Risks of Buying an Off-Plan Property in Dubai

Off-plan property investments offer various advantages while also presenting some challenges that need to be taken into account. Off-plan properties refer to properties that are purchased while still in the construction phase or the planning stage. 

Meaning that the purchase solely depends on the property’s floor plan. This property type differs fundamentally from ready properties that allow for immediate occupancy.

Continue reading this article to learn about the risks of buying an off-plan property in Dubai, how to overcome them, and more.

Buying Off-Plan Property Risks: Things to Consider

The risks of buying an off-plan property in Dubai include the following:

• Delays in Handover

Delayed handover is one of the risks of buying an off-plan property in Dubai, and it can be due to several reasons, such as circumstances beyond the developer’s control, like pandemics and financial crises, or it can stem from changes in the construction schedule. To handle this issue, the government implemented rules and regulations to protect investors’ interests. 

So, the Sales and Purchase contract signed by the investor has a dedicated clause dealing with this concern, stating the consequences of failing to deliver the property on time. Accordingly, investors can take legal action, choose a settlement, or request a refund of the payments they have made.

If the project gets cancelled, the investor loses the money they have paid. So, to prevent cancellation, the Real Estate Regulatory Agency (RERA) requires that the investor pays the developer through a registered escrow account, which limits the developer’s access to the paid amount until the construction reaches a particular stage.

While such regulations protect investors, research remains essential to ensuring the developer’s reliability and transparency. Also, check that the developer, the real estate project, and the escrow account are all registered with the Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA). 

• Fluctuations in the Market

Fluctuations in the real estate market and changes in trends can have a negative impact on off-plan properties and off-plan investments. For example, if the market undergoes a downturn, the property value decreases, and investors cannot gain the same ROI as planned. On the other hand, if the market witnesses an upward trend, the opposite will become true—greater property appreciation, higher value, and increased ROI.

To handle this investment risk, it is advisable to invest in off-plan property in Dubai when the market trends are positive and promising. Investors should also invest in prime areas that are well-connected and characterised by various residential communities and commercial destinations. This way, their off-plan investment is unlikely to be negatively affected by a downturn in the market.

• Delivered Quality

As mentioned previously, off-plan investments rely on the floor plan, as the property is still in the construction phase at the time of the purchase. This brings forth the following risk: The quality of the delivered property may not meet the expectations of the buyer; the property may be described, visualised, and promoted to the investor in one way, only for it to be delivered lacking in some aspects.

This risk of buying an off-plan property in Dubai can be avoided by doing the necessary research about the developer, which should include their portfolio, earlier projects, their handover dates, and any accessible court cases. 

In addition, working with a real estate agent can help investors deal only with dependable and well-reputable developers, ensuring transparency and the high quality of the delivered property.

Various developers provide ready and off-plan properties in prime areas in Dubai, providing you with advantageous locations, excellent facilities and services, and elegant apartments for a luxurious and convenient lifestyle and a living experience of high standards. 

As such, LEOS Developments leads the market in terms of elegance, modernity, quality, and convenience. Discover LEOS Developments apartments in Dubai to find your forever home.

• Sold Under Conditions 

Many investors buy properties for investment purposes rather than personal use. In the case of off-plan properties, investors are limited when it comes to selling the property before its completion because the developer would require them to pay a particular percentage of the property’s price before they resell it.

If you aim to resell your off-plan villa or apartment, make sure to check the minimum amount required of you to pay for the developer before carrying out the purchase process. This will assist you in financial planning, enabling you to gain your desired ROI in your preferred time frame.

• Changes in Investors’ Finances

One of the risks of buying an off-plan property in Dubai is the possibility of negative changes to one’s finances. When an investor buys an off-plan property, they follow a particular and agreed-upon payment plan. Generally speaking, investors must pay a specified percentage of the property’s price during the construction phase in instalments (80% of the price, for example), while the rest is paid at the handover.

Taking such a payment process into consideration, the investor’s finances may decline during construction, risking their timeliness with monthly payments. The risk is increased if the investor is financing their purchase with a mortgage, because mortgages for off-plan purchases in Dubai only cover 50% of the property’s price, under the condition that the investor can fund the remaining costs.

How Do I Sell Off-Plan Property?

The process of selling off-plan properties is similar to that of ready properties—-which includes working with a real estate agent, finding potential buyers, and obtaining an NOC from the developer. However, it must be noted that selling off-plan units can only be carried out if the investor pays the minimum amount of the property’s value to the developer.

Conclusion

As this article explored, there are various risks to buying an off-plan property in Dubai, but all of them can be overcome with strategic planning. Also, Dubai’s government put several laws and regulations in place to protect investors’ interests and encourage investments of all kinds, so the real estate market continues to flourish.