Which is more profitable: completed or off-plan properties in the UAE? | AX Capital

Which is more profitable: completed or off-plan properties in the UAE?

The secondary market has performed well thanks to falling prices and lower down payments in 2020. According to the Dubai Department of Land Resources, of the 8,675 real estate transactions in the third quarter, almost 63% were made in the secondary market, which is 21.7% more than in the second quarter of this year.

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

Additionally, residential real estate prices have decreased significantly, creating excellent opportunities on the secondary market. According to the Cavendish Maxwell report on the UAE real estate market for the third quarter of 2020, residential real estate prices in Dubai have fallen by 11.7 percent over the last 12 months. In addition, the UAE Central Bank increased the size of the mortgage loan available to new buyers in March 2020, allowing foreigners to borrow up to 80% of the cost of their real estate purchase and UAE citizens to borrow up to 85% (an increase from 75 to 80 percent, respectively).

Another advantage of the finished property is the immediate income from the investment point of view. “If you buy a property on the secondary market, you can immediately rent it out or live in it. Being in the construction-in-progress market, you will have to wait one or two years before you see any profit,” says Richard Wynd, Managing Director, Better Homes Real Estate Group.

Although residential real estate profitability in Dubai has declined significantly, an investor can still earn a gross yield of more than 6.5 percent on an apartment. And this is a relatively high figure compared to other major international residential real estate markets.

Now, let’s discuss the projects under construction. In fact, there are unique advantages to buying such a property. “One of the distinctive features of the ready-made real estate market is flexible payment plans and a minimum down payment,” explains Richard Wynd.

There are typically no discounts available for post-transfer payment plans. “Apartment prices include the financial costs incurred by the developer. Thus, the developer becomes a bank and offers real estate at their 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 at Knight Frank.

Typically, the developer anticipates an 18% to 20% return and expects profits over a longer period of time. Therefore, its price will never be as low as that of banks.

“What the developer offers is flexibility in managing your finances in the sense that you are not limited to the bank that gives you the mortgage,” he says. This flexibility is still suitable for many buyers, including those who want 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 for those who intend to leave the country in a few years and do not wish to be obligated financially.

However, developers made a concerted effort to avoid launching new projects in 2020. They wanted to sell recently completed projects. One of the few developments to start this year was the Elan neighborhood in Majid Al Futtaim’s Tilal Al Ghaf, where homes were sold out within days.

The number of completed projects is expected to increase in 2021. Building construction, which was halted in 2020, will resume. Additionally, Expo 2020 Dubai also offers great opportunities for developers and investors.