When it comes to the real estate market, there is always a debate: whether to invest off plan or ready property, should you go with immediate lower profit cash flow or bank on future market price. There is no one answer to this everlasting debate, both depend on the investors plan and both plans come with its own pros and cones which need to be taken into consideration.
To make things simpler, lets first of all define these terms: Off plan property: An off plan property is a property before a structure has been constructed upon it. Pre-constructions are usually marketed to real estate developers and to early adopters as developments so that the purchaser can secure much better finance terms from their lenders. Ready Property: Refers to a house or property that is ready for immediate occupancy. A property in this condition must be ready and must meet all requirements by the city or governing municipality.
Now that we have a clear understanding of both terms let’s discuss together the three main types of property investors in the market, it is really important to clearly know to which of these groups you belong, these groups are: - Buying to sell the project on completion. - Buying to rent the property on completion. - Buying to live on the property.
Figuring out what type of buyer you are could immediately make this debate much easier. For instance if you are planning to move to the purchased property then you will most likely be interested to buy a ready property. Else if you plan sell or rent the property, then you might consider buying an off plan property since you pay lesser than what you actually get and more over you pay over a long period of time and not all at once.
Now let us discuss some of the basic pros and cons for both types of property.
You have full control of your property from the beginning.
Payment plans are not flexible, usually you will have to pay the full price at once.
You could rent it immediately.
Inflated cost - since it is a ready property the prices will be really overpriced.
You get what you exactly have chosen.
Limited choice – Once you choose a project, there is a very small chance you get preferred floor and view
Saving on rent if you plan to move in there.
Limited modification – you don’t have much choice to further modify the property internally.
You could re-sell the property anytime.
If you plan to re-sell the property you might spend lots of money remodeling.
Off Plan property
Reduce the burden on your Finances.
Control is with the developer until you receive the property.
Price usually below current market prices.
Generally no profits until you receive the property.
Developers offer great off plan incentives.
You hope to get what you saw on the brochure.
Attractive financing options from banks.
Sometimes projects get delayed.
Buy now and pay later
Another important term to understand before starting our comparison is the time value of money (TVM), this is basically the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity, so theoretically there is a greater benefit of receiving the same amount of money now rather than later. But it is also important to keep in mind the profit you earn from an off plan project is always more than that of a ready property.
Now let’s discuss each case scenario separately, but in order to keep things fair let’s keep certain variables such as property type, size and price the same.
Off plan property
Gross buying price
Selling the property next year
Return on investment (ROI)
First year rent returns
The data in the table is taken from www.emirates247.com, done by Unitas Consultancy and Reidin.com
So as you could see in the above table, you could expect to have better ROI buying an off plan property since the initial payment is usually low, in our example 20%. However you must keep in mind that you will still be paying the rest of the amount gradually in stages. In addition you cannot immediately rent the off plan property until it is actually done. If you further want to discuss this topic with one of our experienced agents, feel free to fill up the form on the top right corner of this page and get a free enquiry.