Guide on How to Purchase Your Dream Off-Plan Property in Dubai
Off-plan properties in Dubai are highly attractive to prospective buyers. How do I know? It’s because this is one of those most common questions that I get from my clients several times a week. Some of them inquire regarding the upsides and downsides of off plan property in the region, others want tips on selecting the right off-plan property, and few of them have already invested in some off-plan projects that are taking ages to complete.
No matter which of these categories you fall under, I want to shed light on all the aspects concerning off-plan property investment. In this blog, I will reveal the things you need to know to ensure a smooth and informed purchase of the property in Dubai you’re setting your sights on.
1st Step: Choose the Right Real Estate Agent
When purchasing an off-plan property, you normally purchase it directly from the developer unless otherwise, it’s a property for sale in the secondary market. However, there are still multiple reasons to hire an agent. He/she must be someone who knows the ins and outs of the market and has knowledge in distinguishing a good off-plan investment from a bad one.
There are real estate agents who will recommend you to invest in a certain off-plan property and later on, will leave you alone when it comes to dealing with the developer upon finalisation of the purchase. I always inculcate my clients that purchasing an off-plan property is not only about obtaining a good deal, but also about dealing with the developer as long as they have an association with that investment.
Your agent must be able to provide you with dedicated assistance with all the issues and queries that may come up in the future.
The question is, what are the ways to find a good and reliable agent?
The internet is the best place to find the best real estate agent in Dubai, as all the information you need is just a click away. When searching for brokers, scrutinise their social media channels and website. Based on their profile and online presence, you can judge which one will be able to help you all throughout the process.
Ask for Referrals
Do you have family members, colleagues, or friends who have recently purchased an off-plan property in Dubai? Ask them regarding their experience. If they are happy and satisfied with their agent’s recommendations, then you should also go for that agent.
2nd Step: Determine the Costs
Do you see ads on billboards and on the internet saying, pay only AED 2500 a month or own your home with just 5% down payment? Don’t be fooled by these marketing schemes. The following are just some of the things you need to know regarding the costs of buying an off-plan property in Dubai.
Cost of Booking to Purchase Off-Plan Property in Dubai
The foremost thing that you need to keep in mind, is of course, the amount required to book your chosen property. Don’t be so quick to believe and assume that you will instantly become a homeowner by just paying AED 2000 per month.
Take note that you always need to pay a booking amount, which usually varies from 5% to 25% of the property’s total value. This is something that you need to clarify with your agent or developer.
In this situation, it would really help to have a knowledgeable and experienced broker at your side, as he/she can help you avoid the embarrassment of getting rejected by the developer in case you don’t qualify.
What is the Registration Fee Required in Buying an Off-Plan Property in Dubai?
In accordance with the policies set by the Real Estate Regulatory Agency (RERA) and the Dubai Land Department (DLD), the buyer must pay a 4% registration fee at the time of buying the property. Hence, it doesn’t matter whether you’re purchasing an off-plan property by paying only 5% down payment, as you will also be required to pay a 4% registration fee at the same time.
Most of the time, the developer offers to get the fee from you and submit to the DLD on your behalf. They also ensure that the payment is made in the form of a manager’s cheque and in the name of the DLD.
What’s the Agent Fee Required When Buying Off-Plan Property in Dubai?
Working with a broker in accordance with the market standard makes you liable to pay them a 2% agent commission. Generally, the actual commission percentage / figure depends on the understanding between you and your chosen broker.
5% VAT has taken effect in the UAE since the beginning of 2018. This means you also need to pay a 5% VAT on the 2% commission unless the real estate agent waives it for you and pays to the government on your behalf from their commission.
Don’t celebrate yet once you have already paid for the booking amount, agent commission, and DLD fee. There are still other extra fees you need to pay, including AED 1,500 to AED 5,000 administration fee, service fee (at the time of handover), handover fee (at the time of handover), and more.
Penalties, Fines, and Deductions
To ensure that the entire process will be as smooth as possible, it’s imperative to follow the agreed payment arrangements between you and the developer.
In the event that you miss on any of your payments, keep in mind that the developer has the lawful right to escalate the issue to the DLD and take certain course of actions to either get the payment from you or cancel your unit and have it sold to someone else.
Failure to pay will prompt the developer to send you a payment reminder (three in total). In the event that you’re still unable to pay or be in touch with the developer for a resolution, they will approach the DLD to seek approval in terminating your property.
