What is an off-plan property in Dubai?

Dubai is a great place to buy an apartment. In this lively, modern metropolis, there’s a wide selection of real estate under construction and ready for residence. Foreign investors have a great opportunity to purchase housing and become its rightful owner. To do this, you need to purchase an apartment or villa located in freehold territory. All the popular areas in Dubai offer housing for sale in this category, so you’ll be spoiled for choice!

Inevitably, potential investors have one question: where and how is it more profitable to buy real estate in Dubai? Do you rent an apartment in a new building or the secondary market? Before you start looking at buildings under construction as the most profitable investment in real estate in Dubai, we recommend that you read some information about this market. In this article, we will explain the advantages of purchasing this type of housing in the UAE.

Contents:

• What does the term off-plan mean?
• Pros and cons of investing in off-plan real estate
• Government measures to ensure the timely completion of construction
• Requirements for developers in Dubai
• Are off-plan and pre-launch the same thing?
• Real estate in Dubai: off-plan or ready-made real estate?
• Conclusion

What does the term off-plan mean?

The concept of off-plan is often used in the Arab real estate market. This is the purchase of housing at the construction stage, that is before it is commissioned. Real estate prices at this stage are always lower in all countries and the UAE is no exception. However, one distinctive feature is the ease of payment.

When buying off-plan real estate in Dubai, an investor can count on a convenient payment plan in installments. Developers almost always offer split payments, which allows the buyer to gradually deposit money for the purchased property. The minimum term of such installments is 1 year and the maximum is 7. A prerequisite is the initial payment of usually 5% of the total cost, but this can change depending on the developer or the project itself. In some cases, the initial payment may be up to 40%. On average, you should budget for 20-25% of the purchase price.

When buying an off-plan property, the same purchase and sale agreement as with existing housing is used. First, the buyer pays an initial deposit to book their selected apartment, and only then do both parties sign the contract. The payment schedule is determined by the developer. The amount of the payment depends on the stage and timing of construction.

Pros and cons of investing in off-plan real estate

As with any payment method, the off-plan real estate sector has its positive and negative sides.

First, let’s consider the advantages of investing in real estate under construction:

• Favorable prices. The main advantage of investing in off-plan real estate is a relatively low price. It is, on average, 20% lower than the cost of a finished project. At the same time, the construction stage directly affects the price of an apartment in a building under construction. For instance, it is more profitable to purchase real estate during the foundation phase rather than after the construction of several floors. According to statistics, the average cost of 1 square meter of an apartment in a project under construction in 2020 was AED 7736 while the price of 1 square meter of an apartment in new buildings in Dubai after it a building was commissioned was AED 13,988 on average.
• Resale of off-plan real estate. Investors acquire Arab real estate for subsequent rental as well as resale. An interesting and profitable investment is to sell real estate at the final stage of construction at a price higher than the initial investment.
• Variety of options. Until a building is commissioned, you can choose an exclusive layout option. As practice shows, after the completion of construction, almost all apartments are already sold and you have to choose from what is left. Finding a suitable option from the remaining ones is a difficult task. For instance, it might not have the floor or layout you need or an ideal view from the windows With this in mind, the price tag will no longer be that attractive.
• Easy payment method. Most construction companies ask for only a partial payment of cost as a down payment. This payment option is convenient for both the buyer and developer since the remaining payments in installments will be credited to the developer’s account to facilitate further construction. To attract customers, real estate developers take on some expenses. For example, they offer to pay the registration fee at the Dubai Land Department.

As in any sector, off-plan real estate has its disadvantages:

• Waiting for the completion of construction. If you are planning to buy an apartment in Dubai to move into immediately, then off-plan real estate may not be suitable for you. The long wait until completion is one of the disadvantages that put off some buyers.
• The risk of construction stopping. Russian citizens are familiar with cases where the construction of a building is stopped indefinitely. A «frozen» construction site is a fear of many shareholders. Fortunately, in Dubai, this isn’t that common. We’ll explain the reasons for this further on.
• Fluctuations in the property price. Unfortunately, even professional analysts cannot predict this since the market fluctuates and depends on the global economy as a whole.

State measures to ensure construction is completed

The UAE government treats the real estate sector in the country as one of the key areas of development. All real estate projects under construction are under state control.

