The Dubai off-plan sector consistently gathers interest among investors, with new developments being announced on a regular basis. Off-plan can offer a lucrative opportunity for new and experienced real estate agents.
Bayut Academy’s All-About Off-Plan Sales workshop is designed to help real estate brokers understand the ins and outs of the off-plan market. This session takes you through key topics, including the laws and regulations, advantages of buying off-plan, resale, financing and more.
Let’s begin by looking at some of the key terminologies in off-plan sales:
- Escrow Account: A legal holding account for funds which cannot be released until predetermined conditions are met
- Master Plan: A long-term plan that provides an imaginary layout to guide future growth and development
- Cluster Plan: Properties that are built in groups, relatively close to each other
- Return On Investment (ROI): A mathematical formula that investors can use to evaluate their investments and judge how well a particular investment has performed.
- Floor Plan: An architectural drawing that shows the design of a property
- Payment Plan: An agreement where payment is spread across a period of time
- Contracting Company: A firm or an individual that completes construction projects on a contractual basis
- Exit Strategy: A conscious plan to dispose of an investment or a financial asset
- Down Payment: A sum of money that a buyer pays in the early stages of purchase
- Post-handover Payment Plan: A plan that allows buyers to pay the predetermined sum after the property is delivered
- Oqood: The registration process between buyers and developers for an off-plan property
- Capital Growth: An increase in the value of an asset or investment over time
- Completion Certificate: A legal document confirming the completion of construction according to all the safety norms and regulations
- Facilities: Services that are provided for a particular purpose or activity within a project
- Amenities: Services in an area that contribute to the overall enjoyment of an area
- Renders: Provides a ‘snapshot’ of the finished site
- Expression Of Interest: It is an opportunity to provide important information and to demonstrate an individual’s suitability, interest and availability
- Sales And Purchase Agreement: A legal contract that binds a buyer and a seller to sell and purchase a product or service on the agreed-upon terms.
What Is An Off-Plan Property?
Let us now revisit the definition of off-plan property.
An off-plan development is an unconstructed property that is purchased directly from the developer. It is a property that has not been built, or in some cases, is in the early stages of being built.
Buyers rely on brochures and other marketing materials to learn about the project and the exact property they are buying. This is why it is so important to use an agent who can fill in the gaps and give honest information about the developer and project.
The purchase is made with a 10 to 20 per cent down payment, and the signing of a SPA (sales and purchase agreement). The remaining payments are made in instalments and vary from developer to developer.
Laws that govern off-plan projects in Dubai
- Law No. 13 of 2008: Governs the registration of sales and marketing of an off-plan property
- Law No. 21 of 2013: Formation of a special judicial committee for the liquidation of cancelled real estate projects in Dubai
- Law No. 19 of 2017: Regulations for when the purchases defaults on the sales and purchase obligations.
Other Fees Involved In Off-Plan Sales
- Dubai Land Department Registration fees: 4% of the purchase price
- Developer’s Administration fee: Between AED 1000 to AED 4000
- Down Payment: 5% to 20% of the purchase price
Developers In Dubai
Dubai’s government-backed developers are:
- Emaar
- Meraas
- Nakheel
- Wasl Properties
Popular private developers in Dubai are:
- Sobha
- Omniyat
- Ellington Properties
- Al Barari Dubai
- Majid Al Futtaim
- Select Group
- Damac
- MAG Property Development
- AZIZI Developments
- Union Properties
Further reading: Check out our list of top developers in Dubai
Apart from developers, other entities involved in off-plan property development include:
- RTA (Road and Transport Authority): To build roads, improve connectivity, etc
- Dubai Land Department: To regulate and govern the real estate market
- Dubai Municipality: To regulate waste disposal, sewage, public facilities, and building safety
- Dubai Electricity and Water Authority: To ensure water supply and electricity connection to the property
Developer’s Obligations
- Developer must have proof of possession of the plot
- Developer must take funds related to the property purchase in an escrow account
- Developer must complete 20% construction before selling a project or provide a bank guarantee for 20% of the construction value to RERA
- Developer must have a contract with the brokerage before giving permission to the broker to market the project
- Developer must complete the amenities before the handover of the units
What Happens If A Buyer Defaults On The Sale And Purchase Agreement?
- The developer must give the buyer a written notice
- If the buyer fails to comply, the developer should notify the DLD
- The DLD will then issue a default notice to the buyer, allowing the buyer 30 days to rectify the default
- If the default persists beyond the 30-day notice period, DLD may deregister the unity, and the developer has the right to cancel the contract with the buyer
It is a real estate agent’s responsibility to check:
- That the real estate project is registered with RERA
- That there is an escrow account for the real estate project
- The percentage of completion of the real estate project
- The expected date of completion
- The developer’s reputation and overall standing in the market
What are the advantages of buying an off-plan property?
