Why complete and near-complete stock is a safer bet for property buyers

The lower your upfront deposit, the more difficult it'll be to obtain a mortgage at completion.

Dubai completed 14 per cent more residential real estate transactions in 2017 over the year before, with some 69,000 deals done, according to the Dubai Land Department (DLD).

Last year's transaction boom is thanks to the surging supply of off-plan properties. The real estate market's transition to low deposit plans being the norm, not the exception, should be noted with some trepidation. Private sector developers now rely almost completely on payment plans of 10 per cent to 30 per cent with balance due upon completion. Having a purchasing stake, but not the whole purchase price in escrow, can provide buyers with some comfort that their risk is reduced but it is by no means a guarantee of a happy ending.

Low deposit payment plans are a boon for investors and make for great headlines, but for market observers, they also raise some red flags.

Niall McLoughlin, a senior vice-president at Damac Properties, one of the region's most prolific developers, called the increase in 'generous' payment plans "very concerning". McLoughlin notes "too good to be true" plans are collecting only 10 per cent deposit with the remaining 90 per cent payable over the long term and even into post-completion. Construction costs typically average 50 to 60 per cent of a project. Where does that leave developers who collect just 10 to 30 per cent of the property value during the construction period?

And further, where does that leave the property buyer?

Those considering off-plan should be aware that projects can and often face delays, sometimes exceeding years beyond the marketed completion date. Projects can also be cancelled, completely putting your down payment(s) at risk.

Following the 2009 GFC, the Dubai government made escrow accounts mandatory in order to protect a purchaser's progress payments. Since then, developers cannot use purchaser funds for anything other than construction. And if a project is delayed over a year, buyers can make a claim with Dubai's Real Estate Regulatory Authority (Rera). But still there is no guarantee that any money will be recovered.

If the finished product is less than you expected, it gets even more complicated.

Despite this, Emaar can launch and sell out a project in a morning. Consumers trust the brand. Time and time again, they deliver. And they deliver quality. But typically, the smaller (and lesser-known) the developer, the more generous the payment scheme, and the more generous the commission offered to sales agents. This is not because these small developers are cash-rich and less in need of buyer funds to construct. The opposite is true. They are fighting tooth and nail for every single customer.

Critics may claim that at least some of these low deposit offers are not tied to financial reality but are a sell-at-all-costs and hope-it-works-out-in-the-end strategy.

With each new project launch and each new generous payment scheme offered, the bigger the drag down on property prices of both off-plan and completed stock, and the less likely developers and off-plan buyers will realise the happy outcome they'd hoped for.

On the flip side, property prices across the UAE have been falling for three-and-a-half years and are now back to early in 2013, even late-2012 levels. General sentiment is that they cannot keep falling and will rise in the lead up to 2020. A sound argument can be made that there has not been a better time to buy in at least five years and may not be for years to come.

If that is true and if you can pick a project with a low deposit payment plan and developer who delivers on time and what they promise, then the upside could be very substantial.

Oil recently hit $70 for the first time in three years, giving some solid reason for optimism. Despite big falls in asking rents across the country in the past couple of years, rents are still high and rental yields continue to be among the highest in the world.

With each passing day, the infrastructure and benefits of living in the UAE improves. It's easy to settle into the comforts of life here and expats are clearly staying longer. For the many who are now five years-plus into their two to three-year planned stint, buying and getting out of the rent-forever trap makes a lot of sense. And for those low on savings, generous off-plan payment schemes can appear to be the only option.

Do your research into the developer, the community and the availability of finance for the project and for you. Even if the project is two to three years away from completion, unless you plan on paying the whole amount in cash, talk to your bank or a mortgage advisor about what you'll need to qualify for a loan. You may be pleasantly or not so pleasantly surprised.

Even if you're in a position today to get a loan, you may not be when the project is finished. Lending criteria, valuations and your personal circumstances can and will change, and the lower your upfront deposit, the more difficult it'll be to obtain a mortgage at completion.

Well-located, well-maintained, complete and near-complete stock is a much safer bet, but requires a bigger upfront cash outlay and is clearly not a get-rich-quick scheme.

The writer is chief commercial officer, Propertyfinder Group. Views expressed are his own and do not reflect the newspaper's policies.