Home buyers or investors often face a dilemma when considering property purchases in Dubai—whether they should opt for off-plan properties directly from the developer or go for ready properties through a mortgage.
Dubai has such a vibrant real estate market that both options would have pros and cons.
The correct choice depends on individual financial situations, investment goals, and risk tolerance. In the following guide, we will break down both approaches: mortgage-backed purchases, as well as off-plan investments, with the help of which you can make a more informed decision.
Understanding Mortgage and Off-Plan Properties
Mortgage
Under a mortgage, purchasing ready properties involves taking credit from a bank for most of the property’s value through a loan. You are expected to pay a down payment and regular monthly installments for the term of the loan, which usually falls between 15 and 25 years.
Off-Plan
A second type of buying, called off-plan, is when one buys a house still in construction. Instead of paying all at once, the buyer pays the developer installment by installment throughout the construction cycle while always beginning with a smaller initial deposit. How much, when, and how often payment is scheduled depends on which terms the developer uses for the off-plan property, usually coordinated with the various stages in the building.
Which is Better: Mortgages or Off-Plan Properties?
Time of ownership
- Mortgage: The buyer will gain full ownership of the ready property. Whether the person is to occupy it or rent it out, immediate possession will be granted, allowing them to move into the house or generate rental income.
- Off-Plan: With an off-plan property possession is given once construction is complete. Depending on the project completion date, this wait can be 18 months to years.
Payment Structure
- Mortgage: The down payment is about 20 – 25%, and the monthly mortgage payments include interest and principal.
- Off-Plan: The buyer pays less in upfront deposits (5 – 20%), and then the rest of the payments are divided into phases according to the project timeline. Hence, the cost is spread out, and the amount is more flexible.
Availability Of Properties
- Mortgage: There are few choices when one decides to buy ready properties. They could be resale units or those remaining from the initial launch.
- Off-Plan: Off-Plan developments offer more options in terms of the offer, modern designs, newer amenities, and customizable layouts.
Risks Involved
- Mortgage: Ready properties involve fewer risks because you purchase an existing unit. You could see any property damage so that it would be addressed before the sale.
- Off-Plan: Off-plan purchasing carries risk since one is always speculating on issues such as construction overruns, variation in the project’s specifications, and even the project’s cancellation in certain cases.
Cost Factors
Cost Comparison
For mortgage purchases, the upfront would involve a higher down payment, say 20-25%, plus mortgage registration fees, whereas, for off-plan purchases, one usually assumes a lower sum, some 10-20% down payment, as a measure of upfront.
Therefore, the mortgage buyer faces an interest cost as a long-term expenditure; off-plan buyers can avoid this. However, he also faces risks related to construction delays and appreciation during construction.
ROI
The off-plan buyer can collect his rent the moment the property is handed over, while the mortgage buyers can start collecting rental income as soon as they buy it. However, appreciation between the off-plan purchase and handover could be very high for off-plan buyers compared to ready ones.
For example, off-plan in Dubai has traditionally appreciated at a rate of 10 to 15% to yield overall growth within the construction period. Ready properties have a higher direct immediate 5 to 8 % rental yield, depending on locational benefits and the presence of amenities.
Tax Benefits and Charges
Upon buying a mortgage property, the buyer is charged transfer charges of 4% of the purchase price and registration of mortgage charges. Off-plan buyers pay only a one-time fee of 4% Dubai Land Department fee and may enjoy incentives offered by the developers in terms of waived registration fees or a payment plan after handover.
Advantages and Disadvantages
Mortgage
- Pros: Possession immediately, rental income potential, lower risk.
- Disadvantages: Higher initial investment, interest accrual over time, poor choice in the market ready.
Off-Plan
- Advantages: Lower initial investment, flexibility in paying, potential reappraisal by capital during construction.
- Disadvantages: Possession is delayed, construction risks and project specifications may be altered.
Who Should Choose Each?
Mortgage
It is ideal for individuals who need quick access to property. Whether they wish to occupy the property or let it out for an instant monetary return, a mortgage ensures they can start using the property right away. It’s also ideal for buyers who opt for low-risk investments and shun risks related to construction.
Off-Plan
Off-plan property may be ideal for investors with a long-term perspective and a stronger risk-taking ability. They are ready to wait for capital appreciation and can tolerate the delay in taking possession. You can opt for this only if you are looking for modern, customized properties or wish to get in early at cheaper prices.
For example, an investor who invested in Emaar The Oasis may want to go off-plan because it is cheaper, has a spread payment plan, and is more likely to appreciate in price.
Market Trends and Opinion of Experts
The off-plan market in Dubai boomed with many new launches by large developers such as Emaar Properties and DAMAC. However, recent data from the Dubai Land Department show that even today, the off-plan sector still sees considerable demand, taking up a significant part of the entire property sales. In particular, ready-made houses are more stable when located in established communities.
Conclusion
There are always more pluses to one than the other, depending on your financial goals, risk tolerance, and timeline. A mortgage property will probably be better if you’re looking to take immediate possession and gain rental income from a property. However, an off-plan property may give you better long-term rewards if you want a lower initial investment and the possibility of capital gain.
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