The following are the unit termination criteria of the DLD:
- If, for instance, at least 80% of the construction was completed by the developer, they may (i) keep all the money collected from the buyer and sell the unit in public action as a means of due payments recovery, or (ii) may debit not more than 40% of the purchase price, and ultimately, revoke the contract.
- If, for instance, at least 60% of the construction was completed by the developer, they may debit 40% of the purchase price and revoke the contract.
- If, for instance, the construction commended but has not reached 60%, the developer has the lawful right to debit 25% of the purchase price and revoke the contract.
- In the event that fortuitous events—i.e. circumstances beyond the developer’s control involving the government—avert the commencement of the construction, the developer has the lawful right to debit 30% of the payment made by the buyer and eventually cancel the contract.
3rd Step: Choose the Type of Property
The properties that you can purchase come in two main types: residential real estate property and commercial real estate property. For off-plan purchase, there’s a similar criterion of such properties in Dubai, but the only difference is the 5% VAT, which is pertinent to commercial properties.
Purchasing Residential Off-Plan Property in Dubai
The fees and rules entailed in buying a residential off-plan property in the region are the same as those involved in commercial off-plan property. However, take note that the 5% VAT is not applicable to residential properties. You only have to pay this on the service fee payable at the time of handover and the services rendered to you by your real estate agent.
Purchasing Commercial Off-Plan Property in Dubai
When purchasing a commercial off-plan property in the region, the payment’s criteria and the documentation are similar to what is described above. The key difference is the 5% VAT that you’re required to pay on your purchase price. Thus, apart from the 2% agent commission and 4% registration fee, you will also need to pay 5% VAT on the purchase price.
The above rule has taken effect from January 1, 2018. This means to say that any purchase you have made before that shouldn’t have the 5% VAT. There are certain cases where the developer requires the buyer to pay the VAT for sales which were completed in 2017. In the event that you face this scenario in the future, take note that you aren’t eligible to pay such tax anymore.
4th Step: Decide on the Location
This is by far, one of the most vital aspects of the entire property buying process. Take note that deciding on the location is something that needs careful thought and planning. If you don’t mind investing your hard-earned cash into projects and areas which will take quite some time to complete, as you know they will get good appreciation in at least 8 to 10 years’ time from now, then go for what you’re setting your sights on. However, ensure that it is sold at a good price, of course.
Below are two things you need to consider when it comes to choosing a location for your off-plan property in Dubai.
Purchasing Property in an Already Developed Community
Are you planning to purchase a property in an area which is already well-developed such as Palm Jumeirah, Jumeirah Village Triangle (JVT), Dubai Sports City, Jumeirah Lakes Towers (JLT), and Dubai Marina? Then, it’s important to take into account the price that the developer offers.
Though you will get an attractive payment plan and you won’t need to make full payment while buying the property, keep in mind that you aren’t purchasing a ready property as well.
No one knows what the future holds. The real estate market will either appreciate or depreciate in the next five years. Hence, the best thing to do is ensure that you are purchasing an off-plan property that costs below the market value.
Purchasing Property in an Upcoming Community – The beauty of Dubai is that it’s a place of endless expansions. Say, for instance, you are considering to purchase an off-plan property in the city which is not yet developed. In this case, expect that the prices will be extremely attractive.
Well, don’t let this be your deciding factor in making the final decision. There are ways to determine whether the certain community you are eyeing is worth it.
First, examine whether the master plan is something that suits your taste and preferences. If it does, then follow your heart. For instance, since the EXPO 2020 is just around the corner, there is increased speed in the development of the site and its adjoining forthcoming communities.
The vision of the rulers in Dubai is to transform it into a world-class industrial hub. You may not see several industries operating in the emirate as of yet, but don’t get caught by surprise when you see leading manufacturing companies operating their business from the region.
5th Step: Decide on the Project
The huge number of off-plan projects in Dubai nowadays can really take a toll on your decision-making skills. Well, no one can blame you, as it can really get overwhelming, even for me.
However, I use a straightforward formula to determine a project’s worthiness. I will share it to you below, so read on.
Check the Project Profile
Having a complete understanding of the project is the key to making the right choice. Since you are the one buying the property, you shouldn’t solely depend on your agent’s recommendation. Though agents are professionals, don’t forget that they are still human beings who can make a mistake in validating the project’s authenticity.