Here are some great reasons you can share with your clients about buying off-plan properties.
- Save Money: Buying an off-plan property may allow investors to get a purchase price at the earliest and lowest possible price.
- Choose Any Unit: Buyers have the ability to choose the best units in a certain development. This can play a significant role in gaining the maximum return on their investment.
- Ease Of Payments: Payments towards property are usually spread over two to three years, depending on the date of completion. This eases the cash flow for investors.
- Lower Up-front Costs: Payment plans for off-plan properties vary from developer to developer. Some developers only require a 5% down payment, and the rest of the payments are linked to construction. The required upfront cost is a relatively low percentage of the total property cost.
- Ability To Sell Before Completion: Quite often, investors can sell off their off-plan property contracts before a project’s completion. Assuming the market has performed well, and the project proved popular, owners can often sell at a considerable profit.
- Buy A Brand New Property: A new launch or property will feature the latest design, lifestyle features and amenities.
Potential Risks With Buying Off-Plan Properties
All investments come with some level of risk. The potential risks associated with off-plan include:
- Delayed completion time
- Change in market conditions
- Cannot be sold until a certain percentage of the sale price is paid off
- No immediate returns, until the project is ready
Read more about the risks of buying off-plan here
But, what guarantee do investors have that the project will be completed?
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RERA has introduced numerous measures which the developer must meet. These include:
- The developer must own 100 percent of the land belonging to the project
- The developer must make either a down payment of 20% of the project value as a bank guarantee, or deposit 20% of the project’s value in an escrow account, or complete 20% of construction before commencing sales
- The contractors must submit a 10% of the project’s value as a performance guarantee to RERA.
It is imperative that brokers do their own research, due diligence and look into the developer’s track record.
Reselling An Off-Plan Property
There are multiple measures in place to ensure that the Dubai off-plan sector is a stable and secure market for investment.
Once the minimum repayment threshold* has been met, the process of selling an off-plan property is very similar to selling a ready property. Both the buyer and the seller agree to the prices and terms, sign contracts and apply for a No Objection Certificate (NOC) – and the new buyer is registered with the developer. Once the transfer is complete, the new buyer takes over all outstanding payments. Contrary to popular belief, the new buyer is not responsible for the 4% DLD Transfer Free, as the first buyer usually pays this.
*This minimum threshold varies, depending on the developer. For example, Emaar, one of Dubai’s biggest property developers, now requires owners to have 40% of their off-plan property paid off before it can be sold to a new owner.
To find out more information on selling an off-plan property, check our detailed blog post.
Financing An Off-Plan Property
- Not all banks approve mortgages for off-plan projects. Different banks have set their own criteria to qualify for a loan; however, this is similar to ready properties
- Mortgages on an off-plan property heavily depend on the developer’s reputation
- The loan-to-value ratio for an off-plan investment is 50%. The loan-to-value ratio remains the same, whether you are buying an off-plan apartment, villa, or townhouse.
Why Would A Client Want To Work With A Real Estate Broker To Buy Off-Plan
Unlike developer’s agents who only represent one developer, real estate brokers offer property seekers a variety of off-plan options and can explain all the options available to a buyer.
The benefits of working with a real estate broker include the following:
- The broker has (or should have) conducted thorough due diligence on the developer’s track record
- The broker has in-depth knowledge of products in the real estate market
- The broker can create a comparative market analysis The broker is fully aware of current market conditions.
It is the real estate broker’s responsibility to estimate the property’s:
- Projected growth
- Projected rental return
- Exit strategy
Frequently Asked Questions
Here are some questions asked by our attendees at Bayut Academy.
When is the commission in an off-plan sale released to the agent?
The commission for an off-plan sale is released to an agent after the following three conditions are met:
- The down payment is paid by the buyer
- The Sales and Purchase Agreement (SPA) is signed
- Admin fees for the developer are paid by the buyer
- The first 10% of the instalment is paid
How can I stay updated on the latest developments in the off-plan market?
We would suggest using the resources available on the Dubai Land Department’s website to understand current market conditions.
Another great resource you can refer to is MyBayut’s Quarterly Market Reports. Our reports use data from the Dubai Land Department and Bayut user data to offer detailed insights into the market’s performance (and popular off-plan developments) from the last three months.
To conclude, being successful in off-plan sales involves understanding this sector thoroughly. This includes knowing the sales process, the developers, developments and the financing. If you’re looking to become an area expert, we’d recommend our highly-rated Become A True Area Specialist session at Bayut Academy. You can also read about Dubai Hills specialist Catalina Barros’ experience as a new real estate agent making her name in the market in our guest blog.
For further questions or enquiries on this session, please reach out to our team at Bayut Academy at academy@bayut.com