The aspiration to own a home in Dubai has seen a remarkable jump in the post-pandemic era, driving property demand that has outpaced supply in the emirate.
To meet this phenomenal demand from local and foreign investors, off-plan projects are being aggressively launched and show no signs of slowing down. However, investing in off-plan properties requires careful consideration and diligent research to secure the property and money.
To navigate this process, several key factors must be thoroughly evaluated, including assessing the developer’s track record.
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Developer’s reputation
“The number one factor is the developer’s reputation,” said Samer Chehab, Founder & CEO, PropertyGuru.ae. “Ensure they have a history of reliability and timely project completion. As an investor, you need to check if they have other completed projects in the market, their ongoing projects, and the post-ownership experience of investors.”
Developers and projects must be registered with the land department in the emirate investor’s buying from.
Misbah Baig, who lived in the UAE for 20 years, said, “It is paramount to work with a reputable developer, thoroughly assessing their track record. Additionally, it’s advisable to consult multiple real estate agents with extensive experience in Dubai.” The 35-year-old Indian investor said he wouldn’t buy any future off-plan property without these three considerations.
Investors frequently rely on real estate brokers when hunting for the perfect home. Selecting the right agent can either make or break your dream.
“Choose your real estate agent well,” advised Fouad Chemlati, General Manager UAE, Huspy. “The right agent will act as a consultant and not push you into a purchase just for a commission. Look for an experienced agent willing to fully understand your requirements and provide various potential options from multiple developers to help you find the right fit.”
Evaluate financing options carefully
Off-plan properties attract investors due to their buyer-centric and affordable payment plans.
“Developers now offer extended payment periods, up to 3-4 years post-handover, enabling investors to take possession, lease out the property, and generate rental income to recoup part of the purchase value. This trend significantly boosts the demand for off-plan properties,” said Fouad.
“How you will finance the purchase and whether it fits your budget is crucial. It’s important to compare various payment plans and find a suitable option. Investors should understand the implications of being late for a payment and ensure that they have factored the possibility of construction delays into their financial plans.”
Investigate the area’s financial potential, focusing on rental yields and growth prospects to determine the long-term value of your investment.
Clementina Kongslund from Romania invested in four properties across Dubai. A real estate agent herself, the long-time UAE resident, said, “We bought an off-plan studio in Ahad Residence in Business Bay in 2021. We decided to buy into this project because the building was already up. The building was handed over in December 2023. We sold our unit with a premium in June 2023; it worked for us as our investment was practically just 40 per cent. We got back 40 per cent, plus premium, at the time of the transfer.”
According to Fouad, “The biggest risk (buying off-plan property) is if the investor cannot keep up with their payment plan as per their agreement. They then risk losing the payments already made to the developer. So, the developer can effectively seize the property, take it back and resell it.”
PropertyGuru.ae spokesperson, Samer, suggested, “Buyers should always insure their loan so that they have some protection if anything goes wrong with their careers, thereby limiting their ability to pay.”
Many buyers overlook the legal and financial risks. It’s crucial that they review all legal agreements and also plan for additional fees from valuations to registrations.
Delayed project
Potential buyers must consider the projected completion date and current market conditions to ensure they align with their investment horizon.
From her experience, Clementina spoke about the delays she faced, “We own two more units in Golf Views Seven City by Seven Tides located in Jumeirah Lakes Towers. This project has experienced significant delays — initially launched in 2018, construction halted at one point and later re-launched in 2020. Originally slated for handover in 2023, the timeline has been extended by another two years; we are hopeful it will be completed by the end of 2025.
“Our investment followed a payment plan of 40 per cent during construction, 10 per cent at handover, and the remaining 40 per cent spread over two years post-handover. The first unit was acquired directly from the developer in 2021, while the second unit was purchased from the secondary market just last year.”
Monitor construction
Handover delays and a construction schedule shift are major concerns in off-plan projects. “That’s why constant communication with the developer is crucial,” Samer said.
“Often, buyers don’t keep track of the progress the developer is making. While delays happen often, we always recommend that investors stay involved regularly through site visits and communication with the developer,” the General Manager of Huspy said.
It’s crucial to note that occasionally, the final quality of the property may not meet the promised standards, falling short of expectations. Therefore, it’s imperative to remain vigilant and monitor the progress consistently.
While buying off-plan, investors see rendered images and plans on the drawing board or a show home. “There is a risk that you don’t know what the ready unit will look and feel like, with homebuyers sometimes taking possession of lower quality homes,” Fouad pointed out.
Importance of escrow account
Instances, where off-plan projects failed to materialise, have unfortunately resulted in investors facing financial losses. Samer cautioned, “We would not advise home buyers to invest without an escrow account.”
An escrow account is where funds are held in trust while two or more parties complete a transaction. This means a trusted third party will secure the funds in a trust account. The funds will be disbursed to the developers after they have fulfilled the escrow agreement. If the developers fail to deliver their obligation, the funds are returned to the buyer.
Escrow refers to a neutral third party holding assets or funds before they are transferred from one party in a transaction to another.
Fouad pointed out, “Escrow accounts are mandatory for all off-plan projects in Dubai and Abu Dhabi. If there is no escrow account on the project and if the developer goes bust, then there will be no recourse for the homebuyer and no way to recover the funds.”
Abu Ahmad, an Indian expat facing uncertainty about his investment, said, “I was sceptical about off-plan properties but was reassured by my real estate agent that the property developer was reputed. I sold other properties to invest in this project. My real estate agent convinced me with the promise of a high return on investment (ROI). He could have alerted me about the lack of an escrow account. To be frank, at that time, I was unaware of an escrow account and the security it provides.”
Despite commendable efforts in government regulation aimed at minimising such risks, it remains essential for potential buyers to conduct comprehensive research before making commitments to property investments.
Clementina shared her opinion, “One can never be sure (of the risks), and anything can happen, but the main idea is to invest as much as you can afford to lose in the worst-case scenario.”
As a real estate agent, she advised that when investing in off-plan properties, it is best to look for developers who charge the least during the construction phase and have a good payment plan, either based on construction phases or spread over the 2-3 years of construction.
She added, “I know that some developers have ‘good offers’ for 100 per cent payment upfront or even for 50 per cent, but that’s too risky. The smaller the amount invested in the beginning, the better. It’s also easier to resell in case one changes the mind.”
Huspy’s General Manager said, “Payment plans are designed to attract buyers, especially first-time homeowners. We recommend that potential buyers check with RERA (Dubai Real Estate Regulatory Agency) on the status of approvals, ensure that all payments are being made into an escrow account, and always consult an experienced real estate broker.”
Red flags to watch out for
There are a few things every off-plan buyer needs to look for when investing in a property.
- Absence of escrow account
- Lack of developer reputation and track record
- Delayed construction or previous project delays
- Variations in the market
- Payment plan too tempting
- Hidden costs
- Project plan changes
- Uncertainties in the law and regulations
- Financial instability of the developer
- Unclear or unfavourable contract terms
- Quality issues
Paying attention to these crucial aspects can significantly mitigate the potential risks and enhance the likelihood of a successful off-plan investment journey.
Giving his last piece of advice, Fouad Chemlati said, “Research is crucial when buying a home. Spend time understanding the market, developments, and the area you want to buy. On average, homebuyers spend a few million dirhams; therefore, this shouldn’t be a rushed decision. The UAE market has ample supply across all categories of homes, and with affordable home financing starting from as low as 3.89%, homebuyers have plenty of options.”