It would be great to research on the project before you begin thinking about the amount you need to invest in an off-plan property. Of course, you should find out the project’s size, the total number of the units and their types, the planned and approved amenities for the project / building, the height of the building, the owner of the land on which the building is being built, and many more.
To put it simply, you need to validate everything about the project. In this case, your broker can be very helpful, as they know the ins and outs of the developers and their respective projects.
Look into the Project History
Want some insider information? You deserve to know the truth, as it shall set you free. Let’s be real—there are certain things both developers and agents don’t want you to know.
The crash of 2008 was one of the dark pages in the history of Dubai’s real estate market. Today, the result of that market collapse is evident in the form of newly launched and revamped projects by the same developers, only to suffer the same fate.
I discovered that the majority of the failed projects should not be blamed on the global financial downturn 10 years ago, but on the developer’s incompetence for the most part.
The point that I am making here is that you need to know the history of the project in front of you before you decide to invest. The great thing is that it’s no longer too difficult to search for such pertinent information given the advancement of today’s digital world.
6th Step: Study the Payment Plan and Conduct Comparative Market Analysis
Now that we have already tackled the ways on how to verify the worthiness of a community or project, let’s move on to the real deal. I have compiled below some of the sure-fire ways to determine the right price for a certain property, how payment plans work, and how to make payments to your purchase in Dubai.
Conduct Comparative Market Analysis (CMA)
Don’t know where to start? Well, you need to initially ensure that the price being offered to you by the developer is rationalized by the current market price. You’ll be surprised to know that there are certain instances in which people have purchased expensive off-plan properties in the city only to be disappointed later after the property’s completion.
By doing a proper comparative market analysis, you will not only be able to guess the right price but will also be in a better position to negotiate its value with the developer. However, to tell you honestly, developers don’t normally negotiate on the price of the property. And this is another compelling reason to work with a seasoned and reputable broker.
In doing so, you will be able to find the best off-plan deals and negotiate with the developer to give you a better price. This is what I do for my valued clients. Using my wealth of knowledge and experience in the industry, I ensure to provide them with a win-win situation when it comes to the property buying process.
Keep in mind that having access to the right data, i.e. recent sale transactions in the same community / project, is the key to determine the right price for the property that you’re interested in buying. Not only a competent broker will have access to such information, but they will also share all the data with you and be the negotiator for the deal.
Validate the Escrow Details
The aftermath of the financial crisis in 2008 prompted the DLD to come up with an escrow account, in which payments for the off-plan property in Dubai should be made.
Asking the developer where you can pay is a great way to determine whether they are running a business in good faith or not. In the event that they tell you to pay through any means than the escrow account, that’s a red flag, so run as fast as you can.
Visit the official website of the DLD and search for the project to validate the escrow details given to you by the developer.
Negotiating the Payment Plan
What makes off-plan projects really interesting and attractive are their easy-to-follow payment plans. And here’s the good news, you can negotiate the payment plan and make it as per your wish! Of course, it’s a given that developers don’t like to negotiate on this part, as they want to have the full control. However, if you stand your ground, there’s no way you’ll settle for anything less than your preferred payment plan.
When you’re done negotiating with the price, there’s a high chance for you to get further reduction by simply offering your own payment plan.
Say, for instance, the developer demands you to pay 30% on booking and 70% on handover. The best way to experience convenience and flexibility is through proposing to pay 50% at booking and 50% at handover if the developer agrees for a price drop.
The price’s increase or reduction will mainly depend on your offered counter payment plan to the developer. Whatever the case may be, sign up for the plan and ensure that it’s something you can follow.
What are the Financing Options to Purchase an Off-Plan Property in Dubai?
Before signing the dotted line, you also need to have a clear understanding of the financing options available. Expect that banks won’t be willing to provide you with a mortgage unless the property gets completed first. However, the great thing is that there’s always an exception to the rule.
Ask your developer to provide a list of the banks they deal with and if you can avail financing through any of them. Having knowledge about this can help you in case you might be faced with financial difficulties.
7th Step: Conduct a Background Check on the Developer
Investigate the Developer’s Background
This is one of those aspects that you need to take seriously. Hence, it’s imperative to work with a veteran and qualified real estate expert, as they can divulge all the information regarding the developer you’re dealing with.
In my decades of experience in Dubai’s real estate market, I’ve witnessed completed projects from several developers that were nowhere close to the advertised plans. If you invested in such a project, aren’t you going to be disappointed?
