Off Plan Property

Buying off plan has its risks and rewards. The main benefit is typically a lower price. Developers usually offer 10% to 30% lower prices for off plan and under construction properties. The closer to completion, the higher the price (typically) becomes.

Project Delays

The most common issue with buying off plan is that your project will be delayed. It has been suggested that more than 50% of projects launched since 2008 in the UAE have been handed over at least one year later than quoted, some considerably more and some even cancelled. Unlike the heady boom days pre-2008, most off plan payment schedules these days are (or should be) linked to construction milestones so the part of the risk relating to delayed handovers are somewhat mitigated. Still not great if you’re renting and planning to move into your new property.

Quality Risk

The brochure and display suite look amazing but will the developer cut corners and deliver a product less fabulous than expected? Good developers trade on their reputation and understand that the quality of their finished product will directly impact their brand and future sales, others care less.

Market Risk

As a relatively new market, UAE real estate boom and bust cycles have been largely driven by hype and a herd mentality as opposed to fundamentals of supply and demand. This is changing as the market matures to a traditional end user/long term investor dominated market. Market risk however occurs in all markets across the world and when buying off plan you risk a general decline in real estate values between when you handover your booking fee and when you receive the keys.

Conversely the opposite is also true. If prices go up, you can leverage big gains on a relatively small deposit.

Change of Your Financial Circumstances

When buying a property off plan you need to pay 20% to 80% during construction with the rest due at completion. Most common these days are 50/50 payment plans. If you plan to pay the whole amount in cash your concerns are limited to the aforementioned risk (which is plenty for most) but if you require a mortgage to complete, you have the added risk that your financial circumstances may change in the future. You might lose your job; interest rates might increase or the banks may alter their lending policies. Even if you currently qualify for a loan; in the future you may find yourself in a situation where the bank will not lend you the funds you require to complete the purchase.

Advantages:

Since you don’t have to make the complete payment at once, there is a reduced burden on your finances as compared to on-plan properties.
The price of off-plan properties is usually lower than the on-plan ones.
Most developers offer multiple incentives to off-plan property buyers.
It is simply a ‘buy now – pay later’ model.

Disadvantages:

You do not have control on the property till you receive it.
You also get no profits till the property is built and received by you.
Off-plan property projects can get delayed for various reasons.
You purchase the property based on the brochure and can only hope that you get what you saw.

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