Is off-plan losing its shine?

The past few years saw a sharp rise in off-plan property sales across Dubai, driven in part by competitive prices and flexible payment terms offered by developers. Off-plan sales accounted for 58 per cent of transactions in 2016, increasing to 67 per cent last year, according to research by ValuStrat. As of the third quarter this year, off-plan sales already account for 60 per cent of transactions.

Off-plan particularly dominated property sales in established communities such as Downtown Dubai, which saw 85 per cent of total sales in the third quarter being off-plan, Business Bay (84 per cent) and Remraam (75 per cent), ValuStrat further reported. According to analysts, this reflects a general sentiment of buyers and underlines the most glaring concerns towards off-plan units.

“There are still various uncertainties surrounding the off-plan market, which means it also has risks,” said Jenny Weidling, research and advisory manager at Asteco. “Delays remain an issue, with developers having limited obligations to pay penalties if the project is not handed over on time. This causes issues for buyers who are end users and are looking to live in their units, rather than rent them out or sell them as an investment, since any delay can affect their ability to vacate their current property, which may be rented.”

Accordingly, buyers are choosing their investments wisely, which generally means sticking to projects by developers with a proven track record and in locations that are already populated by other developments and basic infrastructure.

“The demand for off-plan property nearing completion is holding its own against that for ready homes,” said Weidling. “With developers getting aggressive with pricing to sell their off-plan inventory, it is having a detrimental effect on sales in the secondary market, particularly in prime apartment districts. [But] investors are still relatively wary of new off-plan projects, with preference given to a few reputed developers with a proven track record.”

Location is another disadvantage of many off-plan projects, according to Haider Tuaima, head of real estate research at ValuStrat. “Many on offer are located in relatively remote areas, where infrastructure and transport links are currently underdeveloped and amenities for residents are not established,” said Tuaima.

While off-plan has captured a huge chunk of the market, analysts are seeing a gradual shift towards ready properties — a trend that could further pick up pace as more residential projects are completed and secondary market prices become even more competitive.

“This year saw more investors keen to buy properties that are already complete, especially in Arabian Ranches and Jumeirah Islands,” said Weidling, quoting a research by GCP-Reidin that revealed a 20 per cent and 22 per cent increase in the volume of villa sales in Arabian Ranches and Jumeirah Islands respectively. “Established communities in Dubai, such as Dubai Marina, Downtown Dubai, Jumeirah Lakes Towers and Palm Jumeirah, are and will continue to be popular as they provide convenience through the availability of multiple dining and retail offerings, ease of access, and connectivity via public transport.”

The secondary market also has one unique advantage over off-plan: buyers can negotiating a price, which is generally not available in most off-plan projects.

“Buying a ready property also gives an option of negotiating a price, which may be more suitable to the buyer’s budget,” said Tuaima. “Resale is possible at any time and there is no project delay or cancellation risk involved.”

For investors, a buy-to-let option also looks lucrative, according to Tuaima. “Properties can be rented out immediately, ensuring an instant return,” he said. “With current average gross yields of 5.6 per cent for villas and 8.1 per cent for apartments, and the hope of future capital appreciation, buy-to-let can be an attractive proposition.”