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The off-plan market was a major factor in the accelerated growth of Dubai's property sector in the previous decade. Buying off-plan is essentially purchasing property that has not completed construction, often with only development plans to show for buyers to examine.
At the height of the past real estate boom, many investors were buying nothing more than project plans written on a piece of paper. When these grandiose propositions failed to materialize due to the global financial crisis, the property market succumbed to a sensational downturn that saw real estate prices plummet to previously unimaginable depths.
But barely five years into the ongoing recovery of Dubai's realty industry, off-plan properties are making a strong comeback, as the recovery of the UAE economy has allowed many stalled projects to begin reconstruction, adding to the growing off-plan stock.
"Renewed confidence is fuelling demand for both stalled and new projects in the city," says Mohanad Alwadiya, Managing Director of Harbor Real Estate. "What's more, initiatives such as the World Expo 2020 are expected to drive population growth and economic activity in the city.
"Another positive element of off-plan projects in Dubai is the fact that many developers offer easy payment plans, especially after the UAE Central Bank introduced mortgage caps. These payment plans have enabled buyers with limited capital to invest in such projects with ease."
Property that have price tags of around Dh1 million are seemingly the most popular among off-plan buyers, says Sean McCauly, Director of Agency Services at Asteco Property Management.
“Such properties have an attractive payment plan to go with them,” he says. “For example, there are projects where developers are offering a 50-50 payment plan [50 per cent to be paid during construction and 50 per cent on completion].
“Banks too are offering 50 per cent financing on off-plan. Some projects with a starting price of around Dh500,000 and a two-year payment plan are attractive propositions for end users.”
However, off-plan property tends to be more attractive to investors and speculators than end users.
“The majority of end users prefer to buy ready property, which provides a good price and mortgage term,” says Alwadiya. “But with the rental market looking solid, investor demand for off-plan property is strong. In fact, there is strong interest from bullish, long-term speculators [as opposed to flippers or short-term investors] to invest in off-plan property, as they believe property prices will continue to rise over the next few years, giving them considerable capital growth.”
Villa Lantana, a freehold villa community next to Umm Suqeim in Al Barsha South, is one of many new developments in Dubai getting a big boost from the renewed interest in off-plan property. Developer Tecom Investments tells PW it has already sold more than 60 per cent of the project since its launch last month.
“Our sales numbers have exceeded our expectations,” says Badr Al Gargawi, CEO of Development and Planning at Tecom Investments. “The market is looking good and there is a healthy demand in the villa market in Dubai. The realty market is indeed heading in the right direction.”
Located close to the city’s main arterial roads, business areas and educational establishments, Villa Lantana comprises 440 contemporary three-, four- and five-bedroom detached and semi-attached villas, with 17 different villa designs and 11 floor plans to choose from. The master plan includes a retail centre, parks, playgrounds, sports facilities and an outdoor jogging track.
For a master development of this kind, the residential prices range from Dh2.37 million to Dh6.1 million. Construction is under way and is expected to be completed in the fourth quarter of next year.
“Villa Lantana was designed to meet a growing demand for freehold villas in Al Barsha South, which is currently the heart of New Dubai,” says Al Gargawi. “We are confident this new residential project will be an astute investment.”
He adds: “Customers are getting more sophisticated. They know what they want. We try to understand what people need and suit a product to their needs. For example, every villa has a maid’s room and every bedroom has en-suite facilities. We also tried to create a functional open space, rather than a plain green landscape.”
Building on the strong interest in off-plan, Union Properties launched two freehold projects worth more than Dh1.7 billion at last month’s Cityscape Global.
The Dh1-billion Vertex Towers is a residential development in Dubai Motor City consisting of five towers. It will have 700 two- and three-bedroom units and duplex apartments, 66,000 sq ft of retail space, green spaces and recreational facilities such as swimming pools and a gymnasium.
“There is demand for off-plan property,” says Ahmad Khalaf Al Marri, General Manager of Union Properties. “Plus, there is partial financing, which should add to the interest in the project. We always focus on the end user and therefore work hard to ensure a good finish to the product. Having said that, we are open to investors buying into the project as well.
“In Motor City, we focus on a variety of affordable residential buildings that include low, medium and high-rise units. We think the Vertex Towers development is ideal for end users looking to grab a good off-plan deal.”
Vertex Towers is currently being designed and will be constructed in two phases. Phase one, which will include a 30-storey and 45-storey tower, will start construction in February and is expected to be completed in February 2018.
In conjunction with National Bonds, Union Properties also launched a Dh680-million project in Green Community, The Green Community West. It will comprise 210 villas and 16 two- and three-bedroom apartments.
“The first phase of the project will comprise 74 villas. The second phase will have 78 villas and 127 apartments,” says Al Marri. “The total cost will be around Dh400 million. The project is slated to be completed by October 2016.”
Meanwhile, Asteco Property Management is also launching two off-plan projects in Dubai: the 38-storey Reef Residence in Jumeirah Village by Reef Real Estate and the 47-storey Marina Arcade in Dubai Marina by Mada’in Real Estate.
Reef Residence will comprise 438 one- and two-bedroom apartments with views of a golf course and the Dubai skyline. It will also have a large landscaped leisure deck and barbecue areas, a playground, two swimming pools and a gymnasium. Prices will start at just under Dh450,000.
Marina Arcade, located close to the Dubai International Marine Club, will include furnished apartments and a retail podium for boutique offices and recreational facilities.
With the slew of off-plan launches striking a chord with many buyers, experts are quick to offer a word of caution.
“The business of successfully selling off-plan property is only going to work for reputable developers,” says Craig Plumb, Head of Research — Middle East and North Africa at JLL. “It’s not for everybody. One must be careful to ensure that the off-plan property will be delivered on time and to the quality being promised. That can be achieved with reputable and good developers.
“Secondly, off-plan can only work if it is offered at a discounted price compared to a ready property in a particular area. For example, if a ready property is selling for Dh1,500 per square foot, then an off-plan property in that area has to be far more competitively priced as people would prefer to go for a ready property instead. Investors are more cautious and they know what they are buying.”
He adds: “There are a number of advantages of buying ready property. You know what you are buying and you can earn an income or live in it immediately. Therefore, an off-plan unit needs to be priced really well.”
Payment terms are equally important considerations when scouting property in the off-plan market.
“The payment terms need to be well balanced,” says Plumb. “In fact, the payment terms are as crucial as the price of the unit. Only 50 per cent financing is available for off-plan units as per the Central Bank rule. Hence, a buyer has to be able to cough up the rest. A more relaxed payment plan will definitely attract end users.”
Last year, the Central Bank capped off-plan mortgages at 50 per cent of the property’s value. The regulations also capped financing for completed property at 60-80 per cent.
In July, there were reports that Dubai’s off-plan market was under review by the emirate’s real estate authorities, who are expected to issue additional regulations in the coming months to further slow down the rapid growth of real estate prices.
The buying and selling of off-plan property for a quick profit, known as flipping, was seen as a major cause of the property crash in 2008. Buyers were putting down a deposit worth about 10 per cent of the property’s value and would make additional payments as construction progressed, with a final sum due during delivery.
At the height of the property bubble, contracts often changed hands before any construction took place.
The experience has led to changes in the sales practices of many developers. Emaar, for instance, has banned the resale of incomplete property until 40 per cent of its total value is paid. The proactive involvement of real estate developers was seen a factor in minimising the negative impact of speculation in the market.
Check out if there's similarity to this story 5 months ago where they say Dubai's off-plan projects are back
Source: Anjana Kumar, Special to Property Weekly