What is more profitable: unfinished or finished properties in UAE Real Estate

13.1.2021 | 11:13 am

The secondary market has performed well due to falling prices and a reduction in advance payments in 2020. Of the 8,675 real estate transactions in the third quarter, almost 63% were in the secondary market, up 21.7 percent from the second quarter of this year, according to the Dubai Land Department.

Chris Hobden, Head of Strategic Consulting at Mena, Chestertons, says: “When you buy something ready-made rather than unfinished, you know exactly what you are getting in terms of the overall quality of the property and how it is equipped internally.”

In addition, prices for residential real estate have dropped significantly, so there are great deals on the secondary market. According to the Cavendish Maxwell Real Estate Market Report in the UAE for the third quarter of 2020, over the past 12 months, residential property prices in Dubai have fallen by 11.7%. Moreover, the UAE Central Bank increased the size of the mortgage loan for new buyers in March 2020, allowing foreigners to borrow up to 80% against the value of their real estate purchase, and UAE citizens up to 85% (an increase from 75 to 80%, respectively).

Another advantage of the finished property is the possibility of immediate income from an investment point of view. “If you buy properties in the secondary market, you can immediately rent it out or live in it. While in the construction-in-progress market, you’ll have to wait one or two years before you see any profit,” says Richard Wynd, managing director of the Better Homes real estate group.

Although the return on residential property in Dubai has declined at a fairly rapid pace, an investor can still get a gross return of over 6.5% per apartment, this being a relatively high figure compared to other major international residential real estate markets.

Now let’s talk about projects under construction. In fact, there are unique advantages to buying such real estate. “One of the great things about the off-the-shelf real estate market is flexible payment plans and a lower down payment,” explains Richard Wynd

When it comes to post-handover payment plans, there are usually no discounts. “Apartment prices include the financial costs that the developer assumes. Thus, the developer becomes a bank and offers the property at his own risk. But this does not mean that the price will be lower than in the bank,” says Varghese, partner and Head of Real Estate Strategy and Consulting, Knight Frank. The developer, as a rule, expects a return of 18% to 20% and expects that the profit will take place over a longer period of time. Therefore, its price will never be as low as that of banks. “What a developer offers is flexibility in handling your finances, in the sense that you are not limited to the bank that gives you the mortgage,” he says. This flexibility still suits many buyers, including those looking to buy a second or third apartment. It is also a viable option for self-employed people or new buyers who are not eligible for a mortgage, as well as those who will leave the country after a few years and do not want to have financial obligations. However, developers have tried to refrain from launching new projects in 2020. They wanted to sell recently completed projects. One of the few developments to begin this year was the Elan neighbourhood in Majid Al Futtaim’s Tilal Al Ghaf, where homes were sold out within days. The number of completed projects is now expected to peak in 2021. The construction of buildings which stopped in 2020 will continue. Expo2020 Dubai also offers great opportunities for developers and investors.