The Pros and Cons of Dubai Off-Plan Properties

Those new to the Dubai property market and looking to invest tend to go straight to one of the city's big property developers. By buying property directly from a developer, off-plan, in other words, before the building starts construction, the hope is to save time finding a good investment. You also get to own a brand new apartment or villa in a few years to come - and who doesn't like something that is brand new?

No other city has so many off-plan properties for sale as Dubai

Property developers have great renders and work with aggressive real estate agents to make any upcoming property project look enticing.

However, off-plan properties come with a long list of potential pitfalls that newbies to the Dubai property market are especially susceptible to. Let's cover the pros and cons of buying property off-plan in Dubai:

Pros

You Get to Choose that Perfect Apartment You Cannot Find in the Secondary Market

Every building has apartments with good and bad views, efficient and inefficient floor plans. By keeping track of new property launches from developers and being among the first to arrive when a new launch is happening, you have the best chance to secure your preferred apartment in the building, or villa location in a suburban subdivision. Investors like to keep the most attractive units, and that's why you rarely find them in the secondary market available for resale.

Everything Is New

Finding a good, brand-new apartment on the secondary market can be tough. If you like to get something new, perhaps for personal use, buying off-plan is a great way to go. Just be aware of the common delays in construction and handover. Read more under "Cons".

Property Flipping for a Quick Profit

Buying off-plan allows you to lock in today's price, and sell at a hopefully higher price once the property is finished. As off-plan properties only require partial up-front payment, they provide you with a leverage effect. However, be careful. Dubai's property market in particular is highly cyclical with many ups and downs. If you overpay or invest at the wrong time, you are at risk of going underwater. That means that the property value may go below your original purchase price. The leverage effect goes both ways - up and down. Flipping only works for certain properties. Reach out to us today for an informed consultation!

Cons

Frequent Delays

Most property developers, including the big ones, have delivered properties with severe, several-year-long delays. Imagine buying a property off-plan in 2014, expecting it to get finished in 2018, and waiting until 2023 for handover. That's not unusual. In some cases you may qualify for compensation from the developer, compensation, however, often falls short of the losses you will incur. We have analyzed the 20 largest property developers in detail on quality, delays, and value retention. Contact us for insights.

Overpriced Launch Offers

Most off-plan properties are priced 20%+ higher than current market rates. This means that the day after you buy the property, you will likely have to sell below the original purchase price if you try to liquidate your investment. People like to buy from large reputable developers with flashy showrooms, not from individual strangers. That's why developers are able to charge a premium.

Uncertain Quality

If you buy off-plan, you can never be certain of the quality of the final product delivered. Sometimes apartments are tens of square feet smaller, and other times there is a leaky pipe in your wall that the developer refuses to repair after the 1 year warranty expires. These risks are always there when you buy off-plan, but can be managed if you know the history of various property developers and neighborhoods. Contact us for details.

Risk of Non-Delivery (Total Loss)

While much less common nowadays, it does occasionally happen that a property developer goes bankrupt before a building is completed. This usually results in the property buyers entering a phase of legal limbo. They officially still own the "right" to the property, however, this right is unenforceable. After the 2008 Dubai property crash, countless developers went under, and many investors from those days are still waiting for the completion of their properties. After the 2008 crisis, the Dubai government implemented regulated escrow accounts into which investors pay, rather than paying the developer directly. By keeping track of developer spending, the Dubai government has greatly reduced the cases of bankrupt developers.

Unproven Returns

If the off-plan property is located in a new masterplan community such as Creek Harbour, it is often difficult to estimate expected property rental returns as new comparable market rates are unavailable. Buying property without a reliable rental return assessment (based on cash flow analysis) is like buying stocks based on gut feeling. It may turn out great or not so great. If you like to learn more about reliably estimating property returns before investing, have a look at our 30-Minute Business Case offering or our Property Cash Flow Coaching, where we explain in detail how to use cash flow analysis to project investment returns.

Limited Access to Mortgages

Getting a mortgage on your Dubai property is already more difficult than in Western countries. In addition to that, virtually all banks require a minimum 50% downpayment on any off-plan property before they even start considering giving you a mortgage on a property. Mortgaging an off-plan property is seen as riskier as there is always a threat of delayed completion.

There are many more advantages and disadvantages of buying both off-plan or ready in the secondary market. We discuss all of these and much more in our "Property Strategy" coaching.

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