Dubai developers offer 'pain-free' solutions for offplan buyers missing monthly instalments
As 1% and 0.5% offplan plans soar, some buyers find it difficult to keep up instalments
Dubai: Offplan property buyers and their developers in Dubai are trying to work out some ‘pain-free’ solutions in instances where payment instalments have not been met as per the schedules on the SPAs (sales and purchase agreements).
Developer sources say there have been increasing numbers of payment defaults by buyers, especially on those projects featuring monthly instalment plans at 1%, 0.8% or 0.5% per cent of the property value.
“The monthly instalment schemes are offered to reduce the bigger instalments and interest rate costs on mortgages,” said a developer. “These instalment schemes definitely help with sales, but getting buyers to be on time with their monthly payments is nowhere near as easy.”
When payments are not met, developers are willing to waive penalties to get buyers back on track. The process becomes more difficult when it involves buyers based overseas. Which is not how things pan out when the payment default involves a bank, and those penalties can get sizeable in no time.
Due diligence on the part of property buyers is more than just looking at project locations and pricing. We encourage property buyers to approach it holistically when considering investing in the offplan market.
After mortgage rates shot up, developers were quick to see possibilities from offering monthly payment schemes, typically at 1% of the property value, but now, that’s been brought down to 0.5% and 0.8% by many developers. For instance, on a 0.5% payment plan for a Dh1.5 million home and with 10% down payment, the buyer would be paying Dh6,750 a month. (Even with the US starting on interest rate cuts and the UAE following suit, it would take longer for mortgage rates to cool off to levels that property buyers will deem confortable.)
What no wants to see is payment defaults cropping up again and again, which could then spiral out of control for the developers.
In these circumstances, buyers should try and understand developers’ positions when payment plans are not getting met. “Whenever there is a delay in payments, it exerts pressure on developer balance-sheets,” said Panaav Gehani, Director at Zabadani Properties.
“Due diligence on the part of property buyers is more than just looking at project locations and pricing. We encourage property buyers to approach it holistically when considering investing in the offplan market.
“Instances of project delays then impacts on secondary market values, and investors should keep these factors into account in their decision-making.”
Constant worry
Midsized and smaller developers with one or two offplan projects in the works are the ones who suffer most when any buyer payments get delayed. They say it’s not about the time taken to get buyers back on track, but that it involves creating internal processes to make sure of that. “It means assigning personnel just to manage the payments schedules, and it all adds to our costs too,” said a developer.
If there is proper justification from the buyer side, late payment penalties may be waived, case-by-case. We see ourselves on the side of our buyers - we work with them, not against them
According to Tizian Raab, spokesperson at Azizi developments, “While we do have a payment delay charge in place, which is the usual 1% if a payment is overdue by one month, and 2% for every month it is delayed thereafter, we try our very best to support our buyers in times that may be financially challenging to them.
“We put in sincere effort to help them avoid these additional charges, such as by encouraging and reminding them diligently, both in writing and via phone calls from their personal account manager.
“Beyond that, we give them the time and care they deserve to determine a mutually acceptable way forward. Should such significant delays still arise, which only happens very rarely, we have a dedicated committee in place that convenes twice per week to study individual cases and agree on tailored solutions.”
So far in 2024, offplan sales have dominated Dubai residential property market by some distance. Both end-user and investor interest (especially those buyers from overseas) continue to be active in offplan transactions. For investors, it is about trying to make full use of the high rental demand for homes in Dubai, which given the trends, should continue for a lot longer.
"Developers in Dubai have been reasonable in offering flexible payment plans to investors - even at sub 1% monthly schemes for some of the newer launches," said Florine Rusu of Market Price Real Estate.
"With price discounts and payment flexibility, developers are going above and beyond to accommodate investors. Of course, it varies from project to project but this is the reason why we have seen offplan sales dominating."
Going forward, developers will need to retain the same easy stance when payment defaults happen.