property in Dubai? What about finished developments?
• What do you need to check for each type of property?
• Is it necessary to personally inspect off-plan properties? What about second homes? Is it worth coming to Dubai for a first purchase?
• At what stage of construction is it best to buy off-plan? Is it worth choosing a development at the development stage?
• Let's summarise. What are the signs of a good and bad off-plan development?
• What are the signs of quality and poor second homes?
• What is your personal advice to first-time investors?

What is the current ratio of under-construction to off-plan properties in the Dubai market?

At the moment, there are probably more projects under construction than units available on the secondary market. But the issue is always volatile. For example, during the pandemic period, many construction projects were suspended. On the other hand, there was a lot of supply in the secondary market.

Will this trend continue?

Based on developers' plans and investors' strategies, as well as the number of enquiries we have received this year, we can see that the trend towards choosing off-plan properties is continuing. Moreover, the number of new projects, investors, companies (private, small, well-known, lesser-known, from Russia, India) is growing. We are involved not only in the sale of the property, but also in the sale of the land, help in obtaining all regulatory documents, selection of contractors, subcontractors and preparation of contracts. Hence the conclusion that the off-plan market is developing.

It is important to note that there are many reassignments in the market. What are these? For example, when an investor comes in at the pre-launch stage, the capitalisation of the property is one. After 2–3 months, the project is launched, prices rise, and the investor sells the property. This is a short-term strategy. Taking into account such situations, the secondary property market will be even higher than the primary one.

If we consider the classic situation with secondary housing, as we are used to, when a client buys an apartment, lives in it and decides to sell, the data will be different. Typically, the owner sets a price higher than the market price and it stays on the market. Sells for the specified amount – good. Doesn't sell – not urgent. There are fewer such offers than for primary properties. Not everyone wants to sell, many just want to live. This trend can be observed among Europeans as well as Russians and citizens of CIS countries. They come, buy property for themselves, even on the secondary market, and move in immediately. They don't have the opportunity to wait for it to be finished.

What type of property is being bought more these days? And why?

Apartments and townhouses are the most popular. In third place are villas. Prices for villas typically start at $2 million. Today, villas are the most profitable for investors: this trend emerged in 2023 and is still relevant.

Sometimes we get distress sales – offers to sell properties slightly below the market price. This is because someone urgently needs to sell the property. For example, we are now seeing the exodus of Israelis from the UAE. They bought villas, now they have to leave, so they sell them at a good discount. There are villas that have been repossessed by the bank. Sometimes an investor takes a loan from the bank to buy a house, the business doesn't go well, he couldn't make the payments, so the property is given back to the bank. We can buy such villas and offer them to our clients. These are quick deals; such properties are usually sold immediately.

When is it better to choose a finished property? When under construction? Are there any factors other than personal preference?

It all depends on your objectives. For families moving permanently, comfort and cosiness are important, while investors are more concerned with profitability and capitalisation indicators.

The secondary market is a less attractive investment option. The best returns are obtained by buying from the developer: in this case, the capitalisation of the property can range from 30% to 100%.

If you are looking for a long-term investment with high capitalisation, boutique properties are worth considering. For passive income, many investors prefer to buy completed properties and rent them out. However, if you have significant capital and are prepared to take some risk, you can consider projects at the pre-development stage, with a view to selling on completion or during construction, as large amounts of capital open doors to good developers.

What are the advantages of under construction and finished properties? What are the risks? Is it safe to buy an under-construction property in Dubai? What about finished developments?

The advantages of finished property are that you can buy and live in it immediately. You can take out a mortgage with interest rates of up to 6%. The 20% deposit is paid in advance, while the remaining 80% can be paid conveniently.

If you can wait, buy off-plan. You pay less upfront. Many builders offer good instalment plans. You can find options where the instalment plan extends up to 5 years after completion of the project.

