Buying off-plan property, also known as pre-construction or pre-development purchasing. It refers to investing in real estate projects while they are still under construction.
There are several benefits of buying off-the-plan property. Purchasing early allows investors to lock in prices before significant project appreciation occurs.
Developers may also offer incentives like payment plans or design customizations not available after completion. From the best return on investment real estate standpoint, Off-plan property investment typically presents higher capital growth potential than established properties.
This article will explore the unique benefits of buying off-the-plan property. We’ll examine the key incentives for buyers, including potential price appreciation, customization options, attractive payment plans, and investment leverage.
The article will also discuss strategies for mitigating risks and highlight emerging trends and future projections for the off-plan sector.
Benefits of Off-Plan Real Estate Investments
Before looking at the latest trends and future projections, let’s understand the advantages of buying off-the-plan property. Buying during development stages can unlock short-term gains and long-term value appreciation opportunities.
A. Potential Price Appreciation
One of the most significant benefits of buying off-the-plan property is the potential for price appreciation between the time of purchase and the project completion date. By buying early, you can purchase at today’s price while benefiting from any increase in property values by the time construction finishes. The closer a development gets to completion, the more prices tend to rise if demand is high.
Studies of historical Off-plan property investments show average price increases of 10-30% between initial purchase and completion. In hot real estate markets like Dubai, major regions have an average rent return of 7%, however, some have 10%. Dubai property is appealing to financing and cash purchasers due to bank interest rates of around 4%.
For example, Danube Properties guarantees a return on investment (ROI) of 6–10% for its off-plan properties, with a minimum of 6% net for three years. Some say Danube Properties offers an 8–10% ROI on projects. This means that investors can receive a steady stream of passive income while their property appreciates in value. So, the upcoming Diamondz by Danube will also see a healthy price increase.
B. Customization Options
Customization Options
With off-plan purchases at Six Senses Residences Dubai Marina, buyers are offered a degree of customization not possible with ready properties.
Purchasing off-plan during the design stage allows potential options to personalize aspects of the home. Buyers can work with Select Group to customize factors such as the unit’s floor plan layout, interior finishes and fixtures to suit their needs.
For example, at Six Senses Residences buyers may be able to request modifications such as an open concept living/dining area, upgraded stone for kitchen countertops or premium Miele or Gaggenau appliances rather than standard fittings.
Additionally, early stage buyers could explore customized additions like smart home automation integration or specialized bath finishes if desired.
C. Attractive Payment Plans
Traditional property purchases require large down payments and bank financing approval for the total purchase amount. On the other hand, Off-plan investments usually involve flexible progress payment plans spread over the construction timeline rather than a lump sum payment upfront. For example, In just the first half of 2016, total investment transactions reached Dh57 billion from 26,000 investors who were made up of 149 different nationalities.
This helps significantly with cash flow management, easing the financing burden. Many off-plan projects in Dubai are charged only between 5% and 10% booking fee; in some cases, the DLD fee is completely waived. So, the buyer will pay 50% during the preconstruction phase and 50% after completion.
D. Reduced Competition
In the early phases, off-plan projects tend to have fewer buyers than completed buildings on the open market. With less competition, you gain better leverage in negotiating pricing discounts and incentives from the real estate developer. The low competition also expands the selection of available units before the most desirable ones get purchased. For investors, this provides the opportunity to secure a prime unit.
E. Lower Entry Costs
Buying off-plan requires significantly lower upfront costs than buying a finished property on the open market. In many cases, you may only need a 10-20% deposit initially. This gives you with limited capital more opportunities to purchase high-quality off-plan properties and maximize your investment.
Additionally, off-plan buyers can often take advantage of incentives like delayed transfer fees, reduced registration costs, and waived mortgage processing fees offered by developers and banks. All of these cost savings can add up to huge savings for savvy investors.
Emaar’s Valo at Dubai Creek Harbour provides a similar opportunity for lower entry costs. While full payment details are yet to be announced, Valo is expected to offer competitive pricing with flexible payment plans.
