Question: I want to buy a property to live in Dubai. However, I am confused whether I should buy an off-plan or secondary market unit.
I hear that it’s cheaper to buy a unit off-plan and I can benefit from capital appreciation. However, I will have to pay both the rent and the construction-linked payment milestones if I buy an off-plan property.
But if I buy a unit from the secondary market, it seems to be at a premium. I also need to make arrangements to immediately pay the 20 per cent down payment plus other associated fees.
What factors should I keep in mind to ensure that a property has good resale value in Dubai? Should I also inquire about the service charges before buying a property? Should this be paid as a lump sum or every month?
Please advise what other factors I should consider before making a decision. MS, Dubai
Answer: Choosing to buy a property from the secondary market or off-plan is obviously a personal choice. There are several pros and cons to both, so I will outline some of them here below in order to help you to decide what is the best investment for you.
For secondary market, the pros are:
- You will have possession of your unit at the point of transfer whereby you can move in yourself or indeed rent it out straight away.
- If you rent it out, you will benefit from earning the rental income immediately based on the rental contract and payment terms.
- There will be no delays in handover, the property is ready, so you buy what you see at the point of viewing.
The cons are:
- Capital appreciation can be slower than for units that are under construction.
- The cost is 100 per cent upfront either by one’s own funds or through a mortgage.
For off-plan, the pros are:
- Lower entry level costs. You only need the initial 10 per cent to 20 per cent down payment, then embark on the assigned payment plan.
- Appreciation can be fairly rapid within a rising market, reaching its peak just before handover.
- The property will be new and have the latest services and equipment attached to it.
The cons for off-plan are:
- There will be delays in construction. This is a certainty. A project can be delayed by up to 12 months without a developer having to compensate a buyer.
- There is always a level of uncertainty attached to buying an off-plan property, surrounding not just the delivery time, but the actual size of the unit, the view, the aspect, the facilities, etc.
- If looking to rent out at the time of handover, there will be many units hitting the market at the same time, which could impact the value of rent achieved.
Having a good resale value always depends on the supply and demand as most people will want to live near water, be that a marina or beach, or close to major attractions as well as transport links such as a Metro station or good road links. The location will determine the saleability and rentability of a property.
Service charges are often an afterthought with investors or end users. These can vary from Dh2 to Dh5 per square foot for villas and town houses, and between Dh15 and Dh20 per square foot on average for apartments.
These need to be considered because they are a constant cost attached to a property and one that is also likely to go up even if we just take inflation into consideration.
Service charges are an annual charge, but I would request you to check with the owners’ association of the particular tower if it’s an apartment, or the developer if it’s a villa or town house, to see if they require this annual charge to be paid in one go, every six months or indeed quarterly or monthly.
The last thing to consider is that buying real estate should be for the long term because it’s difficult for anyone to time the market.
We are presently in a bullish market and one that is currently based on good fundamentals, such as population growth. All markets can be affected by other factors such as government policy, geopolitical issues or sentiment, so remember that even in real estate, the value goes up as well as down.
Mario Volpi is head of brokerage at Novvi Properties and has worked in the property sector for 40 years in London and Dubai. The opinions expressed do not constitute legal advice and are provided for information only. Please send any questions to mario@novviproperties.com
