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Most reports about the Dubai property market performance in 2014 have clearly outlined the strong comeback of the off-plan property sector and its place in the Dubai property market. Major developers have launched projects in various parts of the emirate – in established as well as upcoming communities – adding more inventory to hit the market in a few years.
One big concern arises: can the trend sustain in this market? It can, and Dubai has the strong credentials to have this going until there is a balance of demand and supply. There is a general tendency to compare the current trend with that of the pre-2008 scenario where there was a similar influx of projects launched.
It is an entirely different phase altogether this time around. Today, if a developer wants to launch a project, there are clear-cut criteria set by the Dubai Land Department and RERA. These include: the plot on which the project is planned has to be fully paid by the master developer; the developer Location, quality and specifications, payment plan and developer brand are the perfect mix to a successful off-plan product today has to finish at least 20% of project construction before it can go in for approvals, receive a project ID, open an escrow account and market launch. Even the brochures, sale and purchase agreements, and the jointly owned property declarations have to be approved by RERA before they are released. The agents who promote these projects are strictly bound to market them only if the RERA requirements are met.
What’s more interesting is that the developers today have a definite funding strategy for the construction of their projects rather than relying mostly on unit owner payments. Developer compliance to rules does make the project more credible and reliable to invest in. The introduction of the much-awaited real estate investor protection law, Tanweer, and steps implemented to curb speculation can only add value to such investments.
For an off-plan property buyer, be it an investor or end-user, having a medium to long-term goal for his asset would yield him better returns. Generally, off-plan properties have a two to three-year construction schedule wherein payments are made in installments. The prices offered by most developers are at least 15 to 20% lower than that of a completed property in the same vicinity at the time of their launches. In subsequent years, there would be more appreciation if the ready property market yields more.
This price advantage is a major motivating factor for buyers. There are clients who may not qualify for a mortgage in Dubai and this option gives them a relief, the same reason why off-plan property has been a huge hit with the international audience. RERA releasing payment to the developer only when construction milestones are met provides more security to the buyers.
For an end-user, he would be sure that his property has appreciated well by the time it is completed. An investor would be happy his ROI is impressive against the capital invested if looking to off-load towards completion. Not having to invest the capital all together means the investor can utilize the funds or generate returns on other investments, but still booking the property at to-day’s market price. Creating wealth in off-plan property is, thus, fairly justified.
Location, quality and specifications, payment plan and developer brand are the perfect mix to a successful off-plan product today.
In mature markets like the UK, developers command only a 10 to 20% maximum deposit before completion of a new built scheme.
This trend is slowly hitting Dubai, where developers are offering lucrative payment plans with minimum deposits prior to completion, and in some cases extending even post-completion. This could be the next big thing coming its way to off-plan property projects in Dubai.
Source: Parvees A. Gafur, Special to Freehold
The writer is a CEO - Propsquare Real Estate.