Property payment plans: If it sounds too good to be true, most likely it is
UAE projects historically take longer to complete than advertised, so calculate how delays will affect you. (Shutterstock)
Property buyers should explore best payment plans and evaluate bank financing options available in the market before make up their mind to invest in their dream home project, experts say.
Any off-plan property launch in Dubai today is accompanied with attractive payment plans where the buyers can pay minimum capital during construction and monthly installments after handover. With developers vying to offer sweetened deals, but investors must analyse all options before signing on the sales and purchase agreement.
"Buyers need to ensure that the payments are linked to construction milestones during the construction period. Also, from an end-user point of view, one should evaluate the option of taking bank finance vis-a-vis payment plan option. Going with a reputed developer will ensure that you get the property on time and your money's worth," says Banke International's Niraj Masand.
It is important to check the developer's credentials and track record of project completion.
"There is a tracking service on the Dubai Land Department website to review project progress. Also, add a clause in the contract that will allow you to claim penalty payments if the developer doesn't hand over the project on time. Be careful to pick a payment plan that fits in with your financial capacity," advises JLL's Craig Plumb.
Post hand-over and back-ended payment plans began to proliferate in mid-2014 as Dubai property prices and transactional activity began to trend downwards.
"These payment plans may create issues in the form of post-handover defaults. This is a trend that needs to be monitored closely as it impacts the health of the developer balance sheets," warns Hussain Alladin of GCP Properties.
The buyers must be sceptical of back-ended payment plans and should not be impressed by offers that seem too good to be true.
"Book now with just Dh5,000 doesn't mean you can enter the property market if you have just Dh5,000 in your bank account. This is typically the reservation fee," says Lukman Hajje, CCO at propertyfinder Group.
He said most developers in the UAE ask for 20 per cent to 80 per cent during construction (although 50/50 plus four per cent Oqood is the most common these days). "You'll need to find the rest during construction and finance the balance at completion. UAE projects historically take longer to complete than advertised," Hajje said.
"Look at expected delivery and factor in a one- to three-year delay. Consider how is this going to affect you."
Limited mortgages available for off-plan properties
The UAE Central Bank has imposed a mortgage cap on buyers. Expatriates are limited to borrowing 75 per cent of the value of their home (80 per cent for nationals) if the cost is less than Dh5 million.
More expensive homes will restrict expatriates to borrowing 65 per cent of the value and nationals to 70 per cent.
For second and subsequent property purchases, expatriates will only be allowed to borrow 60 per cent of a property's value and UAE nationals up to 65 per cent, regardless of cost.
All mortgages will be restricted to 50 per cent for off-plan properties, regardless of purpose, value or nationality.
"Mortgage cap rules limit finance to 50 per cent for off-plan property, although once complete, expats can borrow up to 75 per cent. If you've paid 50 per cent cash during construction, once complete, you may be able to borrow up to 75 per cent/80 per cent and take some cash out and put back in your pocket," says Hajje.
"If a project has been registered/approved by the bank, then an investor/end-user can easily avail of a mortgage," informs Niraj Masand.
As per JLL's Craig Plumb: "Only a limited number of mortgages are available for off-plan projects while banks are happy to lend to ready projects."
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