What are Off Plan & On-Plan Properties? Which is a better option to invest?

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In UAE, the real estate market offers a wide range of option for investors. They can choose between commercial and residential properties, upcoming or established locations, and off-plan or on-plan (ready-built) properties. While we recommend choosing an investment that is in sync with your financial goals and investment objectives, it is important to understand the options available to you so you can make an informed decision. Today, we are going to talk about off-plan and on-plan properties and look at the advantages and disadvantages offered by them.

What are Off-Plan and On Plan Properties?

An On-plan property is also known as a ready built property. As the name suggests, it is real estate property available for immediate occupancy. Such properties are fully built and comply with the requirements specified by governing authorities.

On the other hand, an off-plan properties are real estate properties which have not yet been completely built. These are usually pre-construction properties and are primarily marketed to real estate developers and early adopters.

Having understood the meaning of off-plan and on-plan properties, let’s take a quick look at the types of real estate property investors in the market.

  • Investors who purchase the property to live in it.
  • Investors who want to sell the property soon for a profit
  • Investors who purchase a property to subsequently lease it.

Apart from defining your investment objectives and financial goals, it is important to determine which type of real estate investor you are. For example, if you are investing in a property to reside in it, then it would be better to purchase an on-plan property. On the other hand, if you are investing in the property to sell or lease it, then an off-plan option could be better given that the purchase price can be lower and you pay the amount over an extended period of time.

Let’s look at the benefits of off-plan and on-plan properties alongside their disadvantages.

On-Plan Property

Advantages:

  • Complete control on your property from the time of purchase.
  • You can lease your property immediately and start earning rental income.
  • If you are living on rent and plan to reside within the property, then you can save on rent.
  • For any reason, if you want to sell the property, you can do so at any time.

Disadvantages:

  • Typically, the complete price needs to be paid at once since most of on-plan properties do not offer flexible payment plans.
  • On-plan properties are costlier than their off-plan counterparts since the property is fully built and ready to move into.
  • Since the property is built, there is a limited scope for major internal modifications to it.
  • Before selling the property, you have to spend money on remodeling in order to suit the needs to the buyer.

Off-Plan property

Advantages:

  • Since you don’t have to make the complete payment at once, there is a reduced burden on your finances as compared to on-plan properties.
  • The price of off-plan properties is usually lower than the on-plan ones.
  • Most developers offer multiple incentives to off-plan property buyers.
  • Banks and financial institutions also tend to offer attractive financing plans for off-plan property purchases.
  • It is simply a ‘buy now – pay later’ model.

Disadvantages:

  • You do not have control on the property till you receive it.
  • You also get no profits till the property is built and received by you.
  • Off-plan property projects can get delayed for various reasons.
  • You purchase the property based on the brochure and can only hope that you get what you saw.

Be sure to keep these pros and cons of off-plan and on-plan properties in mind before choosing.

Also Read: Challenges of buying property in Dubai

Some other factors to keep in mind

Time Value of Money (TVM)

Theoretically, money available to you today is worth more than the same amount of money available to you in the future. This is because money has a potential earning capacity. Hence, if you have 5,000 AED today and you invest it for 5 years, then at the end of the tenure you will have more than 5,000 AED with you. When it comes to real estate investments, an on-plan property demands you to make the complete payment at once, whereas an off plan property requires only part-payment to begin with. However, on-plan properties you can start earning return on your money right away if you lease it where in off-plan property you will continue to invest until the property is ready and only then generate returns. There are many other factors to consider which is better and depends a lot of the state of the market and how the property prices are appreciating. Generally speaking, long term view is better suited for on-plan properties and short term is better suited for off-plan properties.

Risks

While both off-plan and on-plan properties have certain risks associated with them, in a ready built property you have the tangible asset which can be checked to ensure that it is up to your expectations. However, in an off-plan purchase, you depend a lot on the developer, building the property as specified in the prospectus and within the timelines mentioned. This is also the reason behind off-plan properties offering price discounts.

Summing Up

There are many factors that must be considered before opting for an off-plan or an on-plan property. Off-plan and on-plan properties offer benefits for different types of investors. Therefore, it is important to understand your investment type before signing the dotted line. We also recommend that you talk to an investment advisor who specializes in real estate investments to help you make a decision that aligns with your financial goals.


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