Nearly 36,000 residential units are expected to be delivered in Dubai this year, the highest number of completions in the last decade, according to property consultancy JLL. But investments are increasing. Chestertons Mena’s latest Dubai market report shows that the volume of off-plan and completed unit transactions were up 45 per cent in Q2 2019 from 5,158 units to 7,465 units, and from 3,280 to 4,764 units respectively. “One possible explanation for this significant increase could be a result of the attractive incentives offered by developers to entice buyers,” Nick Witty, managing director of Chestertons Mena, told Property Weekly.
These incentives vary from zero registration fees and waiving off service charges, to guaranteed rental returns as high as 24 per cent, which have become more prevalent as developers look to dispose of unsold stock.
However, it is the extended post-handover payment plans, ranging from three to 20 years, that are proving to be the most successful, according to Witty.
“Given the current loan-to-value ratios in the UAE, many buyers find it difficult to raise bank finance for the initial deposit,” said Witty. “As such, developers find themselves in a position where they’ve had to assume the role of a bank to stimulate demand and increase absorption rates.”
Nick Grassick, managing director at PH Real Estate, said post-handover payment plans are valued more than free assets such as a car. “The ability to pay for a property after it has become a fee-generating investment has proven key in the upswing of interest.”
One of the most generous schemes today gives buyers over 20 years to pay for a project in three areas: Meydan, Al Furjan and Jumeirah Lakes Towers.
But some experts suggest that these schemes could hurt the market. Gaber Kenger, CEO of GN Homes Real Estate Development, noted that payment plans are a wrong move as they show weakness and instability in the market.
He added that while payment plans build interest with the price, and give a longer time to make final payments, they are also dangerous for buyers as they may end up paying high prices for the property and that could bring another drop in the market. “When you buy at a high price and sell at a low price, that will automatically put the market under pressure, instead of giving the property the right value,” said Kenger.
Firas Al Msaddi, CEO of fam Properties, believes post-handover payment plans in Dubai will have to stop at some point, either because developers don’t need them anymore as the market improves, or because they can no longer afford such schemes as the market softens. He added that not every post-handover payment plan is a good one. “I believe the vast majority of them are over-priced because developers build too much interest into their selling prices, although some of them are great.”
Several other incentives have also come on the market over the last year, most notably the three-year renewable business licence, three-year renewable family residency visa, and 100 per cent business ownership that are offered upon paying 20 per cent of an apartment price in an Emaar community.
Free school tuition fee for a year was another incentive used by a developer to attract buyers to its off-plan project on Palm Jumeirah, where it promised a 10 per cent ROI for five years. “Developers are keen to look for ways to attract buyers. We offer extended payment plans, and these are [adjustable] to accommodate buyers’ financial positions and give guaranteed ROI,” Saleh Abdullah Lootah, CEO of Lootah Real Estate Development told Property Weekly.
Meanwhile, some experts suggest that rent-to-own schemes, which have been around in Dubai for a while, will also gain momentum as the market remains in a softened state. “Rent-to-own options can currently be found in areas such as Jumeirah Village Circle, Palm Jumeirah and Dubai Sports City,” said Witty. “These schemes are ideal for long-term residents and will support a pool of buyers without the cash reserves to afford the 25 per cent down payment plus associated fees.”
A possible barrier for buyers, according to Witty, would be the high premiums of rent-to-own units, which can reach up to 40 per cent — well above the standard 5-10 percent in other markets. Yet it is these kind of innovative payment plans that are bringing tenants out of the woodwork to become homeowners, and thus, such schemes are likely to stay in demand.