By Tamara Walid
Mortgage expert says global crisis is having impact on speculative buying.
Investors are shying away from buying off-plan developments in the UAE amid the global financial crisis, according to a mortgage expert.
With foreign and local investors displaying more caution than usual, an active off-plan market - which has been known to drive up real estate prices – is expected to slow down, saidd Chris Dommett, CEO of John Charcol Dubai, the UAE independent mortgage advisor.
Investors who buy up property and quickly resell for a profit, otherwise known as “flipping”, have not only been discouraged by the global economic uncertainty, but by recent government action taken to limit the practice, he added.
Many believe that a decrease in flipping will help stabilise property prices and ease demand for off-plan property, ultimately encouraging more end users to enter the market.
“End users are realising that there is very little price differential between off-plan and completed properties, and they would prefer to buy something that is ready to move in to,” said Dommett.
He added: “For investors and speculators however, the attraction of off-plan lies in the lower initial cost.”
Generally, financing is not easily granted to off-plan buyers as banks are increasingly reluctant to lend against a property that has yet to be built, said Dommett.
Overall, concerns about the state of the global economy have prompted a new wave of property buyers in the UAE who are more cautious than usual, demanding more value for their money and foregoing short term gains in favor of longer-term stability.
The likely result, says Dommett, is to ultimately have a stable end user market that is conducive to mortgages.
“The fewer speculators there are in the market, the more favourable market conditions will be for end users looking to buy their own home. This ultimately creates more opportunities for the UAE’s mortgage industry,” concluded Dommett.
Off-plan properties are cheaper than those built-ones and ready to move-in. They have a higher ROI as buyers don't pay the whole price up-front. But purchasing off-plan properties, much more on the secondary market, also expose buyers to risks. Delays to the project are inevitable. Any plunge in the market would make them pay more than their property worth. High construction and overhead costs forced developers to either cancel the projects, or buy back from the investors, only to re-launch them 'smartly'. Oh myâ€¦ off-plan properties are meant for those who see a ''half-empty glass'' as ''half-full.'' But as you look through the glass, remember the Palm Springs development at Palm Jebel Ali, Al Arefi Marina at Dubai Marina and the A1 Tower at Jumeirah Village South.