The Pros and Cons Of Buying Off-Plan

2022 saw the return of the off-plan sale to Abu Dhabi. Several projects were launched, particularly on Saadiyat and even Yas Islands and by several developers, with old stalwarts like Aldar and Bloom leading the way against new upstarts like Q Holding and Baraka. A few of these schemes sold out on launch, but most did sell out quickly. It seems off-plan is popular again but is it worth investing in?

So what are the pros and cons of buying off-plan in this newer, more confident market and what do you need to look out for?

Choice of Unit

One of the great things about off-plan sales is that you can choose your unit from a wide range. You can select the type, view, and floor. The downside is that you can’t see the finished article. What you end up with might look very different from what you thought. Study the floor plan in detail!

Payment Plans

These are a big draw to buyers who don’t have the deposit for a ready unit now. You can reserve units for as little as 5% and pay a portion of the price over the project’s life (usually about three years). Pay attention to the milestones. Developers can only request a new payment if they hit the relevant construction milestone.

The con might be when the property is handed over. For example, you have more cash in it than you need if putting a deposit down on a built project. But when you finance the property on completion, you get this lump sum back.

Golden Visa

You can get a 10 Year Golden Visa after making only a 10% payment on your unit. This is a much smaller equity investment than the 2m you would need in the secondary market.

Completion Risk

When you buy off-plan, you are taking a risk that your unit it will not be completed. Several projects sold off-plan in 2007-2008 were never built, and investors still struggle to get their money back. In its “Law 3 of 2015,” the government primarily addressed this by tying payments to construction milestones and using government-controlled escrow accounts. In the past, developers had the payments tied to dates so they could collect even if they weren’t building.

Cost of Capital

When you make your payments on the project, you don’t get interested in those payments like you might in a bank. This is the cost of capital.

Change of Circumstances

When the unit is handed over, your circumstances may have changed. You might have left the country (you can get a property manager to manage the unit), your work situation may have changed, affecting a mortgage, or you might not want it anymore (you’ll need to resell it). Also, it will be hard to predict what the market will be like in three years. You could make a huge profit or have a unit worth less than what you paid.

Off-Plan Resales

Off-plan can be easy to resell in a buoyant market, but in a flat or down market, it can be challenging. Remember, a buyer will need to pay broker fees and transfer fees amounting to 4% of the property, so a sale in a flat market will need to be discounted. In a good market, however, the project can be resold quickly and easily in the developer’s office.

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