According to the experts, the trends in the payment plan are a good indicator of the current situation of the real estate industry. However, there is a lot more involved behind the payment plans, that can help understand the potential of development and its possible target market, thus eventually predicting the outcome of the project in the long run.
Generally, all developers tend to keep payment plans of their developments variable to match the requirements of different targeted segments and attract them through variable payment terms. But to understand this science, it is essential to firstly categorise and simplify what types of payment plans are offered, and which profile would best react to a particular payment plan. Some common trends in the payment plans are described as under:
Post-Handover Payment Plans
Post hand over payment plans have been the talk of the town for half a decade. Initially, these payment plans were launched in late 2013 with larger ticket sized developments, but soon private developers jumped into the game with post-handover payments going as low as 1% per month. Generally, post-handover payments are targeted towards investors who intend to invest a certain amount about 50% to 70% until the property is handed over, and rest they earn from rentals and pay off end up buying property for half the price on most instances.
Additionally, the returns on investment hike up to 15% because of lower investment size and higher rents which perfectly fits the requirement that most of the investors are looking for. Apart from investors, there is a large chunk of end-users also who are aiming to buy property for themselves without having to involve banks in between because of legal complication.
Post-handover payments have worked very well with entry-level and experienced investors who intend to earn more out of their investments by reaping rental yields and enjoy capital appreciation on their investments without having to pay in full.
An important aspect of post-handover payments is the stretch to which the payments are made after a handover. Conventionally, the post-handover payments started with two years, which due to increased popularity went up to 5 years and currently, certain developers offer even 10% post-handover payments. The longer the stretch of the post-handover payment exists, the easier it becomes for the investors to invest in a certain property. However, it is important to identify if there are any price increases in the post-handover payment plan for a certain property which in return affects the value for money for that particular property.
A simple technique to compare post-handover payments with conventional payment plans is to compare price per square feet of that property against similar development ideally within the same community. This gives a fair idea of how much increase in percentage the prices are, and accordingly it can be calculated if the property is worth investing or not.
Mortgage Friendly Payment Plans
A vast majority of the end-users have lately been buying properties in Dubai for themselves, including many salaried residents and small families who are currently renting apartments and townhouses in Dubai.
The mortgage friendly payment plans generally consist of 30/70 payment plan which starts from 5% or 10% booking amount. In this scenario, clients who have saved a bit of money out of their income tend to invest their initial booking amount as generally, the time span of completiond dates for launched projects are around 1.5 to 2 years. This duration helps clients to continue to save and invest during the construction progress, and upon handover, the 70% remaining amount can be mortgaged.
Traditionally, a 30/70 payment plan has worked very well in Dubai Real Estate and developers that have a decent product to launch, tend to opt for this payment plan which is a tried and tested method in the market. Occasionally plans like 40/60 and 35/65 are also initiated by developers which counts within this same category, and mostly end-users tend to respond to these plans better than others.
Aggressive 10/90 Payments
The increased dynamicity of Dubai real estate has brought about more significant changes, even in the face of the tried and tested payment plans science.
Recently, the market has been witnessing a trend where developers have launched 10/90 payment plans for optimistic investors as well as some end users who want to invest in this market but are short of cash or intend to spend a smaller amount due to a risk of completion.
While the deposit of 10% upon booking is low, 90% upon handover makes for completely safe payments. Generally, developments, where the handover date is closer or less than 12 months, tend to launch with these kinds of payment plan, mainly attracting the cash buyers’ market who are looking for mitigated risks in real estate investments.
Rent to Own Payments
Although Rent to Own Payment Plans are popular in other parts of the world, the availability of these payment plans is minimal when it comes to Dubai Real Estate. These payment plans are based on ready properties and solely targeted towards end-users who do not have monetary resources readily available, yet intend to invest in their home.
Generally, since banks in the UAE grant a mortgage up to 75%, in this process, a 3-year tenancy contract is signed by the tenant and landlord for which the annual rent is about 15% to 20% above the market price.
The agreement signed between tenant and landlord states that the tenant will eventually become the buyer, purchasing the property after three years, and upon successful completion of this 3-year contract.
Under this method, the tenants have an option to either utilise the paid rent money as an investment against the down payment of the property (which more frequently works out to 30%) and opt for a mortgage for the remaining 70% through banks.
If the tenants decide not to convert the contract into a sale agreement under any circumstance, then the landlord in return would have earned 20% increased rent already which projects a win-win situation for both the parties. Although the availability is currently limited in this segment of payment plan, there are predictions that in order to target end-users similar plans are going to increase in the market.
Payment plans are always a good indicator of where the market is heading and what is the profile being targeted by the developers. Developers often vary their offerings in payment plans based upon the availability of the units to target a specific market segment also works best in their favour.
This post was written by Mohsin Ayub from Homes 4 Life
View this agent’s properties by clicking HERE.