Pros and cons of off-plan and ready

Pros and cons of off-plan and readyHaider Tuaima

As developers gear up to unveil their projects at Cityscape Global in Dubai, investors are hoping for more lucrative options in the housing market. Last year's Cityscape saw 47,000 participants, an increase of 42 per cent since 2013, highlighting improved activity and buyer confidence. This year will be the 14th edition of the event, which will host more than 300 exhibitors, a 30 per cent increase since 2014.

With a deceleration in the rate of decline of property values since their peak last year, investing in Dubai's ready property looks increasingly attractive. Having said that, 27 off-plan projects have been announced during the first eight months of this year, offering apartments, villas, town houses, hotel apartments and plots for building homes.

With low-priced ready property available, off-plan developers are not only tying payment schedules to construction milestones, but also keen to offer more competitive payment plans that sometimes even go beyond the handover date.

It has become more important for investors and end users to conduct the necessary due diligence before deciding to part with funds, firstly by considering the pros and cons of an off-plan purchase versus a ready unit, and then digging deeper and understanding the financing options, either from the developer or a bank.

Off-plan benefits

Such properties in Dubai offer a number of benefits, the first being cost. Initially, prices of off-plan units are set below those of comparable second-hand stock in order to attract investment, which, in turn, finances construction. Buyers can also hope to make a sales profit if their unit is resold before completion or soon after handover, depending on market conditions. Many look to benefit from future capital appreciation, paying partial deposits.

Moreover, long lead-in times for new home deliveries suit many off-plan buyers, offering them time to build up extra savings, wait out the expiry of an existing lease or plan for important events such as marriage or the arrival of a baby. Early purchasers also get to choose their preferred unit type, floor plan, views, specification as well as location.

New launches have gotten increasingly sophisticated with cutting-edge designs and lifestyle extras that older developments simply cannot match. Additionally, not having to pay agency fees or commissions if purchased directly from the developer adds to savings.

A new property also means the buyer is the first to occupy the unit and can personalise it as they wish and not have to make do with what's left behind by a previous occupier.

What are the risks?

However, purchasing off-plan involves a number of drawbacks, as is the case when buying something that is not tangible. Firstly, if the property market declines during the construction phase, the return on investment might not be as good as hoped. In extreme cases, a project can be delayed due to the developer being short of funds, the market condition or other reasons, which all translate into loss of money and time for the investor. Many such cases exist with buyers paying significant sums in deposit payments on projects that are delayed or stalled. Even after handover, owners could find themselves living in a building on a site with disturbance from ongoing construction for years.

In terms of price, off-plan units are generally not negotiable, a challenge for some buyers in a region where haggling is predominant. Also, in line with Central Bank regulations, lower loan-to-value (LTV) rules apply to off-plan purchases, meaning that buyers have to provide higher cash deposits.

Location can be another disadvantage. Many off-plan projects on offer are located in relatively remote areas, where infrastructure and transport links are underdeveloped and amenities for residents not yet established.

So even if the asking price and payment plan seems within budget, detailed checking is required before a purchase. Buyers should ask about the developer's history and study the master plan and development layout carefully. Research the location, infrastructure and road and metro links, and find out more about retail options, schools, parks, quantity and quality of future supply as well as the neighbourhood.

Buyer protection

With a view to improving the real estate market in Dubai, a number of laws and regulations have been put in place by the government, giving added buyer protection. One improvement relates to escrow accounts, where investor payments are guarded in specially regulated accounts and only released to the developer once verified construction milestones have been reached. Many of the committed and more resourceful developers, who stayed on after the downturn, have deservedly earned a good reputation in the marketplace.

Attractive off-plan deals on offer include competitive payment plans, end-user financing, fit-outs and sales price discounts.

It must be noted that not all developers offer post completion payment plans, which could be an advantage as the investor becomes debt-free upon handover. Those seeking such options might initially find the affordable monthly payments to the builder very attractive. However, this is not always the case.

Our research shows that off-plan one-bedroom apartments can range from Dh6,000-Dh17,000 a month. Therefore, it would be more prudent to consider financing via a longer-term mortgage product to reduce the amount of monthly payments.

Ready-to-move units

What about tangible units? The waiting time to complete a purchase is comparatively much less and buyers can qualify for higher LTV ratios on their mortgage. Buying a ready property also allows negotiating a price that would be more suitable for the buyer. These properties can be judged in terms of location and quality. Older housing stock is generally located in developed areas with established infrastructure and transport links. Resale is possible at any time and there is no project delay or cancellation risk involved. For landlords, properties can be rented out immediately, ensuring instant returns.

This is especially important when monthly mortgage payments are to be met. With average net yields of 4-6 per cent in some locations, and the hope of future capital appreciation, buy-to-let can be an attractive proposition.

But even ready properties can have shortcomings. They are generally more expensive than off-plan property and there is the added cost of agent's commission. Another drawback could be the age, specification and condition of the property.

Ultimately the choice between off-plan and finished property depends on a buyer's criteria. Both offer advantages and disadvantages that need to be weighed.

At Cityscape, house hunters can compare new offerings and gather a wealth of useful information to make an informed decision.

Get more tips on making the proper choice between ready or off-plan

Source: Haider Tuaima, Special to Property Weekly

The author is a research manager at ValuStrat with over 25 years' experience in real estate research, valuation and development, corporate training, solution development and banking. He has contributed to several major projects in Dubai, including Jumeirah Village and International City


For Rent


View more properties

For Sale


View more properties