As sales of off-plan properties rise, we dispel some of the most common myths (risk vs reward, financing headaches & project delays) to help give you the full picture when selecting the right investment opportunity…
If you were to Google ‘off-plan properties’ right now, you’ll be confronted by endless articles that spell out the difference between this and secondary (we get it) as well as outdated pieces that place off-plan in a less than satisfactory light. What you don’t get is the full picture of the off-plan market and its place in the UAE today, with fragments pieced together from here and there that form a confused opinion overall. It doesn’t help that past misconceptions and myths cloud the issue, making it difficult to cut through the noise and separate fact from fiction.
Ultimately, it comes down to assessing the level of risk you are comfortable with, taking all factors into consideration before selecting the right investment opportunity with the most potential.
Here, we dispel the most common off-plan myths and set the record straight…
THE OFF-PLAN MYTH BUSTER
Myth #1: It’s Too Expensive
There’s a common misconception that buying a secondary property is more affordable and easier to secure a mortgage when in actual fact, buying off-plan can be cheaper, especially if you get in there early. Under-construction properties are typically priced lower than ready properties, as essentially you are buying into its potential rather than physical attributes, and carry a higher probability of capital appreciation near to completion. Whereas the closer to handover you get, the bigger the chance of the price increases, especially if the buzz is sustained around the project and its surrounding areas. You’ve heard the phrase: ‘The early bird catches the worm’ and that’s undoubtedly the case when it comes to off-plan.
Another advantage to consider is the flexible payment plans now available, with most accepting a small down payment of between 5-10%, and even working out a favorable post-handover plan that lets you rent out or live in the property first before paying it all off. In some cases developers are also waiving the 4% registration fee and service charges, even extending to 10 years, to further stimulate the off-plan market, and to reduce the financial burden on those wanting to invest.
Myth #2: It’s Risky
Aside from affordability, the risk is one of the main concerns that crop up with off-plan, as potential delays and cancellations are often considered red flags with this type of investment, although this sentiment is true of the market globally and not restricted to the region. That being said, the UAE is tackling this perception head-on by minimizing the risks through new regulations by RERA and the Dubai Land Department (DLD). There’s a shared responsibility by the authorities and regulators to ensure the developers have sufficient resources and funds for completion too.
An additional risk is felt from the concern about oversupply, fueled by the mass of Dubai Expo 2020 projects. Initial concerns about investment and delays seem to be unfounded, as the buzz is growing substantially the closer we get to the event, and with the world spotlight on Dubai for six months, this adds a further layer of pressure to complete on time. The government is also actively releasing new regulations, forming the new committee also to tackle oversupply in the UAE.
Myth #3: You Don’t Know What You’re Buying
There is an element of truth here given you are buying into something not yet completed, however, most developers will go to great lengths to illustrate their vision upfront. Mockup apartments, villas, and townhouses are now almost commonplace, and in the future we could even see virtual simulations of what the project could look like, all helping to add an extra layer of security to the investment opportunity.
Remember to only work with reputable developers who you know won’t cut corners, and have already completed other large scale developments and communities on time and to a high standard. Do your due diligence on the finances, including who is backing the project and why they are investing in that area. Take a closer look at the location deemed worthy by the developer to see what possible demand there could be or what makes it so unique. It all boils down to covering all bases in advance to ensure you are comfortable with what you are buying into. The market is supporting off-plan, both from a financial and regulatory perspective, which should go some way to easing concerns.
Yet, like anything in life worth investing your time and money, the rewards need to outweigh the risks. However, as the conversation surrounding off-plan continues to pick up the pace, the sensitivities felt in previous years are giving way to a more positive and progressive viewpoint; one that simply can’t be ignored from a lucrative ROI standpoint. As the trend continues to shift in this direction, the mentality of ‘nothing ventured, nothing gained’ becomes even more prevalent. Strike the right balance between research and risk-management and off-plan becomes the ideal investment venture.