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The slowdown in Dubai’s real estate market towards the latter half of 2014 is well reported. However, for the astute investor who can take a long-term view, Dubai still presents a lucrative offplan investment proposition. So what’s different this time round, and why is the offplan market favourable?
First things first, the off-plan property market is completely different from five or six years ago. Not only is it more transparent but also better regulated. For example, developers are required to provide monetary evidence and guarantees that they can take on the proposed project. This has meant developers do not abandon their projects and continue with their commitments even when the market slows down.
We see many projects that tick all the right boxes for off-plan investment in today’s market. However, potential investors would need to view any purchase as a long-term commitment in order to maximise a healthy return on investment. In the past, off-plan projects changed hands numerous times prior to handover, so these investments were often considered short term. Today, however, a property may have to be held for longer periods before they can be sold at an attractive price. Furthermore, the added Oqood and transfer fees in Dubai
have had a significant impact on the return on investment for these off-plan properties, now making the holding period a little longer.
How is it the right time?
Here are six key factors that contribute to making this the right time for an offplan purchase.
The right price: The slowdown and significant stock held by developers have meant investors stand a better chance of securing an off-plan purchase at better rates. To entice investors and secure sales, developers are being competitive, creative and flexible with payment plans and pricing.
The right choice: There are a number of unique and quality projects entering the market giving potential investors better options. In addition, making a decision is easier today because the investor can see examples of established communities, with their individual characteristics and completed infrastructure. This, in turn, helps them determine the future environment of a particular property and ensures the right choice is made.
Peace of mind: As an investor you’ve heard the stories, particularly the ones about developers not delivering projects. It’s different today; developers are now required to purchase the land they will build on, and as an added vote of confidence more banks are financing the construction of off-plan projects. This has reduced the risk of the project not being completed due to a lack of sales. The law also requires the developer to place all sale proceeds into an escrow account. This account can only be used as approved by the Real Estate and Regulatory Agency as stage-building milestones are reached, ensuring the investment is protected and secure in comparison to previous years.
What this has done is draw stronger and more resourceful developers into the market. In the past, many groups got into the game on very little equity relying primarily on off-plan sales to fund their projects. When the market crashed, this cash flow dried up and a lot of developers were forced to close and in some cases, leave town overnight. Today, we are seeing a different breed of developers who are clearly committed for the long term.
Ownership: The laws relating to off-plan property ownership are also more established and better regulated today.
This has made it easier to negotiate the purchase process, particularly for investors operating independently of real estate agents.
Expertise: Dubai’s real estate professionals today are better regulated, educated and experienced and understand the importance of matching the investor to the right developer and project. This know-how enables them to provide investors with informed advice that helps with the decision-making process.
Banking support: One development that has caught the attention of observers is the renewed interest of banks to not only provide end user financing on some off-plan projects but also finance certain projects in their entirety, allowing them to provide up to 75 per cent of financing. This support makes these projects all the more attractive to investors and may allow some of them to get in and out of their investments quicker, as it opens the market to more qualified buyers.
Developers have realised that building solely five-star luxury projects alienates investors with an appetite for the mid-tier segment. Therefore, we are seeing, and will continue to see, developers catering to investors looking for less expensive projects. These are typically located in housing communities with lower purchase costs and a fast-growing infrastructure, and where units would be rented out for the long term. Such properties are harder to find, but they offer potential investors a substantial client market. Therefore, we expect developers to focus on this segment going forward. We are already witnessing this with numerous projects under development in Jumeirah Village Circle, Dubai Investment Park, Dubailand and Dubai Sports City.
Another important lesson that developers have learnt is that they need to put more effort into selling their products. Gone are the days where a developer can simply show you a picture of what they are planning to build and expect you to sign.
Today, they construct showrooms, villas or apartments, which are decorated with exactly the right finishes a buyer can expect in the final product.
Furthermore, most developers are recognising that the unit sizes need to be attractive as well. Onebedroom apartments that are less than 775 sq ft in size might look good on the balance sheet, but if they don’t sell, then something needs to change.
Many new projects offer larger units with floor-toceiling windows, storage areas and better amenities. In return, developers are able to charge a little more, but at least the buyer is getting value for money.
There is another growing market of potential investors who are looking for something different: low-rise, quality-constructed buildings that can be purchased in their entirety. This is typically invested in and used for office staff housing, rental, or property management. Potential off-plan investors should look at this option as it can provide healthy and sustained returns over the long term.
So, to conclude, developers are offering competitive payment plans, end user financing and sales price discounts to entice investors, which mean there are a number of good deals to be had.
If we add continued transparency and better regulation within the sector to the mix, the current market, while slow, presents attractive and alternative investment options for off-plan investors considering their next move.
Source: By Thomas Bunker
Thomas Bunker is Manager of Off-Plan Sales at Better Homes Real Estate.