There are dozens of advantages of buying a property that is complete, the so-called share transfer, as opposed to buying one off plan.
While there will always be a specific demographic which prefers to buy off plan – with good reason (price attractiveness, payment plan and directly purchasing from the builder) – there are some differences compared to buying a ready property, which we will examine here.
Purchase a ready property, and you will receive a rental yield from day one – if it’s rented, of course. There’s a substantial piece of mind in knowing exactly what you are purchasing, with the physical evidence of your property there for all to see. Make an off-plan purchase, and the final finish, quality or layout promised can be different from that which is delivered.
With off-plan purchases, as we saw in the crash of 2008, you can be left heavily exposed to risk and the vagaries of the market. If you (or the builder/developer) can’t then meet future payments, your assets become unsellable and lose value. Projects can be delayed indefinitely, which can lead to a default on debt or a lack of confidence in the market. Let’s not forget 2008 was not so long ago. We saw many developers taking advantage of the customer. Bearing this scenario (albeit worse- case) in mind, we recommend sticking with ready assets.
The secondary property market – ready properties – is steadily catching up with off-plan sales, which have dropped off in 2018. According to recent data from market analysts, GCP-Reidin off-plan sales were down 28 per cent in the first ten months of 2018. Only 14,475 off-plan homes were sold this year to date, compared to 20,235 units last year.
While off-plan schemes are suffering, the share transfer is seeing a rise as developers are bringing firm offers to the table to clear inventory. Bear in mind buying on the share transfer is still a fairly complicated procedure. It’s a testament to the current raft of ready property deals that buyers and investors are willing to jump through these hoops – an off-plan purchase can often be completed in one day.
We hope to see the processes required to buy share transfer units streamlined in coming years, but there are some requirements for an investor to remember. The obvious one – if a deal seems too good to be true, it probably is. No one gives away free money.
Do investigate what might happen if you can’t meet payments, and ensure you are fully aware of any penalties you might incur. Agreeing to pay off the property price in four to eight years, for example, might sound like a good idea at the time of handover, but remember this equates to massive cash outflows, which you might not be able to meet for some valid reasons. Consider income and payment insurance.
Are service charges included or waived in the purchase price? If they are rejected, are they going to be covered? Do you want to buy in a community or building where the developer won’t be able to maintain or invest in it any further because there are no service fees? What if the cooling system or elevators break down? You’ll be at the mercy of the developer funding it from their pocket!
Of course, buying a ready property suits many people who are looking for a home rather than an investment. We recommend considering the options very, very carefully, do your research and consider all the options and offers to find what’s right for you.
Case study
Here is the story of Ahmad
Not having lived in Dubai long, the city’s glitz and glamour instantly mesmerized him. His aspirations (more prominent than his wallet) convinced him that buying the property was a wise investment. His agent added fuel to the fire by telling him he was one signature away from making a fortune.
“I wanted a place I could call my own.
I wanted someone else’s dream to be my reality” he told me.
In classic sales strategy, the agent convinced Ahmad that this was a limited-edition deal and he would never forgive himself for turning it down. With no savings, Ahmad decided to go the loan route, borrowing the down-payment from the bank that he would pay back over five years.
On paper, Ahmad was everyone’s idea of success.
Living and working abroad. 25-year mortgage. An off-plan apartment to be ready in three years.
But he was living life on the edge. His loan weighed down on what he had left of his salary after paying his rent, utility bills and taking care of his expenses.
Here’s what needs to go right for this “once in a lifetime” deal to be worth the risk:
Ahmad needs to keep his job
- Ahmad can’t afford a demotion or salary cut
- The developer needs to stick to its promise and deliver the project
- The developer needs to deliver to the completed project on time
- The economy needs to remain stable, and the property market can’t fluctuate again
If any of these factors change – Ahmad will feel the pinch.
Change is to be expected in Dubai, but this is a factor Ahmad’s fragile life equation cannot afford.
If all goes according to plan, Ahmad may have played his cards right. But if it doesn’t?
Is it worth the risk? Especially with a family back home in Egypt?