F. Developer Guarantees
Reputable off-plan real estate developers provide warranties and guarantees to give buyers confidence and security. Common guarantees include a completion deadline so your investment isn't open-ended, assured build quality and materials, and defect warranties after completion. Robust guarantees and developer accountability should be requirements before committing to buy off-plan property. They protect your investment in case the developer fails to deliver the expected product.
Sobha Elwood, a premium residential project in Dubailand, exemplifies these principles. As part of the renowned Sobha Developers portfolio, Sobha Elwood likely offers comprehensive guarantees to its off-plan buyers.
G. Investment Leverage
Off-plan real estate enables you to leverage their capital to access higher-value properties and amplify their returns. For example, you buy an off-plan property for $500,000 with a 20% deposit of $100,000. If the property appreciates to $750,000 by completion based on market conditions, you have effectively leveraged your $100,000 to control a $750,000 asset. This translates to a return of 150% on your invested capital.
However, leverage does come with increased risks if the market shifts downwards. But for savvy investors, judicious leverage provides opportunities otherwise not feasible for their capital base.
H. Tax Benefits
In many countries, off-plan properties allow you to capitalize on tax deductions, exemptions, and incentives. For example, In the UAE, you need to pay up to 5% standard VAT per property. Non-commercial properties are not billed this charge. Consider, for example, the case where an off-plan property is to serve a commercial purpose; you must pay 5% tax, increasing the total cost of the transaction.
But be sure to consult tax professionals to understand how off-plan purchases may minimize your tax liabilities and maximize returns in your country and local markets. Utilize any incentives and loopholes available while they exist.
I. Exit Strategies
Off-plan investments provide flexible exit strategies to take profits or generate ongoing income. During the construction phase, you may be able to “flip” the property and sell your contractual interest to another investor if the market shifts favorably.
Upon completion, you can sell or rent the property. Off-plan projects in high-demand areas often achieve substantial rental income and excellent occupancy rates. Be sure to factor taxes and transaction costs into your exit strategy analysis.
J. Mitigating Risks
While off-plan investing offers advantages, it does come with risks to manage. Perform in-depth due diligence on the developer’s track record and financial stability. Vet all guarantees carefully with legal counsel.
Choose projects in markets with solid fundamentals and growth trends, ideally with major infrastructure or business investment catalyzing development. Focus on reputable developers who deliver quality products on time and within budget.
Additionally, don’t over-leverage yourself financially in case market headwinds arise. Off-plan investing provides excellent opportunities, but appropriate risk management protects you.
Estimated Investments in Recent Years for Off-Plan Property Buying
Till now, you have learned about the benefits of buying off-the-plan property. Now, look at estimated investments in recent years for off-plan property buying. Analyzing estimated investment volumes over the past few years allows you to identify trends, catalysts, and opportunities to inform future decisions. This section will examine the recent trajectory of investments into off-plan real estate in Dubai and provide data-driven insights.
Historical Investment Trends
As per different authorities, the off-plan property sector in the UAE has recorded increased recovery rates following the coronavirus pandemic. As an illustration, Property Finder has stated that the total number of off-plan property transactions in Dubai was AED 16 billion in Q2 of 2021, which reflects an increase of 38% as compared to a similar period in 2020. For instance, trends in the Off-plan property market of the UAE are as follows:
- In Q2 2023, Abu Dhabi saw a 71.4% increase in off-plan transactions compared to Q2 2022, totaling 1,838.
- Off-plan sales transaction value in Abu Dhabi reached AED 4.704 billion in Q2 2023, up 118% from AED 2.157 billion in Q2 2022.
- Existing property transactions in Abu Dhabi grew 20.1% YoY in Q2 2023. Popular areas included Al Reem Island, Yas Island, and Saadiyat Island.
- Dubai saw a 34.84% YoY increase in total transactions in Q2 2023, reaching 30,098 transactions.
- Off-plan transactions accounted for 48.88% of Dubai sales in Q2 2023, up from 40% in Q2 2022.
- Dubai’s total sales value hit a record AED 90.75 billion in Q2 2023, up 53.93% YoY.
- Off-plan sales value in Dubai reached AED 35.06 billion in Q2 2023, up 91.18% YoY.
- Rental contracts in Dubai grew 6% YoY in Q2 2023, with Dubai Marina and Downtown top areas.