You can save yourself from this nightmarish situation by simply having the right information and advice from your trusted professional.
The following are some of the things you can do to verify the developer’s credibility:
Look at Their Previous Projects
There’s no other way to assess the competence and credibility of a certain developer than checking out the previous projects they carried out. The good news is, the DLD has made it extremely easy for investors to gain more insight regarding developers.
To get started, search for the developer on the DLD’s official website. Click on the individual projects to get detailed information about them. Among the key points you need to search for include the project’s inception date, its current construction phase, and the estimated completion date.
With the help of a consultant, you can obtain information regarding the developer, the previous projects they have done, and the quality of construction.
Timely and Efficient Project Delivery
It’s also vital for a developer to have a good record of timely and efficient project delivery. When it comes to off-plan projects, delays are a common thing. However, they should be reasonable. Be wary of those developers who have a record of delaying projects for longer periods of time, which eventually leads to the investor’s frustration and loss of potential income.
By having a reliable and trustworthy real estate consultant by your side, you will discover all the things you need to know about a certain developer and save yourself from impending trouble.
8th Step: It’s Time to Make a Reservation
Finally, we’ve come to the ultimate and most exciting step in buying an off-plan property in Dubai! However, before making a reservation, ask yourself if you’re satisfied with the certain property that you intend to purchase. If yes, then finalise the purchase.
In the succeeding paragraphs, I will give you detailed information about the step-by-step process of making a reservation and booking an off-plan property in the region.
What are the Required Documents?
The DLD requires you to submit the following:
- Passport copy
- Emirates ID copy (if applicable)
- Visa Page copy (if applicable)
In most cases, you just need to provide a passport copy in order to make a reservation.
Fill Out the Reservation Form
Upon submission of the required documents, the developer will prepare a reservation form that indicates your contact, personal, and property information along with the proposed payment plan.
Once the form is filled completely, you and the developer will then sign it. However, ensure that it’s officially stamped by the developer when it’s delivered to you.
Secure the Sales and Purchase Agreement (SPA)
This is by far the most essential piece of document when purchasing off-plan property in the region. Prior to signing the reservation form or making any payments to the developer, ensure to get an SPA draft. It’s also vital to carefully read and understand the proposed contract between the developer and you.
Typically, an SPA is standard in Dubai when it comes to buying off-plan properties. Also, it’s always approved by the DLD’s legal team. However, in case you still have some reservations concerning some information or clauses in the SPA, clarify it with the developer prior to signing and making the payment.
You don’t have anything to worry about the SPA, as your consultant will be able to guide you in the entire process from A to Z.
Book the Deposit
When you’re way past the documentation, proceed to book the property. Take note that in most cases, this will require you to pay a down payment or booking deposit.
Moreover, the developer must also give you an escrow account in which the funds must be deposited. To validate the escrow account, visit the official website of DLD.
Pay the Registration Fee
The DLD mandates both the investor and developer to have the off-plan property registered with them right after reservation. This means you need to pay a 4% registration fee to the DLD in the form of manager’s cheque.
What if you don’t have a bank account in the UAE? Well, the developer can provide you with an alternative option by collecting the registration fee from you and submitting it to the DLD on your behalf.
The VAT is Only Applicable to Commercial Properties
If you are purchasing a commercial property, whether off-plan or ready, you are required to pay 5% VAT to the developer.
What’s the Brokerage Commission?
Have you decided to purchase directly from the developer? Then, you don’t need to pay any brokerage commission. However, if you hired a consultant to guide you in making the right buying decision, then there will be a brokerage commission.
Well, the amount is something which you and the agent can agree upon. Per Dubai’s standard practice concerning brokerage commission, the buyer has to pay 2% of the property’s purchase value.
What You Need to Know About Pre-Registration Certificate
In Dubai, you will obtain a title deed, also known as ownership certificate, when you purchase a ready property. However, it doesn’t work that way when you purchase an off-plan property. In this case, the government issues a Pre-Registration Certificate, also called Oqood.
Following the sale, the developer will apply for this certificate with the DLD and send you an email once it’s issued in your name.
In a Nutshell
The bottom-line of this blog is that as an investor, it’s a must for you to understand the developer, area, real estate market, and building to make the right buying decision.
In case you need further clarifications or professional advice regarding purchasing an off-plan property in Dubai, please don’t hesitate to contact me.