Unfinished or Completed Real Estate: Which Is More Profitable?

The UAE real estate market has seen varied performance in recent years, influenced by fluctuating prices and changing buyer preferences. As of 2020, the secondary market has gained momentum due to falling prices and lower down payments. This article explores the profitability of investing in unfinished versus ready-made real estate in the UAE, considering market trends, investment returns, and the advantages of each option.

In 2020, the secondary real estate market in Dubai experienced a significant upturn. According to the Dubai Department of Land Resources, nearly 63% of the 8,675 real estate transactions in the third quarter occurred in the secondary market, marking a 21.7% increase from the previous quarter. This surge reflects a growing preference for finished properties due to their immediate availability and perceived value.

Advantages of Ready-Made Real Estate

Immediate Income and Use 

Chris Hobden, Head of Strategic Consulting at Mena, Chestertons, highlights that purchasing a finished property provides certainty regarding its quality and interior features. Additionally, finished properties offer immediate rental income or personal use, bypassing the waiting period associated with unfinished developments. Richard Wynd, Managing Director at Better Homes Real Estate Group, points out that investors can start earning returns right away, which contrasts with the one- to two-year wait often required for properties still under construction.

Price Reductions and Mortgage Benefits 

According to the Cavendish Maxwell report, residential real estate prices in Dubai fell by 11.7% over the past year. Coupled with the Central Bank of the UAE's increase in mortgage loan limits (up to 80% for foreigners and 85% for UAE citizens), this creates advantageous conditions for purchasing finished properties. The lower prices and higher loan-to-value ratios make ready-made real estate a more accessible option for many buyers.

Advantages of Unfinished Real Estate

Flexible Payment Plans 

Unfinished or off-plan properties often come with flexible payment plans and lower down payments. Richard Wynd notes that developers offer this flexibility, allowing buyers to manage their finances more easily. This can be particularly appealing for those who might not qualify for a traditional mortgage or prefer not to take on significant financial commitments.

Potential for Discounts and Investment Returns

Developers may provide attractive payment plans and potential discounts for off-plan properties. Varghese, Partner and Head of Real Estate Strategy and Consulting at Knight Frank, explains that while developers expect higher returns (18% to 20%) and longer profit timelines, the flexibility in financing options can be advantageous for many buyers. This flexibility often compensates for the higher overall price compared to bank-financed properties.

Market Trends and Future Outlook

In 2020, many developers refrained from launching new projects, focusing instead on selling completed properties. However, the trend is expected to shift in 2021 as construction resumes and new projects, such as the Elan neighborhood in Majid Al Futtaim’s Tilal Al Ghaf, come to market. Additionally, Expo 2020 Dubai is anticipated to drive further opportunities for developers and investors alike.

To this end, both unfinished and ready-made real estate in the UAE offer distinct advantages depending on the buyer's investment goals and financial situation. Ready-made properties provide immediate returns and stability, while unfinished properties offer flexible payment options and potential for future discounts. Understanding these factors can help investors make informed decisions in the evolving UAE real estate market.