In January 2023, existing and off-plan transactions in Abu Dhabi saw YoY increases of 56% and 90% respectively.
Off-plan transactions in Abu Dhabi reached a record 5,000+ in January 2023, with value up 130% YoY.
The figures suggest excellent appetite and confidence in off-plan properties both in Dubai and Abu Dhabi.
On the other hand, the historical investment patterns also exhibit several fluctuations and variations in the recent past. For instance, Dujarealtors, the top real estate agency in Dubai, reported that off-plan property deals in Dubai were worth AED 35.6 billion in 2017, followed by AED 19 billion in 2018 and This was majorly as a result of the oversupply of units, the slowdown in the economy, and regulatory changes that changed the mood and cash flow in the market. Nevertheless, the off-plan property transactions increased to AED 24.5 billion in 2020 and AED 32.6 billion in 2021 (as of September) due to government stimulus measures, the vaccines and the Expo 2020.
Factors Influencing Investment Trends
With a 40 per cent to 60 per cent increase in the number of foreign and local property buyers, the off-plan market is booming, indicating a favorable environment for real estate investment in the Emirate. However, multiple factors have shaped off-plan investment patterns in Dubai over the past few years.
Economic Conditions
The UAE economy’s performance and prediction affect investor sentiment and real estate asset demand. After the COVID-19 epidemic, the UAE economy recovered and grew owing to its excellent vaccination campaign, varied industries, fiscal stimulus, and strategic collaborations. According to the IMF, UAE’s GDP is predicted to expand by 3.5% in 2023. This has increased investor trust and demand for off-plan homes, particularly from international investors who regard the UAE as a haven and attractive Off-plan investment destination.
Government policies
Government efforts and real estate industry policies have boosted the off-plan property market. These policies include granting investors, professionals, retirees, and students long-term visas (up to 10 years), offering citizenship and golden visas to foreigners who meet certain criteria, reducing property transaction fees and taxes, easing lending regulations to facilitate mortgage financing, and launching mega projects like Mohammed Bin Rashid City (MBR City), Dubai Creek Harbour (DCH), Dubai Hills Estate (DHE), Yas Island (YI), and Al Reem Island ( The rules have made off-plan homes more inexpensive, accessible, appealing, and secure for purchasers.
Market demand
Demographics, preferences, trends, and events affect off-plan property demand. Growing population and urbanization in the UAE; rising preference for affordable and flexible housing options; increasing interest in sustainable and smart developments, and upcoming events like Expo 2020 or COP28 that attract more visitors and investors to the UAE have all increased demand for off-plan properties.
Buyer’s Trend
Property Finder data showed 59% of buyers prefer apartments, while 41% want villas/townhouses. 80% of renters chose apartments and 20% villas. 46% of buyers sought furnished properties versus 54% unfurnished. However, 66% of renters wanted furnished and 34% unfurnished.
Existing and off-plan transactions in Abu Dhabi rose 56% and 90%, respectively, in January 2023, with off-plan recording over 5,000 transactions, a 130% increase in value year-on-year to AED 12.1 billion. This marked the highest monthly off-plan sales for Abu Dhabi in the past decade.
Regional Variations
Off-plan property investment patterns vary by UAE region or city. An example,
Dubai:
With 80% of UAE off-plan property sales, Dubai is the most active and dynamic market. you may choose from luxurious villas to inexpensive flats in established and rising neighborhoods in Dubai. Off-plan homes in Dubai Hills Estate, Downtown Dubai, Palm Jumeirah, Dubai Creek Harbour, Mohammed Bin Rashid City, and Jumeirah Village Circle are popular.
Abu Dhabi
15% of UAE off-plan property purchases are in Abu Dhabi, the second biggest market. The Abu Dhabi off-plan property market has also recovered, notably after the government and developers launched many new projects. Off-plan residences in Abu Dhabi are popular on Yas Island, Saadiyat Island, Al Reem Island, Al Raha Beach, and Al Maryah Island.
Off-plan property investors may also find chances in Sharjah, Ajman, Ras Al Khaimah, and Fujairah, albeit their markets are smaller. Lower pricing, cultural legacy, natural beauty, and tourist potential are benefits of these emirates. Selected off-plan developments in these emirates include Tilal City in Sharjah, Al Zorah in Ajman, Mina Al Arab in Ras Al Khaimah, and The Address Fujairah Resort + Spa.
