UAE: Are you better off buying off-plan or ready-to-move property now?

Dubai: If you are on the lookout for a property to invest in or make your own, a factor you would be considering while choosing a property is whether it’s better to buy an off-plan or a ready-to-move property, and also if now is the right time in the real estate market to opt for either of the two options.

As these are questions that arise in the minds of almost every prospective buyer, there is often a need to analyse which option is the better of the two and weigh how once can time the market to help make a decision.

“If you buy a house, apartment off-plan, you buy it before it is built, when only the plans for it exist. A brand new property, a locked-in price and a customised finish – there’s a lot to like about buying a house off-plan,” said Prakash Bhat, a real estate, and mortgage consultant based in Abu Dhabi.

“But as with any big investment, there are risks to consider too. The same goes for ready-to-move properties. Over the years we have seen market trends that favour both, and both options have their advantages and disadvantages and therefore it is important to check the benefits and risks of both.”

It goes without saying that while deciding, it is imperative to look into the current market conditions and make an informed decision that best benefits you. Also one should consider not only the immediate benefits but have a long term perspective and measure them as well.

Who opts for off-plan properties over ready properties?

Buying off-plan enables investors and homebuyers to buy a property at a lower price than if they wait for the construction of their chosen property to commence or when it eventually is completed, Bhat further explained.

“In addition, buying off-plan may be the only way to get a property with a specific location or set of features as the choice may be limited once construction starts or finishes. Property investors or property speculators purchase off-plan property with the aim of making substantial capital gains.

“This financial return may occur because developers who sell off-plan property often offer financial incentives or discounts to early adopters. In addition, there may be an opportunity for capital growth in a rising market and with a development cycle of typically 12 to 24 months.”

Bhat also noted that off-plan property is typically deemed attractive if there is a high level of infrastructure in the immediate area such as a new educational institutions, hospitals or, or expresses roads, either already built or due to be built within the next few years.

When should you choose an off-plan over ready property?

Myrtle went on to detail a few deciding factors that can benefit you when looking for off-plan property:

• Pocket-friendly entry into the purchase agreement: One can make a small down payment of 5 per cent to 10 per cent in order to enter into an agreement, as opposed to at least a 20 per cent down-payment otherwise.

• Flexible payment terms: In certain cases, developers offer post-handover 2-5 year payment plans. The advantage of living in the property or renting it out before paying it off.

(What is a post-handover payment plan? In Dubai, when purchasing a ready or off-plan property, the payment terms are split into instalments which must be paid in several intervals. In the usual payment plans, buyers would complete payments of the unit upon the completion, or handover of the property.)

• Rental income: Rental income greatly helps to support paying off for the property; a benefit only off-plan property offers.

• Custom developer offers: Developers have custom offers such as waiver of a percentage of the registration fees and/or discounting the service charges for three- to five-year period. This again aids in reduction your initial pay out to the developer.

• Lower price advantage: Properties under construction are priced significantly lesser than ready properties. Early stage buyers can take advantage of this while also enjoying property value appreciation over the course of construction of the project.

Checklist of risks when buying off-plan property over ready properties

• If property values start to fall before construction is completed, the financing house may reduce the value of the loan or even deny financing, particularly if the buyer is buying the property as an investment rather than as a home.

• “The buyer may also be contractually obliged to buy the property at the original price and so must make up the shortfall from other sources or risk being sued if the buyer pulls out and the promoter sells the property at a lower price,” Bhat added.

• “Also, the finished property may not meet the buyer's original expectations, either because of subjective reasons or because of material defects. You are forced to make your decision on basis of builder’s brochures, promo videos, etc. leading to unpleasant surprises on quality, time of delivery, etc.”

• Additionally, purchasing a project in a neighbourhood that is presumed to grow over a short span can have its own challenges arising from much slower growth potentially, thereby adversely effecting your payment plans.

Verdict: Is the current market the right time to buy off-plan or ready-to-move property?

UAE-based property consultants evaluate that when you see a good off-plan launch in the market, it’s currently getting snapped up very quickly. So at what point in the real estate cycle does an end of off-plan sales and a switch back to ready units occur?

“When should the savvy investor give up on off-plan? Off-plan property is not a great investment in a booming property market because these are typically near the peak, so when the project is delivered prices are on a downward trend,” said Myrtle. “The reverse applies to a ready-to-use property.

“A built or ready-to-use property is better to buy at or near the bottom of the market as well, but because it is quite liquid you can keep investing in it as the recovery gets older without being too worried you will get stuck with it when the market starts to fall.”

So the bottom line, both Bhat and Myrtle agree on, is that as the property market is booming currently in the UAE, you would be better off, both financially and rise-wise, to invest in a ready-to-move property over an off plan property that is being built.