What’s more profitable: unfinished or ready-made real estate in the UAE

In 2020, the secondary market has performed well thanks to falling prices and lower down payments According to the Dubai Department of Land Resources, of the 8,675 real estate transactions in the third quarter, almost 63% were in the secondary market, which is 21.7% more than in the second quarter of this year.

Chris Hobden, Head of Strategic Consulting at Mena, Chestertons, says: “When you buy something finished rather than unfinished, you know exactly what you are getting in terms of the overall quality of the property and how it is equipped inside.”

In addition, the prices of residential real estate have significantly decreased, so there are excellent offers in the secondary market. According to the Cavendish Maxwell report on the UAE real estate market for the third quarter of 2020, over the past 12 months, prices for residential real estate in Dubai have fallen by 11.7%. In addition, the Central Bank of the UAE increased the size of the mortgage loan for new buyers in March 2020, allowing foreigners to borrow up to 80% of the cost of their purchase of real estate, and UAE citizens up to 85% (an increase from 75 to 80%, respectively).

From an investment point of view, another advantage of a finished property is the immediate income. “If you buy a property in the secondary market, you can immediately rent it out or live in it. Being in the construction-in-progress market, you will have to wait one or two years before you see any profit,” says Richard Wynd, Managing Director, Better Homes Real Estate Group.

Although the profitability of residential real estate in Dubai has declined quite quickly, an investor can still get a gross yield of more than 6.5% from an apartment. This is a relatively high figure compared to other major international residential real estate markets.

There are unique advantages to buying a property under construction. “One of the distinctive features of the ready-made real estate market is flexible payment plans and a minimum down payment,” explains Richard Wynd.

When it comes to post-transfer payment plans, there are usually no discounts. “Apartment prices include the financial costs incurred by the developer. Thus, the developer becomes a bank and offers real estate at their own risk. But this does not mean that the price will be lower than in the bank,” says Varghese, partner and head of Real Estate Strategy and Consulting at Knight Frank.

The developer typically expects a return of 18% to 20% and expects the profit to take place over a longer period of time. Therefore, its price will never be as low as that of banks.

“What the developer offers is flexibility in managing your finances, in the sense that you are not limited to the bank that gives you the mortgage,” he says. This flexibility is still suitable for many buyers, including those who want to buy a second or third apartment.

It is also a viable option for self-employed people or new buyers who are not eligible for a mortgage, as well as for those who will leave the country in a few years and do not want to have financial obligations.

However, the developers tried to refrain from launching new projects in 2020. They wanted to sell recently completed projects. One of the few developments to start this year was the Elan neighborhood in Majid Al Futtaim’s Tilal Al Ghaf, where homes were sold out within days.

The number of completed projects are expected to increase in 2021. The construction of buildings stopped in 2020, will continue. Expo 2020 Dubai also offers great opportunities for developers and investors.