Future Projections
Current market conditions and forecasts indicate that Dubai’s off-plan property market will continue to grow. Some expected Dubai off-plan property market trends are:
Local and international investor demand rises
End-users, first-time buyers, long-term investors, and institutional investors will continue to invest in Dubai’s off-plan property market. The economic recovery, government policies, Expo 2020, World Cup 2022, COP28 summit, Dubai Plan 2021, and UAE Vision 2021 will drive demand for off-plan properties in Dubai. Deloitte predicts a 3% increase in off-plan property sales by 2023-26.
Diversified off-plan property supply
Dubai’s off-plan property market will offer you options for all preferences, budgets, and lifestyles. Dubai will offer off-plan apartments, villas, townhouses, penthouses, studios, lofts, and serviced residences. Dubai off-plan properties will have different themes, designs, amenities, and locations. Notable off-plan projects expected to finish or launch soon include:
Emaar ORIA: A latest waterfront development by Emaar at Dubai Creek Harbour with luxury residences overlooking the Arabian Gulf and Dubai skyline. The project will have a private beach, marina, mall, and hotel.
Mirage The Oasis: A residential development located within The Oasis by Emaar in DubaiLand, Dubai. The developer Emaar Properties is the developer of this project. It will have an estimated 204 units upon completion.
Emaar The Valley: A master-planned community with villas and townhouses with abundance of greenery, open areas and exclusive amenities & features. At this time you can book a unit in Emaar Lillia offering 3 & 4 Bed townhouses at very attractive price
Dubai Holding’s freehold residential development Madinat Jumeirah Living will offer apartments near the Burj Al Arab hotel. The project will have landscaped gardens, walkways, pools, gyms, and shops.
Damac Safa 3: Damac Safa 3 is a new luxury residential project by Damac Properties located at Safa Park in Dubai. It offers elegant apartments with world-class amenities including 24/7 security, dining outlets, gymnasium, kids play area, parks, restaurants, retail outlets, and swimming pool. The development provides flexible payment plans and is situated in a prime location with easy access to key areas of Dubai.
Elo 2 at Damac Hills 2 is a new residential project located by Damac Properties. It offers 1 and 2 bedroom apartments with high-end amenities like pools, gym, and parks in a prime freehold area close to major road links.
Developer competition and innovation
Dubai’s off-plan property market will see developers compete and innovate to differentiate their products and services. The developers will offer attractive prices, flexible payment plans, guaranteed returns, post-handover incentives, rent-to-own schemes, and loyalty programmes to attract and retain investors. Developers will use technology and digital platforms to improve marketing and customer service.
The off-plan property will offer you opportunities and challenges in the coming years. Opportunities include:
It offers higher returns than other investments. Realiste2 predicts a 9.8% annual return on investment for off-plan Dubai properties in 2023, compared to 7.6% for completed properties and 5.4% for bank deposits.
The off-plan property market will offer you capital appreciation as prices rise due to rising demand and limited supply. Binayah predicts a 4.5% increase in Dubai off-plan sales prices in 2023 and 3% in 2024.
Off-plan will allow you to customize their units to their liking. Their units can be customized in size, layout, design, finishing, furnishing, and appliances. Developer, project, location, and unit community can also be customized.
Challenges include:
Construction issues, financial issues, legal disputes, and market changes may delay or cancel off-plan property deliveries in Dubai. You may lose deposits, penalties, rental income, or lawsuits due to delivery risks.
Dubai’s off-plan property market may have quality issues for investors because properties may not meet developers’ or investors’ expectations. Due to quality issues, investors may request repairs, replacements, refunds, or compensation.
Conclusion
In closing, off-plan real estate investing provides compelling advantages, from early price entry to customization and developer incentives. While risks exist, proper due diligence and risk management help realize the significant upside potential.
Leveraging global trends and future-proof markets with quality developers can enable you to build wealth and gain exposure to some of the most lucrative real estate projects worldwide. If approached meticulously, off-plan investments offer an opportunity to generate outsized returns and accelerate your financial goals.
