Purchasing A Property But Don’t Know What To Do?
Table of Content
So you have decided to purchase a property in Dubai but you now face that well-documented conundrum of whether it is better to invest your hard-earned money in an off plan project or a ready made property?
It’s a tricky question in itself. There has been a long debate on this topic both in Dubai and in the global real estate market. Depending on whom you ask often bares rather different answers. Asking development professionals will undoubtedly grant you the answer that off plan is the better option yet many experts maintain that completed properties are the safer and therefore wiser choice…. So what do you do?
It is quite clear that each has its own potential pros and cons. It of course also depends upon your personal circumstances, budget and a number of other important factors. Below we have outlined a few things to take into consideration when making this all-important decision.
We tackle this one first as it is often the deal breaker when it comes to property investment. Your budget will determine where you invest in terms of location, when you invest and of course what you get for your money.
It can be argued that investing in off plan property may allow you to achieve more bang for your buck. Many developers in Dubai are now offering more and more appealing payment plans for off plan properties, with little or no downpayment and affordable monthly instalments spread out over a number of years. This allows many would-be investors to purchase something that they perhaps may not be able to do on the ready-made market, where the full funds would be required immediately. This is of course the main benefit of purchasing on the off plan market – you can spread out payments over a longer period as well as achieve a better price than if you were to purchase a similar property that is ready and delivered.
Unfortunately however, not everyone wishes to wait for months or even years to be able to benefit from their investment. Many investors wish to move in to the property straight away or perhaps wish to receive some return on investment immediately by renting the unit out. This brings us on to our next consideration.
Your Intention – End User vs Investor
Are you buying the property to live in as an end user or are you buying for investment purposes? This is equally as an important consideration as your budgeting and in some ways is even more significant.
Ready properties are perhaps a more attractive proposition for both types of purchaser as for the end user, it allows them to move in and use the property immediately and for the investor, it also means they will see some immediate return on investment through rental yields. You also get what you see – you can see the particular property that you wishto buy (it is tangible), the quality of the building/project, the facilities and amenities in the area etc. The downside to this is that the pricing for a ready-made property is often higher.
Off plan properties, whilst often being more affordable than ready-made units, mean that you would need to wait for completion before you can benefit from your investment either in a personal sense (you want to live in the property) or financial sense (rental returns). There is of course also the added risks involved with off plan purchases, something we will touch upon further below.
If you are looking for capital gains primarily, then off plan projects are certainly a strong consideration, as capital gains tend to be higher when buying off plan. It is however vital to do your homework first. Research the areas in which the property is being built, the facilities and amenities available there now and in the future, the price per square foot and of course the particular developer. Look at floor plans and also the master plan of the project and local area. Know what you are getting into before you sign that contract and make that financial commitment. You need to make sure that you are happy with all of this so that you can invest your money with the confidence that this knowledge provides.
It is evident that investing in a completed property is the safer option of the two as there are certain added risks that come with off plan purchases. Off plan purchases are exactly as they sound – you are purchasing a property from a plan. You are therefore at the mercy of the developer, contractors and a whole array of other potential factors when investing in a project that is yet to start or finish construction.
It is not uncommon for there to be delays in construction, for the property to be delivered at a lower quality than promised or in the worst case, even cancellations from developers. When you sign that contract, you are tied-in for the long run as is your finanicial investment. It is true that the laws have improved greatly in this area with the introduction of Escrow accounts, Oqood Registrations and a Cancelled Projects Committee at RERA however the risk is still there if proper due diligence is not taken (and sometimes even when it is). There is of course also the risk that the market may decline by the time the property is handed over. No one has a crystal ball to determine the best and worst time to invest so there is always the risk of a different market outlook at any given time.
What You Should Do
Only you can decide this I am afraid. It really depends on a number of crucial factor as well as your overall objective. You need to determine whether you want to benefit from the property now (which comes at a price) or whether you wish to benefit from lower purchase prices and flexibility in terms of payments. Both offer their own advantages and disadvantages, which I have summarized below. The choice is yours as to which to follow.
|Lower purchase prices||No immediate return on investment|
|Higher capital appreciation||Cannot move in / rent immediately|
|Attractive / flexible payment plans||Riskier – delays / cancellations / poor finish|
|Lower upfront costs/td>||Potential market changes / declines|
|Immediate return on investment||Higher purchase prices|
|Can move in / rent immediately||Must pay all upfront – less flexibility|
|Less risky – completed||Lower capital appreciation|
|You get what you see / pay for;||Pre-owned property|