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Why is it profitable to buy off-plan property in Dubai?

9th November 2020

Why is it profitable to buy off-plan property in Dubai?

Buying real estate in Dubai is a reliable way not only to save money in an unstable economy and inflation, but also to earn it. If you rent a purchased apartment or villa, it will pay off quickly enough.
According to data of the end of 2019, the average yield of apartments in the Emirate was 6% per annum. For villas, it was slightly less – 4.7%. Even with these figures the apartment pays off in 16.7 years, and the villa – in 21.2 years. These terms may be significantly reduced: the demand for housing rent is growing (from both foreigners working in Dubai and tourists). It means that you can predict an increase of the rent costs.

Why is it profitable to invest in Dubai real estate?

Инвестиции в недвижимость Дубая
Comparing to the other metropolises, a square metre in the Emirate costs much cheaper: approximately 7 times less than in London, 3.7 times less than in New York and 3 times less than in Singapore.

One more advantage of Dubai over other cities of the world is zero property tax (for comparison, in Hong Kong it is 15%). It means that after the purchase you do not have to pay additional expenses. Although it is applied only to residential real estate, commercial real estate is liable to 5% VAT.

At the same time the income from renting residential properties in Dubai is much higher than in other metropolises: on average it is 5.8%, and in some districts it reaches 10%. In New York this figure is 3.9%, in London - 3.2%, in Singapore and Hong Kong - 2.8%.

Real estate in Dubai: off plan or ready-made property

If you are not planning to move into a new house during the upcoming months or urgently renting it, it is better to invest in off-plan real estate, in other words - the property in the construction stage. Usually, objects under construction cost 20-30% less than ready-made apartments and villas. Thus, after the handover, your property will go up in price at least in 1.5 times.
Another advantage of buying an off-plan property is the ability to purchase it by instalment with convenient payment plan. Most of the developers offer the payment schemes counted for several years. Usually, the initial contribution is 5 - 25%. In the future you need to make small payments once a month or quarterly. The most significant sum is usually paid upon the handover. In some projects this sum can be transferred not at once, but within 2-5 years after the completion of the construction.

The price of real estate increases in parallel with the building under construction: the sooner the commissioning is, the higher the cost becomes. Therefore, you can profitably resell the property before the construction is completed. To do this, the buyer must meet the developer's conditions.

Most often, it is enough to pay the developer 25% of the cost of real estate or pay an administrative charge.

The upscale and modern residential units in Grand Bleu Tower is a great investment opportunity, ensuring high ROI

What are the risks of buying a real estate user construction in the UAE?

Talking about buying an apartment that still exists only on paper, the question about the possible risks immediately arises. What will happen to the investment if the developer freezes the project or goes bankrupt? Dozens of stories with deceived shareholders in Russia who have been trying to return their invested funds for years come to mind. In the UAE, that kind of situation is unlikely today. Here, the activities of developers are strictly regulated at the legislative level, and strict measures are taken to minimize the risks of investors. The Dubai Land Department (DLD) and the Dubai Real Estate Regulatory Authority (RERA) control the implementation of residential real estate projects and the work of developers and brokers. The most important thing is to make a deal with a reliable developer. It will help to avoid another risk – to finally get not the same property and conditions that the developer promised upon signing the contract.

How to choose a reliable project for investment?

Недвижимость в новом районе Дубая Emaar Beachfront Dubai
The key rule for buying real estate under construction in the UAE is to cooperate with those developers and brokers who have passed the state registration. The Dubai Land Department has issued special application called `Dubai Rest` where you can find all of the information about officially registered brokers, developers and their projects. This data is updated on a regular basis, so the information is always up-to-date.

