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The developer of Aquarius Gate in Dubai has just
announced a sell-out to investors in the pre-launch phase. This $820m
mixed-use project at Nakheel’s Waterfront, opposite the Palm Jebel Ali,
is just the latest example of successful Dubai off-plan sales. But
recent controversy surrounding Damac Properties’ Palm Springs has
raised questions about buying off-plan.
After the intervention of the Dubai Lands Department last week, the Palm Springs project has been fully reinstated and is back on schedule, according to Damac.
However, there are a number of ‘secrets’ or major considerations when purchasing off-plan units in Dubai.
1. Who is the developer? How long has it been in business? How many
projects has it launched and how many have been delivered? Have there
been any complaints about the quality of these developments? Are these
the sort of people you would trust with your money?
2. What sort of financial backing does the developer have? This is
really linked to the first question but it is subtly different. In
Dubai, the lowest risk comes with government-owned projects. Nakheel,
Limitless and Dubai Properties are all 100% owned by the government,
whereas the government has a large and effectively controlling stake in
Emaar.
3. Also consider the price of units for sale from the point of view
of construction costs. Do the units just look too cheap to allow the
developer to finish the building? It sounds contrary to logic, but
cheap off-plan should sound warning signals, as low-cost may mean low
quality or even a failure to deliver if the developer gets into
financial trouble.
4. In Dubai it has been compulsory since last July to have escrow
or trust accounts for all off-plan projects. But check to see which
bank is providing escrow facilities. Again a government-owned or
controlled bank will have a higher credit rating.
5. If you are taking finance for your off-plan purchase you need to
be particularly careful that the payments structure is fair and
practical for your circumstances. You do not want to pay interest on a
loan for a delayed project, for example, or at least to keep such
exposure to a minimum.
6. The amount of risk you take in an off-plan purchase is also
determined by the stage of the development. If work has not started on
site, and all you can see is an architect’s drawing and an
illustration, then the risk of project delay is highest. If, on the
other hand, you can see work-in-progress and a substantial amount of
construction then delivery on schedule is far more likely. Many
developers keep back some units for sale later in the construction
cycle, but you will pay more for them.
7. Your current rental costs should be considered. Does buying
off-plan mean that you are going to have to stay in expensive rental
accommodation for a long time? If so you need to add up that cost, and
consider whether moving to a completed property in the secondary market
might not make more sense.
8. Location is the most important consideration when buying any
property, but people sometimes seem forget this when buying off-plan.
Check out the location personally, even if it is just a piece of
desert! For there is a big difference between living in Downtown Dubai
next to the Burj Dubai, the world’s tallest structure, and out in the
desert of Dubailand.
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