The first step a development company must take is to register a new project with the Dubai Land Department.

They ensure that the deposit payments don’t go directly to the developer but to an escrow account. This is a secure bank account that allows for safe transactions between the developer and the buyer. The construction company can use the funds from the escrow account only after the completion of the next stage in the construction. Here again, the state oversees the expenditure of funds. If an unforeseen situation arises and the developer urgently decides to halt construction, the UAE government will find a new development company to complete the project. Otherwise, the funds from the escrow account are returned to the investors.

In addition to government measures, the developer offers conditions to help preserve the buyer’s investment. This is because initially, the buyer contributes only a small part of the total value of the property and the rest after the completion of construction. It can be concluded that most of the funds will remain with you and the invested money will be returned even if the developer does not fulfill their obligations.

Requirements for developers in Dubai

The Dubai Real Estate Regulatory Authority (RERA, Real Estate Regulatory Authority) operates under the Dubai Land Department. This agency oversees all real estate-related activities in Dubai. RERA defines and sets the requirements that all construction organizations need to fulfill. Compliance with these requirements makes it possible for the company to obtain a construction permit as well as the legal sale of apartments (or houses). There are specific agency requirements:

• The land allocated for constructing a new facility should belong entirely to the developer.
• Funds of 10% of the total cost of the entire building should remain in the escrow account in case of problems after the completion of construction.

In addition, for the construction company to sell real estate, the developer must build at least 20% of the development and pay bank guarantees of 50% of the total cost of the property under construction. This security measure was introduced by the state to verify the developer’s financial viability.

Are off-plan and pre-launch the same thing?

Another term that’s common in the Dubai real estate market is pre-launch, which is often confused with the concept of off-plan. However, there is a fundamental difference. When buying an off-plan property, you buy real estate, from a developer, that’s already at least 20% complete. Pre-launch also means investing in real estate at the initial stage, namely, during the publication of the project. The prices for pre-launch are still 10-25% lower than during the construction of the foundation. Before the global crisis in 2008, this investment option was considered a very profitable investment since investors could increase their income in a short time by reselling real estate. Also, often after the completion of the construction and the commissioning of the development project, there is an increase in prices which in turn, brought even more profit to the investor who bought the pre-launch property.

Real estate in Dubai: off-plan or ready-made real estate?

So, what should you choose? When choosing between completed and off-plan real estate, you need to take into account the advantages and possible risks that we described above. If you have chosen a reliable developer if you are not limited by time frames and do not need to move urgently, then investing in off-plan real estate will be more profitable. As a rule, real estate in buildings under construction is on average, 30% cheaper than ready-to-move into apartments. An apartment purchased during the foundation stage may increase in value by 5 times after the commissioning of the facility. This option is safer than pre-launch where the building has not yet been built and there is only a project plan.

From a financial point of view, off-plan real estate is convenient because it can be paid in convenient, scheduled installments. Construction companies also offer promotions with long-term installments. You must always remember to clarify these conditions first.

As discussed earlier, property prices continue to rise throughout the construction phases. At the same time, it’s possible to resell an apartment in a building under construction for a profit, even before the work’s completed. But, in this case, it’s still necessary to comply with the developer’s requirements, such as making an initial payment and paying an administration fee.

We’ve compiled a list of construction companies that sell off-plan real estate. Their trust ratings are extremely high:

• Emaar Properties;
• Dubai Properties Group;
• DAMAC;
• Meraas;
• Select Group.

If you decide to invest in off-plan real estate, buying from these developers should guarantee the project is successfully completed. They’re known in the UAE for grandiose flagship projects, complex area development, as well as the construction of entire residential and business areas. They develop not only modern residential areas but also many attractions in Dubai, including parks and entertainment complexes.

Conclusion

An investor can choose to buy in a ready-made residential complex or a new development project under construction. It all depends on the conditions and objectives of the investment. If a buyer can wait, it’s worth taking a closer look at off-plan real estate. However, investing in ready-made real estate can also generate a steady income. For more information, it’s best to contact a professional agency. Experienced staff will acquaint you with Dubai’s new buildings market and tell you about reliable developers to buy off-plan real estate from with little risk. This way, you can decide exactly which option is best for you.