What is an off-plan property in Dubai?

3.1.2022 | 4:01 pm

Off-plan property is the term used for real estate before its construction is completed. Purchasing off-plan real estate is to purchase property before it is commissioned, most often in the early construction stages or even in the project phase. In this article, we will consider the pros and cons of investing in off-plan real estate.

According to official statistics, 3219 off-plan real estate transactions for $1.9 billion and 3781 transactions with secondary and finished properties for $3 billion were concluded in Dubai in November 2021. Thus, of a total of 7000 transactions, 46% belonged to the off-plan market.

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The off-plan real estate market and its advantages

Investing in off-plan real estate has several advantages:

  1. High profitability. Pre-launch and off-plan real estate is cheaper than completed property. If you resell off-plan real estate on the secondary market after its completion, you can achieve high profitability with a minimum initial investment.
  2. Quick return on investment. Off-plan real estate can be resold before construction is complete.
  3. Security. According to local laws, the investor keeps money in escrow accounts opened specifically for the project. The developer submits estimates to the Dubai Land Department for each construction stage and receives access to the money for the next stage only after the previous construction stage is completed. If the developer cannot finish the work, the state opens a tender and transfers the money to another company to complete the construction.
  4. Interest-free installments with a convenient payment schedule. The initial payment varies from 5 to 40% of the housing cost.
  5. The transaction can be remote. It is not necessary to have a bank account in the UAE to make payments.

Possible risks of buying real estate in Dubai

Thanks to stable economic development and efforts from authorities, risks in the off-plan sector in Dubai have been minimized. However, they do exist:

  1. Real estate cannot be resold before a certain percentage of the total amount is paid. A sale and purchase agreement (SPA) contains this percentage. As a rule, it is 30-40%.
  2. Mortgage restrictions for non-residents. An alternative solution may be a property with a post-handover payment plan.
  3. Market fluctuations due to external or internal causes.

The real estate market in Dubai is growing due to the following positive factors:

  • Increased interest from foreign buyers thanks to EXPO 2020;
  • Relaxation of resident visa requirements for investors, businesses, and other categories of applicants;
  • Effective containment of the spread of COVID-19 in the UAE;
  • Detailed plans for the construction and improvement of the emirate until 2040 (Urban Master Plan 2040).

Dubai is becoming one of the most attractive places to live and do business. Ian Goldin, Professor of Globalization and Development at Oxford University, believes that increasing numbers of people will move to Dubai, positively influencing the real estate market. ” We are seeing a market return to pre-pandemic levels and that growth will continue,” he says.

In October 2021, the average price of real estate in Dubai was $2,863 per m². This is 19.94% more than in October 2020 and 0.95% more than in September 2021.

The Dubai Land Department reports that preliminary estimates indicate that in the 4th quarter of 2021, there were approximately 28,000 transactions – 81% more than in the 4th quarter of 2020.

Purchase of pre-launch real estate

An Official Launch is the official start of sales. Pre-launch is the initial stage of the project with the possibility to book a property. In this case, there is no pit in the area for construction and developers provide potential buyers with only 3D renders.

In such cases, there is a deposit and a document of expression of interest (EOI). Some developers call this the pre-registration.

When sales officially begin, the investor signs a standard purchase and sale agreement for the primary market (SPA).

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