Buying Property Under Construction in Dubai: Pros and Cons

Around the world, off-the-shelf properties are being sold at much more affordable prices than finished homes, and Dubai is no exception. And while the temptation to buy a home at a low price is great, unfinished real estate carries with it a lot of risks that must be carefully weighed before signing a contract. Before making the right choice, you should familiarize yourself with all the pros and cons of buying an off-plan property in Dubai.

Concept

The main idea is that you are buying an unfinished house at the price that is relevant today and while the building is being completed, its price continues to rise. In Dubai, the vast majority of properties available for sale are either recently completed or under construction. Almost every week, the emirate’s developers announce the launches of new projects, so those who want to purchase properties at affordable prices have a lot of options. As a result, a huge number of houses that are still only on paper are already available for sale and even resale.

Benefits

Price

As a rule, buying an unfinished property is much cheaper than purchasing a finished property. This is the main advantage of this type of housing – after all, for most people, price plays a major role in the transaction.

Increase in Value

Good off-plan properties in popular areas of Dubai rise in price by at least 15% after construction is completed. The most in-demand area is Downtown Dubai, where you can still find a ton of off-plan properties for sale. These are residential buildings, offices, hotel apartments, and retail space. At the moment, market activity is high despite the summer season and the month of Ramadan, and prices continue to rise. Over the past year, real estate in Dubai has risen in price by 30%, this year the growth rate will decrease, but the market will remain very attractive and a large number of transactions are concluded daily. In fact, housing prices in Dubai will continue to rise until 2020, when the emirate hosts the World Expo 2020.

Thus, if you buy a house under construction today, its value could rise by 80% (and even more) by 2020. If you go to sell real estate, you can make a corresponding profit.

Payment Schedule

Developers are vying with each other to offer very attractive payment schedules, including really small down payments. Today you can easily find real estate that can be purchased by contributing only 10-20% of the total cost and pay the rest of the money in stages until the completion of construction, which may be in three years. There are even contracts where the buyer can make the final payment two years after the end of construction! Such indulgences became possible after the UAE adopted effective rules for the provision of mortgage loans. It became more difficult to get a loan, so developers began to offer installments themselves. However, if you are well versed in the market, then you can easily find a mortgage provider who will consider your request in two weeks, and the interest rate will not exceed 3.85%.

Disadvantages

Price

Usually, if you buy something that only exists in the developer’s brochure, you expect it to be significantly cheaper than the finished product. So it was in Dubai, but only until recently. Unscheduled real estate was 20% cheaper than already built housing. However, today experts admit that this figure has declined. Developers believe that offering a convenient payment schedule is attractive enough in itself, so there is no need to offer additional discounts.

Risks

The biggest risk for those who buy this type of property is to never see their property complete. This usually happens when the developer faces financial difficulties and freezes the project. There is still a risk of becoming a victim of fraud, but if you carefully study the contract and consult with an experienced lawyer, then this moment can be avoided

The Dubai Land Department has recently introduced a number of regulations to help prevent such cases. The safest thing in this situation would be to deal only with reliable developers who have a good reputation in the market. Yes, there are projects that have been postponed for more than one year, but today they are rather an exception in the Dubai market.

Reality

Some analysts are already sounding the alarm – unprecedented activity in the sector of unplanned objects may again lead the market to overheat and collapse. Attractive payment schedules play into the hands of speculative players. Other experts, however, are confident that market conditions are stable and that they will remain strong over the next few years. Along with the growth of the emirate’s economy, prices for real estate, utilities, food, etc. are growing. This discourages some buyers and renters who are choosing to move to more accessible areas or even neighboring emirates. The general picture of the market is very contradictory – despite a large number of new deliveries, prices continue to rise.

However, in general, market forecasts are quite optimistic, so buying real estate in Dubai, especially off-plan properties, has become a very popular tool for investors and end-users. Excellent business conditions and a growing industry are attracting large numbers of people from all over the world here, so buying off-plan real estate in the emirate will make you a winner if you are willing to stay on the market for a long time.

Agency Services

According to Dubai real estate legislation, a licensed realtor must be present at the conclusion of the purchase agreement. When purchasing real estate in the primary market, the seller often undertakes to pay for real estate services (often the commission is 2% of the transaction amount). If real estate is bought on the secondary market, then this amount is divided equally between the buyer and the seller.

If the property was purchased through mortgage lending, then, in addition to the above-described fees, the buyer must pay a loan processing fee (1% of the loan amount). When buying a home on credit, the amount of the registration fee changes. It will be 0.25% of the loan amount +290 dirham.

Federal Sales Tax and Real Estate Transactions

Federal tax or VAT was introduced in the country on January 1, 2018. The tax will have a limited impact on the local property market, according to a statement from the Dubai Department of Lands and the Dubai Federal Tax Administration

Operations for the sale and lease of vacant commercial objects fall under the law. All other real estate transactions are either tax-free or exempt from paying it. About 85% of all real estate transactions in the UAE will not be subject to the tax burden.

According to the legal procedure, all local companies and other taxpayers were required to register with the tax office to pay VAT within 100 days of the adoption of the law. Director-General of the UAE Federal Tax Service Khalid Ali Al Bustani said that 98.8% of taxpayers were registered on time.

UAE citizens can receive 5% VAT compensation, provided that the property they have purchased is not used for commercial purposes, including not being rented. To do this, you need to submit an application to the local tax authority no later than 6 months after the completion of the construction of the facility.