Investing in the Dubai real estate market seems exciting as property values and rental fees keep moving up. However, not everything is golden in this city as there are some risks to investing in real estate.
It isn’t the cooling of a hot market that is a major concern. The biggest risk you are taking is when you decide to invest in the off-plan property market. While there are some great benefits to doing this, there are some life-changing risks that can ruin your investment strategies.
Construction does not always go as planned. There are always issues that can delay a project and keep it from being completed by the agreed-upon deadline. Those delays can be devastating as projects can be cancelled at any time.
A good example is the Palm Jebel Ali development which has recently been started after being cancelled over a decade ago. Engineering issues can take their toll on developing these off-plan properties.
Having a development cancelled leaves hope that it will be resurrected again, like the Palm Jebel Ali project. However, if the project is terminated, then there is no hope of resurrection and investors need to struggle to handle the financial hit they have taken.
If you are going to avoid these risks, you need to make sure that the purchase contract you sign has a completion date in its wording. Plus, you need to see paragraphs on the seller’s obligation in the event of cancellation or termination.
Some owners were able to trade their Palm Jabel Ali property for other properties owned by the same developer but that is not always feasible.
There are a couple of major financial risks involved when you decide to purchase an off-plan property in Dubai. One of the two biggest risks will be the change in market conditions.
While the Dubai market is predicted to remain strong and growing in housing values for the next few years, that can change. A cooling off of the market means you will not get that high return on investment and even lose some money in the long run.
The other big financial risk is that you will not see an immediate return on your investment. You still have to wait for the developer to finish construction before you can either rent the apartment or villa or flip it for a nice profit.
What helps offset this risk is that you may be able to get a nice price discount for the property that will protect your investment and still provide you with a little profit when the property is ready to sell or be rented.
A final financial risk is that the developer may require that you pay a certain amount of the purchase price before he will let you resale the property. If you need to resell the property before it is completed, you may not be able to do so until you reach that agreed-upon payment.
This is not a frequent issue but it has taken place in the past. Law 19 of 2017 has revised Article 11 of Law 13 of 2008 which was revised by Law 9 in 2009. This revision helps to clarify the procedures the developer must follow if the purchaser backs out of a legal purchase contract.
Part of the process calls for a 30-day grace period allowing the purchaser to rectify the situation and complete the purchase. Other laws will protect the purchaser if the project was cancelled by RERA.
The impact the changing laws will have is to protect both parties in case of default by one or the other parties in the purchase agreement. Property values and purchase prices will not change.
Currently, the rules have been changed to allow ex-pats to purchase property in Dubai. There is no sign of those laws being reversed in the near future. But things can change. At worst, you will lose all the money you invested in the property as well as the property itself.
Outcomes will be determined by the wording of the new laws. Right now ex-pats are able to buy freehold properties where they own both the home and the land it sits on.
But external forces can always influence laws and change the investment environment at any time.
The biggest risk in this issue will be if the prices continue to rise faster than expected. This is called an overheated market and it is not good for real estate investment, even with off-plan investment.
It is possible that you will pay too much for the property and be able to recoup your investment. This means you could suffer a huge financial loss if this were the case.
Also, if the market fluctuations send real estate values down, then you are at risk of spending too much for the property and will not recoup your investment till the market turns hot again.
This is a risk that covers all real estate investing and is not limited to just off-plan purchases. You have to keep your eye on the market to see where it is headed in the next few years.
Off-plan real estate investment comes with its share of risks. To help you navigate this possible investment minefield all you need to do is call our office.
We have over 10 years of real estate investment experience in Dubai and can help you avoid many of these risks. Our agents are some of the best in the world and are experts in this type of property investment.
When you want to protect your investment money and find great off-plan investments, talk to us first. Our experience will help you make good decisions.
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