What is off-plan real estate in Dubai?

February 22, 2024

Approximately 40% of all real estate transactions in Dubai are for off-plan properties. This is a popular way of making a profitable investment, where one can invest in housing at the very beginning of construction and then sell it or rent it out once it’s completed. Let’s take a closer look at the features and benefits of off-plan real estate, the risks of investing, the purchase procedure, and other nuances.

What is off-plan real estate?

Off-plan property refers to real estate objects before the completion of construction. These can be apartments, villas, or townhouses, either in the construction phase or at the project stage. Buying off-plan real estate occurs directly from the developer and implies the acquisition of the object before it is put into operation.

Off-plan projects in Dubai are in high demand as they allow for the purchase of a profitable object at a cheaper price. Moreover, many developers offer investors the opportunity to take advantage of a flexible payment schedule for housing in installments.

Foreigners and non-residents can also buy off-plan properties. The Dubai real estate market is open to everyone, regardless of the buyer’s nationality.

Advantages of buying off-plan real estate

The popularity of off-plan real estate is easily explained, as it offers many advantages for investors. Here are some of the main benefits of purchasing an off-plan object:

• Profitable price: The cost of real estate at the construction stage can be up to two times lower than the price of an already completed object, making the purchase particularly advantageous both for investment purposes and for personal use.
• High profitability: Since apartments or other types of housing are cheaper than a finished object, reselling can yield a good profit—up to 20%.
• Completion guarantee: According to UAE laws, the investor’s money, used to buy off-plan real estate, goes into a special escrow account in the name of the project. The developer is obliged to provide the Dubai Land Department with estimates for each stage of construction and can access the funds for the next stage only after completing the previous one. If the developer fails to deliver the object, the authorities open a tender and transfer the funds to another developer to complete the construction.
• Convenient payment: Most developers are ready to offer investors an interest-free installment plan with a convenient payment schedule and a minimal down payment—from 5%.
• Wide selection of objects: At the initial stage of construction, the buyer has a significantly larger choice of housing options than at the stage of commissioning the building. The investor has the opportunity to choose the best apartments.
• Remote transaction: It’s possible to buy off-plan real estate from another country. Since the deal is often concluded before construction starts, there is no need for the buyer to come to Dubai and visit the construction site. For project familiarization, the developer provides marketing materials, floor plans, and other information that can be viewed online. Payments can also be made without having to open a bank account in the UAE.

Another significant advantage is the opportunity to buy brand new housing that no one has ever used. Such real estate is equipped with modern design and technologies, offering amenities and privileges for a maximally comfortable lifestyle.

Risks of investing in off-plan real estate

Buying real estate, especially at the initial stage of building construction, is not without risks. Thanks to the stable economic development and the efforts of local authorities, the risks of buying off-plan objects are minimal, yet they exist.

Potential risks of investing in off-plan projects:

1. Construction completion dates may shift: To minimize negative consequences, it’s important to carefully choose the developer and thoroughly study the contract being signed. The document should specify the deadlines for completing the main stages of construction and the handover date.
2. The market situation could change for the worse while the building is under construction: Since buying off-plan real estate is a long-term investment, the asset’s value can not only increase but also decrease over the construction period. To minimize this risk, it’s important to buy an object in a growing market, which is currently the case in Dubai.
3. The investor might not get what was expected: Since the purchase of housing occurs only according to the brochure, the finished real estate may eventually not match the declared one. Before investing funds, it’s important to evaluate not only the entire project fully but also the specific apartments or villa to ensure expectations align with reality. It’s also crucial to study the nearby plots to ensure that no tower will be built nearby, blocking the beautiful view from the purchased apartments.

Separately, it’s worth noting, not a risk, but a minor downside of buying off-plan real estate. The investor does not have the right to resell the housing until a certain portion of its cost is paid. The payment amount differs among developers but is always specified in the sales contract.

How to Buy Off-Plan Property

Buying property at any stage of construction in Dubai is not difficult if you seek the help of an experienced realtor. Here is how the purchase of off-plan property happens:

1. Studying the Dubai Market: Before choosing specific objects, it’s important to generally study the market and local laws. An investor can skip this step if a realtor handles the project selection. The specialist is always up-to-date with current developer projects, knows the laws, and understands the real estate market situation.
2. Determining Preferences: Before purchasing a property, it’s necessary to determine the type of real estate for investment. It could be apartments, townhouses, or villas. It’s also important to choose the preferred location areas.
3. Exploring Options: There will be many real estate options in the chosen category and area. They need to be carefully studied and narrowed down to separate the objects that most correspond to the investment goal and buyer’s requirements.
4. Reserving the Property and Concluding the Deal: To not miss an attractive option, it’s important to reserve it with the developer in time. After this, you can proceed to sign the sales contract.
5. Following the Payment Schedule: When purchasing off-plan property, a series of payments are provided that are distributed throughout the construction period. All payments must be made according to the schedule in the contract.
6. Transfer of the Property: When the house is put into operation, the purchased property is transferred to the buyer. The investor examines the object and can dispose of it at their discretion.

Expenses and Taxes When Buying Off-Plan Property

When purchasing off-plan property, the investor is required to pay certain fees. One of the mandatory fees is the property registration fee, which is 4% of the object’s price and must be paid to the Dubai Land Department. Another fee is the payment for the Oqood certificate. The payment amount is 3,000 dirhams.

To attract investors, some developers agree to pay part or all of the property registration fee, allowing the buyer to save up to 4% of the housing cost.

Mortgage on Off-Plan Property

When buying an off-plan object, the investor can pay for the property with personal funds or take out a mortgage. However, there’s an important nuance – it’s not possible to take a mortgage for the entire cost of the object. The maximum loan for off-plan property is 50% of the cost of apartments or villas. Besides, some banks impose special requirements on the types of housing that can be purchased with a mortgage.

Most often, a mortgage on off-plan property deprives the investor of the opportunity to take advantage of such profitable offers from developers as interest-free installment plans or discounts for 100% payment. But it’s important to study the terms of purchase individually in each project.

Can You Sell Off-Plan Property?

Of course, it’s possible to sell a property bought at the project stage or at the initial stage of construction. But it’s important to know the nuance. Most developers allow the resale of not yet commissioned property only when a certain percentage of its cost has been paid. This percentage varies among companies but most often ranges from 30–40% of the housing cost.

In simpler terms, to sell off-plan property, you need to pay the developer approximately at least 40% of its cost. After the mandatory part of the sum is paid, the sales process is almost no different from selling ready-made real estate.

In summary, acquiring off-plan property in Dubai can indeed be a profitable investment. However, it’s important to carefully choose the object and developer, assess all risks and downsides of acquisition. It’s also necessary to immediately determine the ultimate goal of the purchase. If the buyer is acquiring housing for themselves and needs to move quickly, the option of acquiring off-plan property may not be the most successful, as it requires a lot of time. If the goal is a profitable investment of funds and there is an opportunity to wait for the completion of construction works, off-plan projects can certainly be considered.