What Is The Process Of Buying An Off-Plan Property Project In The UAE?
Buying an off-plan property project in the UAE comes with its own advantages and inherent risks. The primary benefit is generally a lower purchase price. Developers are offering on average 10 percent to 30 percent lower prices for buying an off-plan property project in the UAE. The closer to completion or a sell-out a development is, the higher the price usually becomes.
As with any other form of investment, buying an off-plan property project in the UAE comes with its share of inbuilt risks. If you’re considering investing in an off-plan property in the UAE, here are some insights into the buying process you need to know before you finalise your purchase.
The UAE’s property market is heavily influenced by availability. Approximately 48,000 new apartments and villas are expected to enter the Dubai residential property market alone by the end of 2018.
Clearly, there is an abundance of options on the market, so would-be buyers should take their time and thoroughly evaluate their options.
Here are 10 points investors should consider when making a decision on an off-plan property purchase. Including these points in your pre-investment checklist will steer you away from danger and ensure you enjoy the financial benefits of buying an off-plan property project in the UAE:
- Developer reputation and track record of delivering past and present projects on time and to the promised standard.
- Location, location, location of the development and the level of surrounding infrastructure and attractions.
- The position of your chosen unit within the project or community.
- Facilities and level of amenities within the project.
- Payment plan structure and contract obligations linked to construction.
- Handover and completion date.
- Current market conditions, and implications on price per square feet.
- Overall development master plan.
- Developer and project registered with RERA.
- When buying through the UAE secondary market, assess the premium being charged.
The Process Of Buying An Off-Plan Property Project In The UAE?
For primary market purchases of an off-plan property project in the UAE:
If buying directly from the developer always check if the developer, the project, and the project’s Escrow account are all registered with RERA. The developer will ask you to sign a Sale Purchase Agreement and pay the initial deposit.
The subsequent payments will follow as per the schedule outlined in the payment plan set out in your contract. Some developers will request post-dated cheques for these payments, however, this practice is not recommended.
Ensure your developer registers your property with Dubai Land Department via the Oqood registration portal. Depending on what you negotiate with the developer, the developer may pay the full fee for registering your apartment or villa, pay half of the cost, or more commonly, you as the buyer will need to pay the full registration cost. Typically this amounts to 4 percent of the purchase price.
For secondary market purchases of an off-plan property project in the UAE:
If you elect to buy an off-plan unit on the secondary market, be sure to use a credible, knowledgeable, transparent and experienced broker. The seller should have the unit registered with Dubai Land Department and provide you with a copy of their registration.
After signing an Agreement of Sale between the buyer and the seller, both parties will go to the developer to apply for a No Objection Certificate (NOC). Once the developer has issued the NOC, the transfer of ownership takes place in the Dubai Land Department trustee office.
This is when the buyer pays the seller. As a buyer, never pay the seller before you visit the Dubai Land Department trustee office. Outstanding payments to the developer become the responsibility of the buyer after the transfer.
The buyer will have to pay 4 percent property transfer fee to Dubai Land Department, a 2 percent commission fee to the broker, a NOC fee paid to the Developer capped at a maximum of AED 5,000, and finally, a transfer appointment fee of AED 4,000.
Know Your Rules And Regulations
If buying an off-plan property in Dubai, make sure you only purchase a Dubai Land Department (RERA) approved and registered project. All payments paid to the developer should go into a project Escrow account in the name of the project, not the developer.
Check the project registration and construction progress on the government website www.dubailand.gov.ae. Ensure your Sale Purchase Agreement is signed and stamped by the developer as well as Oqood registration in Dubai Land Department is in place as soon as possible.
Payments should be made against construction completion milestones only unless otherwise agreed and specified in the Sale Purchase Agreement between developer and purchaser.
If you are using a broker to facilitate your purchase, ensure your broker is registered with RERA by asking for their broker card or checking the government website.
Warning, Danger Close
As with any other form of investment, an off-plan property purchase comes with an element of risk. To best protect your interests and safeguard your investment, look out for any of the below warning signs:
- Avoid unregistered developers and projects.
- Don’t agree to any payment requests channeling payments to the developer rather than into the project’s Escrow account.
- Each payment requested by a developer should be supported by an independent consultant’s project progress report.
- Make sure the payment plan suits your budget and time frames before you commit to the purchase.
- Review the Sale Purchase Agreement thoroughly, and if possible, have a lawyer review it before you sign on the dotted line.
Change Of Financial Circumstances
When buying an off-plan property, you typically are required to pay between 20 percent and 80 percent during construction with the residual due either at or after completion. If you plan to pay the whole amount in cash, your concerns are quarantined around the purchase and completion risks.
However, if you require a mortgage to complete the purchase, you have the added risk that your financial circumstances may change in the future.
In life, unforeseen circumstances have a habit of popping up at the most unforeseen times. You may find yourself in a situation where the bank will decline to lend you the balance you need to complete the purchase in the future.
To mitigate this risk, for a limited number of select developments, you can apply to borrow up to 50 percent of the purchase price, which comes pre-approved at the time of application and is guaranteed to be paid upon completion.
Regardless of what happens to your personal financial situation between signing and completion, this facility guarantees you will be in a position to complete your purchase, assuming, of course, you can pay 50 percent deposit in cash.
The following documents are typically required for mortgage approval of UAE residents when purchasing an off-plan property in the UAE:
- Passport copy plus purchaser’s visa page
- Copy of Emirates ID
- Proof of current address such as Ejari and Dewa bill
- Salary certificates or evidence of regular income
- Bank account statements for three to six months, showing salary credits
- MOU for the property sale
- Title deed of the property being purchased
- Seller’s passport copy
- No-objection certificate (NOC) from the developer
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Buying an off-plan property project in the UAE comes with its own set of risks. However, by following these simple tips you can mitigate much of the external risk and enjoy a hassle-free property purchase.