The Pros and Cons of Investing in Off-plan Property

When it comes to property investment, there is no guaranteed formula for success. Every wise investor knows that each venture presents its own fair share of advantages and disadvantages. For buyers who want to dip their toes in Dubai’s offplan property market, here’s a list of pros and cons that can help you make an informed decision. 

Advantages

Affordability

Much of the interest in buying an off-plan property is largely attributed to its affordability. Stiff competition has driven developers to come up with attractive offers and payment plans just to gain a segment of the market. Nowadays post handover payments are pretty much the norm with some projects offering as much as 80% payment upon completion. Instalments are also now tied to construction milestones so that the burden of financial commitments are stretched over the course of a few years.

Investment returns before completion

Offplan properties in Dubai can be a very lucrative venture if done right. Savvy investors who are able to get ahold of prime projects can stand to gain a hefty profit even before completion just by taking advantage of capital appreciation during the build process. It also allows them to reap financial returns in the short-term without having to deal with the cumbersome obligations of property ownership.

Market poised for future growth

Investing in offplan projects in Dubai may very well be a sensible and timely financial decision in today’s market. Experts have predicted that Dubai is now close to the bottom of the cycle and will soon see a return to slow, steady growth. The highly-anticipated Expo 2020 is expected to have a positive impact on the housing market as the influx of tourists and economic activity are perceived to facilitate further growth.

Disadvantages

Project Delays

The most common disadvantage of buying offplan property is project delay or even worse cancellation. While regulations have been put in place to decrease the incidence of such cases, the likelihood of project delays is not entirely inevitable. To steer clear of this, stick with reputable developers who have a sterling reputation for delivering top-quality projects within the expected date of completion.

Limited Financing Options

UAE Central Bank’s regulations on mortgage loans only allow a 50 percent loan-to-value ratio for offplan properties in Dubai whereas buyers of ready property can actually avail a mortgage loan amounting to 60-80 percent of the property value. As such buyers of offplan property facing financial constraints are saddled with the burden of shouldering half of the downpayment cost.

Market slowdown and Resale Problems

As with every investment, offplan properties in Dubai are not exempt from the impact of market stress. There is the inherent risk of financial loss particularly when a slowdown occurs between the time of the purchase and project completion. Also, buyers who eventually decide to sell their off-plan investment may find it difficult to do so when there’s still available supply from the developer --- more so when market conditions aren’t that great.