Off-Plan Properties vs Ready Properties: Making the Right Investment Choice

Introduction:

With the boom in Dubai’s real estate market, people have been rushing to buy properties all across Dubai. This huge demand for properties has brought a significance increase in developers launching new properties every single week.

As values in renowned and popular areas of Dubai have reached new heights a lot of developers have started to launch in suburban areas or areas where the city has planned a lot of future developments.

And this has caused a huge surge in off-plan property transactions.

Dubai, has become renowned for its dynamic real estate market. Now most investors want to get a piece of the action.

But they often face a crucial decision: whether to invest in off-plan properties or ready properties.

Now there is no better or worse option. Both options have their advantages and drawbacks, and understanding these nuances is key to making an informed investment decision.

Secondary/Ready Properties:

Ready properties are those that are completed and ready for occupancy. These properties come with their own set of advantages and factors to consider.

Benefits:

Immediate ROI:

• One of the biggest advantages of buying a ready property is that you can start getting immediate ROI from your investment.
• Once purchased, ready properties can start generating rental income or be occupied immediately, providing a more immediate return on investment.
• You could either buy a property that’s already tenanted mitigating the time it could take to get a new tenant. But usually the ROI would be lower in this case as you can’t increase the rent for a whole year if it’s tenanted, missing out on the current rentals that are running in the market.
• Alternatively you could furnish it nicely and put it up for short term rentals yourself or with a property management company bringing much higher returns.

Tangible Features:

• With ready properties you can physically inspect the property, understanding exactly what you are getting before making a purchase.
• This is important as you can make sure the property is in a good condition or not, check for any damages and issues, check the amenities, etc. giving you a better idea of what you’re getting.

Established Communities:

• Ready properties are often but not necessarily located in established neighborhoods with existing amenities and infrastructure.
• You can gauge better with how many people are already living there, if there are grocery stores and restaurants close that could drive up the demand.
• It’s exact proximity to key locations such as schools, malls, hospitals, etc. As well as how is the connectivity of the property from major roads and the city center.

Financing Options:

• You can get attractive financing options when you’re buying a ready property such as mortgages and loans.
• In Dubai you can get up to 80% of the property’s value from the bank.
• It is comparatively much harder and in some cases not possible to get a mortgage to buy an off-plan property.

Reduced Risk:

• Buying a ready property mitigates a lot of the risk when compared to something under construction as you can touch and feel exactly what you’re getting.
• You can ask existing tenants in the community for their reviews of the property giving you a clearer idea.
• There is less uncertainty about the property’s completion, quality, and the surrounding area since everything is already in place.

Considerations:

Higher Initial Cost:

• With ready properties you have to pay the full amount upfront to the seller.
• It also involves paying a commission to the broker which is usually 2% of the cost of the property.
• There may be costs in regards to maintenance that you might have to do or upgrades you wish to do.
• If you finance the property you would still have to pay a minimum of 20% of the property’s value.

Limited Room for Value Appreciation:

• Usually the most appreciation investors make on a property is when they buy it under construction and wait till it’s ready.
• The property’s value may not appreciate as significantly as with off-plan properties.
• In the right market it could appreciate still but it depends on several factors.
• Currently we are experiencing a seller’s market where the sellers have the upper hand in negotiations, making it tough to find a good deal.
• Unless the property is fairly new, it could affect the price when you sell it later down the line as well as in the rental returns you can make on it as people prefer to live in newer homes rather than older ones.

Condition:

• The condition of the property or community may not be as good as compared to something that is brand new, which could affect its value down the line.
• It may have outdated amenities, or an older design which may not cater to most people.
• The location also has a big impact if it’s in an area that is still developing it may not have many retail and dining options or the best connectivity yet.
• There would be constant construction around the property which may throw-off some tenants.

Off-Plan Properties:

Off-plan properties are those that are purchased directly from developers before they are completed. Buyers essentially invest in a property that is yet to be constructed.

Here’s a closer look at the pros and cons associated with off-plan property investments:

Benefits:

Lower Initial Cost:

• Off-plan properties are usually priced lower than ready properties, making them attractive to investors looking to enter the market with a smaller budget.
• When buying a property directly from the developer, you aren’t required to pay any commission on your purchase either.
• Some developers also give waiver on certain fees such as the DLD fees further reducing the initial cost.

Potential Capital Appreciation:

• As the property is being developed, there is a high potential for its value to appreciate significantly by the time it is completed.
• A lot of investors reap the benefits of the appreciation even before the project is completed by selling it after paying 30-50% of its cost over a year or two or once the project has been completely sold out.

Payment Flexibility:

• Most off-plan properties offer flexible payment plans which allows investors to pay in installments over the construction period.
• A few developers also give a post-handover payment plan allowing the investor to pay in installments even after the key is handed over.
• Once the property is completed you can even mortgage the on handover payment that you are required to pay upon completion.

Modern Design and Features:

• Off-plan properties are often designed with contemporary, new features and technologies, appealing to those seeking the latest amenities.
• The design of the property and materials used will be according to the market trend making it more appealing to buyers and tenants.

Considerations:

Construction Delays:

• There are delays in the completion of the project several times, which means your money is stuck for a longer period.
• Delays in construction are not uncommon, which means your investment might take longer than expected to start generating returns.

Market Fluctuations:

• The value of the property upon completion could be influenced by shifts in the economic or market landscape.
• If the supply is more than the demand it could bring down the value of your property.
• Typically, many investors opt to sell their properties upon or nearing completion. This can lead to heightened competition when multiple units of the same type are introduced to the market simultaneously

Developer Reputation:

• Researching the developer’s reputation is crucial, as an unreliable developer could lead to complications or project cancellations.
• Properties by respected developers often carry a higher resale value and higher ROI’s compared to similar properties in the area due to their quality, which can be an advantage.
• Investigate the developer’s history of successfully completing projects. A developer with a consistent track record of delivering quality properties on time can provide more confidence in the project’s execution.
• A reputable developer is likely to have a stable financial background. This matters because financial difficulties could potentially stall or jeopardize the completion of the project, leaving buyers in a tough situation.

Making the Choice:

When deciding between off-plan and ready properties in Dubai, investors should consider their financial goals, risk tolerance, and time horizon.

Off-plan properties offer potential for higher returns but come with higher risks and uncertainties.

Ready properties provide more immediate returns and lower risk but might have limited appreciation potential.

Balancing these factors according to your investment strategy is crucial.

Conclusion:

Both off-plan and ready property investments in Dubai have their own unique advantages and challenges. Investors should carefully weigh these factors against their own financial goals and risk tolerance before making a decision.

Whether you opt for the potential appreciation of off-plan properties or the immediate returns of ready properties, Dubai’s real estate market offers opportunities for savvy investors to achieve their financial objectives.