Risks can arise if you deal with an unscrupulous agent or do not understand the market. For example, buying an apartment you like without checking it out and later finding it difficult to rent out, resulting in a lower ROI of 6–7% instead of the expected 8–10%. An unscrupulous agent may sell you something that is profitable for them, rather than what you really need. In such cases, you may end up buying something that is overpriced or difficult to resell or let at a profit. There won't be any direct losses, but there will be missed opportunities.

What do you need to check for each type of property?

First and foremost, as I mentioned earlier, you need to understand what you are doing and why you are entering the market. Next, find a good agent. They will check the documents, make sure the client is paying for what they want, and that the developer has not made any mistakes. Many of our clients, for example, do not read English, so they need the help of a professional.

For second homes, it is important to check the Title Deed (proof of ownership) to make sure that the property really belongs to the seller and that there are no encumbrances. So, you need to be very careful about the process. Here, 98% of transactions go through estate agents, which is the safest option. You can do everything yourself, provided you know the seller well and understand the process in general.

Is it necessary to personally inspect off-plan properties? What about second homes? Is it worth coming to Dubai for a first purchase?

Until 2010, there were no escrow accounts here. Or rather, Law No. 8 "Concerning Escrow Accounts of Real Estate Developments in the Emirate of Dubai" came into effect in 2006. But almost all developers continued to accept payments into their own accounts, not into escrow. And it was only after the crisis of 2008–2010 that the UAE authorities began to enforce it rigorously. A developer cannot use this account freely or use the money as he sees fit. This means that the money paid by buyers for different units in the project is protected until the property is handed over. Prior to this, the money went directly to the developers, and they did not always manage it wisely. For example, instead of building properties, they invested the money and tried to make extra money. The developer only gets the money in full when the property is handed over. So, when the crisis hit, many were left without homes and without money. Then escrow accounts appeared and now everyone works through them, so there is no risk of losing money. And there's no significant advantage to visiting the developer in person and monitoring the process. Many of our investors buy properties remotely and are quite happy. But again, this is an investment. If you're looking for a home for yourself, it's always nice and interesting to come and see everything in person.

At what stage of construction is it best to buy off-plan? Is it worth choosing a development at the development stage?

Yes, it's worth choosing at the development stage, especially if you can get in pre-launch of construction and put down a deposit, which fixes the price. If you're allowed in, of course. Typically, these projects only allow in their own investors – a group of investors who move from one project to another with the same developer. In the pre-launch phase, the price goes up by about 10%, and in the launch phase the price difference can be up to 20%. A lot depends on the project and the market situation, but the margins are very high.

Let's summarise. What are the signs of a good and bad off-plan development?

Look at the developer. Their history. Look at the location. You have to understand the project itself, look at the brand book, what is being used, what materials, what subcontractors. There are developers that we categorically do not work with. There are those we work with year after year, but you always have to look carefully at what they are offering and at what price. Sometimes the developer will quote one price and then suddenly reduce it, which is also unpleasant for the buyer.

What are the signs of quality and poor second homes?

Wear and tear, age of the building, location, developer. There are developers whose buildings you wouldn't even look without tears at after 3-5 years. It's safe to live in, but the appearance leaves a lot to be desired. The management company may be unscrupulous, but sometimes you can only understand this once you move in. You need to see how repairs are being carried out. Is there no so-called partitions in the building, when someone buy apartments with 23 bedrooms, put partitions inside, and a large number of people live there? The neighbourhood is obviously questionable. We do not recommend buying this type of property. It's difficult to rent out or sell, and it will become obsolete more quickly, resulting in a loss of value.

What is your personal advice to first-time investors?

Get to know the market. Come, see, study. Attend presentations, research the background. It's important to be realistic about what the manager is telling you and to understand what's true. Reading online is not enough. There are over 16,000 real estate agents in the UAE. Just think of that number. Many close down because they are selling not what people need but what the agencies need to sell. There is also a lack of competence. The result is a loss of reputation due to dissatisfied clients, investors. As a result, people stop working with them. Many want to try, but in the end, it doesn't work out. Overall, the risks of buying property are now minimal. But you can buy on emotion and make less profit. So choose your agent wisely.