Offplan investments

Hi subscribers,

In Q1 of 2025, AED 53.8 billion worth of offplan properties were sold in Dubai. That’s two thirds of all residential transactions.

So far we have focused a lot on off plan opportunities. However, today we want to have a look at whether and in which cases off plan opportunities are a great investment for you.

Offplan investments now safer than in 2008/09

In the property market crash during the Global Financial Crisis of 2008/09, a lot of people lost money with offplan investments. Speculators had bought offplan properties with the intention to flip after a few months. When they didn’t find buyers anymore, they couldn’t make the remaining payments and lost their investment. Investors that could have made the remaining payments also lost their money as developers ran out of funds and couldn’t finish the buildings. The UAE however has since then put regulation in place to mitigate the risk of similar problems:

• Developers now have to have a substantial percentage of the construction cost before they are allowed to launch their project;

• All payments for an offplan project have to be paid into an escrow account and can only be accessed by the developer once construction milestones are reached; and

• Re-sale of offplan properties is only allowed once the buyer has paid a significant part of the purchase price (exact percentage dependent on developer).

The alternative to buying offplan is to buy a completed unit. Below we analyze how the two types of investments compare and in which cases one is better than the other.

Buying completed units

There are a few advantages to buying completed units:

1. You can see what you buy - When you buy a completed unit, you can view it and see what you get in terms of quality. You can look through the window and see the exact view. You can experience the traffic to and from the unit or at least check driving times at different times of the day on google maps. When buying off plan, you buy based on renderings that might not exactly represent the final product. You can estimate the view based on location and the height of surrounding buildings. But often those surrounding buildings are not yet built. Traffic is also difficult to estimate as it will change substantially once all buildings in the area are completed and occupied.

2. You can finance the property - If it is your first property, you can finance up to 80% of its value. Subsequent properties can be financed up to 60%. For offplan properties, financing is possible. However, local banks only finance properties under construction from very few developers. The amount is also limited to 50% of the property value and the 50% equity has to be contributed first. So effectively for a completed property, you need around 27% of its value (4% DLD fee, 2% agent commission and around 0.5-1% home loan arrangement fee) while for an offplan property you need the total amount to be paid before handover. Around 24% (20% plus DLD fee) normally has to be paid within 1-2 months and the rest during construction and at handover.

3. You can negotiate the price - Most sellers advertise their unit for a price slightly above what they expect to receive. However, when a seller is desperate, you can sometimes push the price down substantially. This is possible when the seller requires the money quickly and you are the only interested buyer. Pricing of offplan units normally cannot be negotiated.

4. You can directly earn rental income - The fact that you can directly rent the property is a huge advantage. As in Dubai rental yields are quite high, you can normally pay your mortgage installments from the rental income. Therefore the 27% upfront payment is the only cash you need. For offplan properties, you will be cashflow negative until the property is delivered. Often delivery is delayed without any compensation for the buyer.

Buying offplan units

The advantages of buying offplan units are:

1. Lower price - In general offplan units are priced below a comparable completed unit. Once the unit is completed its price normally increases.

2. Developing area - Often offplan units are in an area that is not yet fully developed. With the improvement of infrastructure and development of other facilities such as parks, schools, retail, health and wellness offers, the value of property in the area further increases.

3. Choice - The developer is selling many units at the same time. If you are early, you can choose the view, floor and layout you like.

The drawbacks of offplan properties are:

1. Delays - Most projects experience delays and often payment plans are not construction linked. This reduces your return.

2. Design uncertainties - You will only know for certain how your unit looks like once it is delivered. Even with reputable developers, there can be unpleasant surprises.

3. Competition at handover - Once the building is complete, all units are handed over within a short period of time. Tenants interested in renting a unit will have a lot of choice. If the surrounding infrastructure and facilities are not yet developed, there also might not yet be a lot of demand from tenants. Consequently, the first year rent can be low and/or the unit can be vacant for a while.

So when does it make sense to buy offplan?

It makes sense to buy offplan when the positives outweigh the negatives. So let’s do a number example. Let’s say you can buy either

• an offplan 2BR unit for AED 2 million on a 60/40 payment plan with delivery in 3 years; or

• a completed unit for AED 2.3 million renting for AED 150k per annum, financed 80% with home loan.

We further assume that the property will be worth AED 2.5 million at the time the offplan unit is handed over.

For the purchase of the offplan unit we require about AED 1.3 million in cash and make a profit of a bit over AED 400k over the three years. Taking into account the timing of the payments, the return on our invested money is 14% per year.

Buying the completed unit requires less than half the cash, but also leads to less profit. The return is 9.5% per annum. With the above numbers, buying the offplan unit makes more sense in case we have sufficient cash available.

However, if we assume a 6 month delay in the construction, the return of the offplan property drops to 11.3% per annum. If we are able to negotiate the price of the completed unit down to AED 2.2 million, it then returns 14.6% per annum.

Our website is an excellent tool to compare different projects. It also now includes the latest transactions of projects and areas as well as the latest average per sqft pricing.

The Flipping Myth

Some agents try to get you to buy properties offplan with the aim of selling them after a few months at a profit. If successful you can earn a high return on your invested money. However if you are not able to find a buyer who pays you a premium, you are stuck with the investment. If you are unable to make the remaining payments, you will lose your invested money. Therefore, don’t buy offplan properties unless you are certain that you will be able to come up with all the payments.

Conclusion

Buying an offplan unit only makes sense if the price is right. This means substantially cheaper than a comparable finished unit. In developed areas we can check on Property Finder or Bayut what similar units are being offered for. If the area is not yet developed, we need to estimate what the development will be comparable to once finished. It is a more difficult to estimate the future traffic situation and the quality of facilities and surrounding retail and wellness offerings. Therefore, we should also expect a higher profit to justify the investment.

This is why we strongly believe in offplan opportunities with substantial upside potential and we don’t recommend buying offplan for pricing close to (or higher than) similar finished units. The best opportunities in our view are still the waterfront opportunities on Dubai Islands and Dubai Maritime City as well as the villas and townhouses in the Bayn development by Ora in Ghantout.

Below are the latest and upcoming project launches in the above areas:

If you are interested in any of the above or want to sell a property, please let us help you get in touch with the right real estate professional advising you in your best interest.

As always, with us, you will not get unwanted calls from pushy agents. The agents we work with are independent from us, go through a stringent continuous selection process and will only contact you in the way and at the time you choose.

Below are the upcoming projects in other parts of Dubai

If you are interested in any of the above we are also more than happy to put you in touch with the right specialist.

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Until then, keep it up.

Stay tuned,

M&M

Important Notice:

The information provided in this newsletter (the “Newsletter”) is a consolidation from different publicly available sources combined with the personal view of the author and for informational purposes only. It does not in any way constitute financial, investment, legal, or tax advice. Nothing in the Newsletter or on our website is an offer or advertisement for any specific project or opportunity, but a tool for you to see and compare publicly available information on projects for your own personal purposes. While we give the option to put you in contact with independent agents specializing in different areas, we are neither in control of, nor responsible for any information given by those agents.

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