top of page
Lucas Vincent Blue Background_edited.jpg

Welcome to our Know-How Hub here at The Dubai Navigator.

We are experts in tax-optimized investment and relocation strategies for individuals and businesses alike, with a focus on Dubai and the UAE. Enjoy our free articles, and if you are looking for more in-depth 1-on-1 support, check out our paid services.

Are Off-Plan Properties Overpriced?

Updated: Mar 22, 2023

Historically speaking, Dubai has always had a very strong off-plan property market.


Off-plan refers to real estate that is sold before completion, and in most cases before the building has even started construction. Property developers all over the world, not just in Dubai, are increasingly relying on off-plan sales as the alternative is for them to raise financing from banks and wait with property sales until the building is completed.


By buying off-plan, you are essentially providing free financing to property developers. In theory, this should and does lead to lower operational costs for developers as they don't have to spend time and money securing bank loans, and do not need to pay annual interest.


This cost advantage, however, is rarely passed on to property buyers.


Sales statistics published by the Dubai Land Department, the Dubai government agency responsible for tracking and authorizing property sales, show that off-plan real estate achieves 25-50% higher per-square-foot prices than real estate in the secondary (resell) property market.


Off-plan versus ready property prices per Sqft in all areas in Dubai
Prices in AED. Off-plan properties are pricer than properties in the secondary (resell) market.

This, of course, is indicative of overpricing as every single off-plan property ends up in the secondary (ready-built) market after completion.


The difference in pricing between off-plan and ready properties varies greatly from year to year. This constantly changing difference is primarily the result of heavily fluctuating off-plan prices.


Just like the overall Dubai property market goes through phases, so does the off-plan market. In 2023 we are seeing a phase dominated by high-end property launches, which are pushing off-plan square-foot prices up.


Back in 2016, a large share of off-plan sales was dominated by affordable properties in secondary locations, bringing off-plan prices closer to resell prices.


As we can see in the above chart, in 2023 off-plan properties are sold at more than 50% higher per-square-foot prices than secondary market properties. However, even before Dubai's pandemic housing boom price premiums of 25%+ were standard.





Reasons Why Off-plan Properties Are Pricier


There are multiple plausible reasons why off-plan properties are priced higher than secondary market real estate.


The first big reason is property quality. Off-plan buildings tend to be located in attractive upcoming neighborhoods, feature a larger variety of amenities that go above and beyond the typical swimming pool and gym, and usually are designed to follow current trends in architecture. People are willing to pay more for those features.


Another reason is less obvious and has to do with the varying values of different apartment types within the same building. Every building has highly attractive units and less attractive units. Units facing a park, or featuring unobstructed skyline views are more attractive. Units without views or inefficient floorplans are less attractive.


Off-plan square foot prices reflect the average price of all units - good and bad, as developers sell all apartments in a building.


On the secondary market, however, investors primarily resell less attractive units as they like to keep the best ones for the long term. Less attractive units naturally lead to lower sales prices, and as a result push down the respective secondary market price statistics.


The same mechanism applies to buildings of different quality. Even adjacent buildings in the same neighborhood can have drastically different property values. Apartments in attractive buildings tend to be kept by investors, while units in less attractive buildings tend to be resold.


The result is that square-foot prices in the resell market are artificially pushed down by the tendency of investors to resell less attractive units.


A third reason why off-plan real estate sells higher is marketing. Many real estate agents focus exclusively on selling off-plan properties, as developers pay significantly higher commissions than property sellers in the secondary market, as we cover in depth in our guide on working with Dubai Real Estate agents here.


The result of these incentives means that prospective property buyers are bombarded with sales offers of the latest off-plan properties, whether that is done by email, in online ads, or at one of the many sales booths on Jumeirah Beach or Dubai's malls.


With all this focus on off-plan properties, flashy sales brochures, and shiny models of new buildings, people new to the Dubai property market often lose focus and buy an unbuilt property from the most aggressive agent.



Will an Off-Plan Property Immediately Lose Value Once It Is Ready?


Yes and no. We have to keep in mind that the above-mentioned statistics are crude averages of the off-plan and ready markets. Within those markets, there is a huge variety in property quality in terms of location, building age, and building amenities.


If you are smart and informed, it is possible to make exceptional returns buying off-plan, however, this is easier said than done.


From my personal experience analyzing hundreds of off-plan launches and comparing their price development years after completion, I would estimate that at least 60% of properties just break even or lose value when you compare the original off-plan price and resell price immediately after property completion.


The loss experienced by those 60% of investors is usually in the 10-20% range and varies based on developer, property location, property size, and property type (hotel apartment, standard apartment, villa).


Around 40% of investors make gains with off-plan properties.


For a more detailed comparison between the pros and cons of off-plan and ready properties, check out this article here.


We are Dubai's first and only property investment consultancy that has never and will never try to sell you property or earn a commission. With our finance background and 10+ years of experience analyzing the Dubai property market, we are here to assist you in finding properties that make you money, not the real estate agent or the property seller. Check out our services here.








Commenti


bottom of page