The days of rushing out to buy as many units as you could afford from the latest big development have gone, and it is no longer an automatic route to a substantial short term profit.
Whilst buying off plan is still the most common route to purchasing a new property in Dubai, there are a number of items that need to be looked at more carefully then ever.
Location
As is quite evident from the secondary market movements that the usual adage “location, location, location” is being proven correct in Dubai. Villas and apartments of similar size and quality, but in different locations and developments throughout Dubai are now seeing wide variances in premium. The popularity of particular developments is closely linked to proof that they actually work. The Meadows and Springs later phase off-plan sales commanded higher prices, because the development was up and running and potential off-plan investors could get a feel for how they were going to live. Similarly, the popularity of Arabian Ranches is pushing up sale prices of subsequent phases, but the longer term investor buying off-plan for completion in several years will recognise that Dubailand is beginning to take shape.
These snap shot comments just go to remind any perspective purchaser that, however glossy the developer’s sales literature and adverts, it is wise to seek independent real estate advice first.
Aspect
Overseas buyers are particularly interested in beach view properties, yet far too many units in places like the Marina have been marketed as having particular views, even though the view may be far from being uninterrupted.
Aspect, in terms of height within the building and view, is critical in determining the likely premium in the secondary market, yet not enough purchasers actually visit the site and seek advice as to what is likely to be built in the surrounding area.
Facilities
Some off-plan investors do review the facilities carefully, but are often more interested in the plot size and layout of the property. Yet, in the longer term the interest in the development by future perspective purchasers will depend much upon the facilities available within the development or close by. This is one of the reasons why the larger villa complexes are proving so attractive. Much of this information may be available, but you would be wise to seek advice from experienced real estate agents who will have details of these facilities to hand.
Road and rail network
It is easy for an off-plan purchaser buying in a mature and developed city like London, to identify proximity of communication networks. However, this is not so straight forward in Dubai, as the whole infrastructure is being built rapidly, and although regularly updated municipal plans are available, it is important to look at this issue and discuss it with your agent. Some developments, like Jumeirah Islands, are likely to be on the rail network, while others will benefit from easy access to main arterial roads. It is inevitable that over the next few years, as traffic increases dramatically, these issues will be a determinate of price in the secondary market, so review these issues in advance.
Stock availability
You may have been able to put your deposit down easily, but you may not be aware of the true availability. Some large complexes have been sold-out by developers, implying their popularity. However, it is quite common for many of these units to have been sold to other developers or speculators and there may be a substantial overhang of unsold stock in the development that you are buying into.
Your real estate agent will have a good knowledge of this. Although it may not matter to you if you are looking to move into the property in due course, but it will impact if you are looking to sell on before completion. It will also affect the long term capital gain of your property if it is surrounded by empty units upon completion.
Payment plans and re-sale restrictions
It is probably more obvious that payment plans do vary considerably between developments. These can have both an impact on cash flow and the ease of re-sale.
Many developments now impose resale restrictions and Emaar, for instance, only allows one re-sale of an off-plan purchase before completion. There are numerous instances of people, particularly from overseas, purchasing units with the intention of flipping them before completion, only to find that they were not told that they cannot re-sell the unit until it has been fully paid for.
Mortgages
It is refreshing to see that mortgages are now becoming far more widely available with more banks lending on a greater range of developments, and new banks like Standard Chartered coming into the market. It is still surprising that many investors buy off-plan units from developers who promise that finance will be available, yet there is no guarantee of this. Many smaller developers are not able to persuade banks to lend on their developments and this not only impacts on an investor’s cash flow, but can have a significant impact on the prices of units in the secondary market.
Letting prospects
Many investors are looking to keep the properties in order to let them out. Most wise investors do consider all of the above factors, but a good real estate agent will not just sell you a unit, but be able to advise you on all the points above that will directly impact on let ability. As the market develops and changes, it is already becoming apparent where the most popular places to live in Dubai will be and what type of rents on both residential and commercial property will be available. There is also the issue of some investors seeking to reduce their cash flow by purchasing off-plan units that are not due to be built for many years, but on completion supply could begin to exceed demand and it may not be so easy to let out the property at levels presently achievable. Be conservative, and again do your research.
In conclusion
Buying an off-plan property is the same as seeking independent financial advice. In most cases you should not have to pay anything extra, as your agent will be remunerated by commission from the developer. However, a good agent will not only be able to advise you on all of the above factors that are constantly changing in the dynamic Dubai market, but will also be able to help you in the run-up to completion and beyond, when the letting and management of your property may be competitive in a saturated market.
Written by
Mark Leale
Mark Leale is the Marketing Director for Dubai Luxury Homes. He is based in Dubai and writes regularly in local and international publications on the subject of Dubai property and property investment.