Prior making a deal it is better to find the information about the developer`s reputation: were there any `frozen` projects or problems with handovers, did the ready-made apartments or villas differ from those mentioned in the brochures and how much. This data can be easily found both in DUBAI REST application or on the Internet. To protect yourself and your invested funds, it is advisable to hire an experienced agent who have been working in the real estate market for long and has the information about the developers.
Here is the list of the main world-known Dubai developers with perfect reputation:

  • Emaar Properties
  • Meraas Holding
  • Dubai Properties Group
  • Damac Properties
  • LIV Developers
  • Select Group

According to the data from Property Finder Group, last year Emaar Properties became the leader in off-plan real estate unit. The developer won 36% of the market by selling 8 600 objects (it is 260% more than in 2018). The second place is occupied with Damac Properties with a market share of 8.9%, the third place belongs to Dubai Properties Group with 8%.
    Emaar Properties, the developer of Burj Khalifa, Dubai Mall and a series of luxury residential complexes, is currently implementing several projects. For instance, the developer is now building 78-floor Emaar Grande residential tower in Downtown Dubai district. It would take 5 minutes walk to reach the tallest building in the world - Burj Khalifa and the legendary singing fountains. The apartments with 1 - 4 bedrooms and the total area of 71 square metres were put on sale with the minimus rate of AED 1 546 417.

    Commissioning of the building is planned for Q2 2022, and the initial contribution is 5%. The project is said to be one of the most profitable from the point of view of the investment and the future pay off. The annual rent rate of one - bedroom apartment near Burj Khalifa is approximately AED 85 000. This price is one of the highest in Dubai.

    Emaar Grande Signature Residences in Downtown Dubai

    Dubai Properties Group, the largest developer in the Emirate, is also implementing several off-plan projects. One of them is La Vie luxury residential complex which is being built in Jumeirah Beach Residence (JBR) area in Dubai Marina district. This territory with cleanest beaches and various entertainments was created for a resort holiday. Thanks to the magnificent conditions and proximity to Dubai landmarks, the real estate in JBR is in high demand among tourists. They are renting the beach residencies here both for several days and for the longer period. La Vie will be commissioned in the beginning of 2023. The project includes different amenities for the residents and their guests: 24-hour gym, concierge services, a swimming pool, an access to the private beach. There are apartments with 1 - 4 bedrooms and a total area of 85 square metres and more out on sale. The initial contribution is 5%, later you need to pay the same amount every six months. The main share - 60% - is to be paid upon the handover.

    How to ensure the security of the investment in off-plan real estate?

    According to Dubai legislation, the funds invested in real estate under construction are delivered not to the developer directly, but to the target account. The developer can use this amount only upon reaching the exact construction stage and under the control of supervisory authorities. It allows to protect the investors` funds even if the developer goes bankrupt.

    The Dubai Land Development has obliged all of the registered developers to open the escrow accounts. These requisitions are specified in the project information on the department's website and in DUBAI REST application. If a developer offers to transfer money in any other way it is a good reason to be wary and to refuse to make a deal with it.

    In accordance with the escrow act, which sets out the rules of project payments at the development stage, buyers have the ability to track the construction process. The developers regularly update the project data in the application. It allows each investor to make sure that the funds transferred to the escrow account are used correctly.
    Prior signing up an agreement of sale and purchase, make sure that you will be able to follow the approved payment scheme. Dubai laws protect the interests of not only the investors, but also the developers. If a buyer is unable to transfer money in accordance with the payment scheme, the developer has the right to terminate the contract and keep a penalty. When the project is completed less than 60%, the developer may retain up to 25% of the poverty value. If the building has been built for 60% or more, the penalty increases to 40%.
    To make sure of the security of investment when buying real estate in Dubai at the construction stage, you need to ascertain a few points:
    the developer and his project are registered in RERA
    the developer has a good reputation
    investments are accumulated in escrow account which is listed in the official resources of the Dubai Land Department
    These issues can be solved independently. But it is more reliable to hire the experienced specialist who is familiar with Dubai real estate market, who knows all judicial peculiarities an the pitfalls. The agent will help you find the reliable developer, choose the best profitable option for investment and prepare all of the documents correctly.