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Why does it make sense to purchase property under construction in Dubai?

Why does it make sense to purchase property under construction in Dubai?

In 2002, the Emirates allowed foreigners to purchase and own real estate. 20 years later, we can safely say that the demand for local investment assets is growing every year. The Dubai market is extremely inviting for potential investors due to the growing economy, the stable political system, and the high return on investment in real estate. Dubai is the best choice for people who wish to make a successful investment. Specifically, new off-plan residential developments in Dubai are extremely popular among buyers. This post discusses why it makes sense to purchase off-plan property in Dubai and what the risks of purchasing off-plan property are.

Contents:

Pitfalls of purchasing off-plan

Before investing in off-plan property, an investor must be aware of the potential risks. Here are the key problems investors can face after purchasing real estate at the construction stage in Dubai.

Schedule overruns

If you purchase an off-plan (early stage of construction) apartment or house, you should expect potential delays in its commissioning. This is one of the most common challenges faced by buyers of property under construction. Such a problem can become a strong counterargument, especially for people who have to rent a home until the construction of their apartment is completed. It is advisable to have a contingency plan to make sure that schedule overruns do not catch you unawares.

Expectation vs. reality

The reality not meeting your expectations is a problem relevant in all countries, and it is not necessarily associated with purchasing off-plan or completed housing. Moldy apartments, thin partition walls, poor sound insulation, and poor air conditioning systems are just some of the potential flaws of housing that can hardly be discovered ahead of time. In this respect, trying to save on purchasing real estate in Dubai can entail great expenses on eliminating these deficiencies.

An investor selecting an off-plan property has to make the purchasing decision based on images on the website and brochures with floor plans. The end result can be affected, for instance, by the quality of construction materials used. Make sure to research the reputation of the developer you are planning to buy from, and facilities completed by this company. It will be helpful to hire an independent expert to assess the developer and the project itself and safeguard your investment in purchasing real estate in Dubai at the development stage.

Market fluctuations

Experts forecast a high return on investment from leasing residential premises in Dubai. Purchasing an apartment at the excavation stage in Dubai in 2022 means capital gain opportunities for the investor. But circumstances can change. Anything can happen between the time you purchase real estate and the time you receive the keys as we witnessed during the 2008 crisis and the 2020 pandemic. Remember these obstacles and make an informed decision when you choose to invest in off-plan property in Dubai.

How to mitigate the risks of making a transaction with the developer?

How do you mitigate the risks of purchasing off-plan property in Dubai? Follow these recommendations to safeguard your investment in purchasing real estate in Dubai at the development stage:

  • Have a Plan B in case the apartment is not completed by the due date
  • Carefully verify the developer’s reputation before closing the deal on your purchase
  • Select a reliable company, e.g. one of Dubai’s major developers that have proven their trustworthiness, such as Meraas, Emaar, and DAMAC Properties
  • Do not invest all your money unless the developer’s reputation is 100% reliable

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Does it make sense to purchase off-plan housing in Dubai now?

If you assess the risks and study the developer’s reputation carefully, you will be able to make an informed decision concerning all the benefits of purchasing off-plan housing. Several advantages make such an investment lucrative.

Low prices and flexible payment plans

One of the most obvious advantages of investing in a new residential development before its completion is the fact that off-plan projects are offered at significantly lower prices. Attractive deals and flexible payment plans for purchasing off-plan property make investments in housing under construction more affordable and practical compared to buying completed homes. Investors receive a higher profit due to a lower purchase price, and they have a wider choice even with a limited budget.

New projects are announced in Dubai almost every month, and developers are forced into price competition and favorable payment plans, for instance, 50/50 payments, where half of the value is paid in advance and the other half, upon project completion. 1% per month payment plans are also available.

Capital gain

The UAE is one of the world’s fastest-growing economies, which is why investment in local real estate is highly promising in terms of Return on Investment (ROI). The value of the property will grow after the project is completed, regardless of the initial price before the start of construction. Therefore, even if you make your investment in installments, according to the developer’s payment plan, you can still see the market value of your property grow, and expect a significant capital gain if you decide to sell the unit before or after construction completion.

The growing market value of the real estate is driven by the district’s and community’s popularity. If you purchase a property at a time when the area under development is quickly turning into a community with extensive amenities, the market value of your home is likely to increase.

Investors in off-plan property can see a quick profit by selling the apartment before the end of construction, as long as the project is popular in the market.

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High rental income

Rental income is one of the key drivers of investing in the UAE’s real estate. The number of immigrants in this country is growing every year and is now approaching 90% of the population, which means there will always be a demand for rental homes in Dubai. Regardless of whether you purchase off-plan or completed property in Dubai, you will receive a stable rental income, ensuring your financial security.

Wide choice of projects in Dubai

From the invariably popular Downtown Dubai to new communities springing up on the city’s outskirts, the market of off-plan property in Dubai can offer anything a buyer can dream of, such as an apartment or a villa at the construction stage, in any location, price category, or property type. Buyers of off-plan property in Dubai have more options every year.

Secure investment in off-plan property in Dubai

Investors consider off-plan property to be high-risk. However, REPA (Real Estate Regulatory Agency) and the Dubai Land Department (DLD) in the UAE take multiple measures to offer buyers additional protection from delays, indefinitely paused construction, or fraud.

According to one of these rules, buyers must pay for off-plan transactions at DLD-approved banks. The developer cannot access the funds on the escrow account until the project is at a certain stage of completion.

Another recent law stipulates that developers must confirm their financial solvency to the government by putting down a deposit of 20% of construction costs as a security bond and another 10% as a contractor’s warranty bond. These measures enhance buyers’ trust in the off-plan property market, creating a safe investment climate and confidence that the real estate will be handed over, or money will be returned to the housing owners.

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Conclusion

Any type of investment has its pros and cons, and purchasing off-plan property in Dubai is no exception. Look at the pros and cons of buying off-plan and consider them carefully to make a wise investment in the Dubai real estate market.

To summarize, the advantages are:

  1. Lower prices compared to completed projects
  2. Higher capital gain
  3. Attractive and flexible payment plans
  4. Lower upfront costs

The disadvantages of investing in off-plan property are:

  1. No immediate return on investment, as the real estate is at the development stage
  2. Buyers cannot move in or lease their property immediately and have to wait until commissioning
  3. Risk of delays, indefinitely paused , or low-quality construction
  4. Market fluctuations that can be both positive and negative

Hiring professionals is a wise choice if you want a better understanding of how to invest money in off-plan property in Dubai. Selecting an experienced professional determines how profitable your purchase will be eventually.

Start looking for your dream home right now!

Would you like to find out where to invest in off-plan property in Dubai? Visit our website and view some of Dubai’s most popular residential projects. If you’d like a better understanding of how to invest at the construction stage in the UAE, please fill out the request form and receive professional consultation on purchasing off-plan property in Dubai.

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