Financing Options For Buying Off-plan Properties

Bram Vermolen

financing off plan property
Last Updated on July 20, 2023 by Bram Vermolen

Financing options for buying off-plan properties in Dubai are the different ways that buyers can pay for their off-plan property purchase. Off-plan properties are properties that are still under construction or not yet completed. Buying an off-plan property can offer many benefits, such as lower prices, flexible payment plans, higher returns and more choices.

However, buying an off-plan property also involves some risks and challenges, such as delays, quality issues, market fluctuations and legal complications. Therefore, buyers need to be well-informed and prepared before they sign a contract for an off-plan property in Dubai.

In this article, we will guide you through the different financing options for off-plan properties in Dubai, and answer some of the most common questions that buyers have about off-plan property financing.

What Are The Different Financing Options For Off Plan Properties In Dubai?

There are four main financing options for off-plan properties in Dubai:

1. Cash Purchase

A cash purchase is when the buyer pays the full amount of the property price upfront, without taking any loan or finance. This is the simplest and most straightforward option, as it does not involve any interest, fees or paperwork. However, it also requires a large amount of capital and liquidity, which may not be available or advisable for every buyer. A cash purchase also exposes the buyer to more risk, as they have no leverage or protection in case of any issues with the property or the developer.

2. Home Equity Loan

A home equity loan is when the buyer uses their existing property as collateral to borrow money from a bank or a lender to finance their off-plan property purchase. This option allows the buyer to leverage their existing asset and get a lower interest rate than a conventional loan. However, it also means that the buyer risks losing their existing property if they fail to repay the loan. A home equity loan also requires the buyer to have enough equity in their existing property, which may not be possible or sufficient for every buyer.

3. Seller Financing

Seller financing is when the buyer pays a portion of the property price upfront, usually 10% to 20%, and then pays the remaining amount in installments directly to the developer over a period of time, usually until the completion of the project or beyond. This option allows the buyer to avoid paying any interest or fees to a bank or a lender, and to benefit from flexible and attractive payment plans offered by some developers. However, it also means that the buyer does not own the property until they pay the full amount, and that they are dependent on the developer’s performance and reputation.

4. Bank Loan

A bank loan is when the buyer borrows money from a bank or a lender to finance their off-plan property purchase. This option allows the buyer to spread their payment over a longer period of time, usually up to 25 years, and to benefit from competitive interest rates and terms offered by some banks and lenders. However, it also means that the buyer has to pay interest and fees on top of the property price, and that they have to meet certain eligibility criteria and provide certain documents and guarantees to get approved for a loan.

Can I Get A Mortgage For An Off Plan Property?

Yes, you can get a mortgage for an off-plan property in Dubai. A mortgage is a type of bank loan that is secured by the property itself. However, getting a mortgage for an off-plan property is not as easy or straightforward as getting a mortgage for a ready property. There are some conditions and limitations that you need to be aware of before you apply for an off-plan mortgage.

Which Banks Will Finance An Off Plan Property Purchase?

Not all banks will finance an off-plan property purchase in Dubai. Only some banks have partnerships with certain developers and projects that allow them to offer mortgages for off-plan properties. You need to check with your preferred bank and developer if they have such a partnership and if the project you are interested in is eligible for a mortgage. Some of the banks that offer mortgages for off-plan properties in Dubai are:

  • Emirates NBD
  • Abu Dhabi Commercial Bank (ADCB)
  • Dubai Islamic Bank (DIB)
  • Mashreq Bank
  • Noor Bank

How Can I Qualify For An Off Plan Property Mortgage?

To qualify for an off-plan property mortgage, you need to meet certain criteria and provide certain documents and guarantees to the bank. Some of the main requirements are:

  • You need to be a UAE resident or a non-resident with a valid UAE visa.
  • You need to have a minimum monthly income of AED 15,000 for UAE residents or AED 20,000 for non-residents.
  • You need to have a good credit score and history, with no defaults or late payments.
  • You need to provide a copy of your passport, Emirates ID, visa, salary certificate, bank statements and proof of address.
  • You need to provide a reservation form, a sales and purchase agreement, an Oqood certificate and a no-objection certificate from the developer.
  • You need to pay a minimum down payment of 25% for UAE residents or 40% for non-residents.
  • You need to pay an arrangement fee of 1% of the loan amount, a valuation fee of AED 2,500 and a mortgage registration fee of 0.25% of the loan amount.

Can I Still Sell If I Have A Mortgage On My Off Plan Property?

Yes, you can still sell your off-plan property if you have a mortgage on it, but you need to follow certain steps and procedures. You need to:

  • Inform your bank and your developer about your intention to sell your off-plan property.
  • Find a buyer who is willing to take over your mortgage or pay it off in full.
  • Get a consent letter from your bank and a no-objection certificate from your developer to transfer the ownership of the property.
  • Pay any outstanding fees or charges to your bank and your developer.
  • Register the transfer of ownership with the Dubai Land Department and pay the transfer fee of 4% of the property value.

How Can I Plan An Off-Plan Financing Option?

To plan an off-plan financing option, you need to follow these steps:

Step 1: Define Your Purpose And Budget

The first step is to define your purpose and budget for buying an off-plan property. You need to decide whether you are buying for investment or for end-use, and how much you can afford to spend on your off-plan property purchase. This will help you narrow down your options and choose the best financing option for your needs.

Step 2: Research The Market And The Developer

The second step is to research the market and the developer of the off-plan property you are interested in. You need to compare different projects and developers based on factors such as location, price, quality, amenities, payment plans, delivery dates and reputation. You also need to check the legal status and documents of the project and the developer, and make sure they are registered and approved by the relevant authorities.

Step 3: Choose The Best Financing Option And Apply For It

The third step is to choose the best financing option for your off-plan property purchase and apply for it. You need to weigh the pros and cons of each option, such as cash purchase, home equity loan, seller financing or bank loan, and see which one suits your financial situation and goals. You also need to prepare all the required documents and guarantees, and submit them to the chosen financing provider. You need to get pre-approved before you sign any contract or make any payment for your off-plan property purchase.

Frequently Asked Questions

What Is The Interest Rate Payable?

The interest rate payable for an off-plan property financing option depends on the type of option you choose and the terms and conditions offered by the financing provider. Generally speaking, cash purchases do not involve any interest, home equity loans have lower interest rates than conventional loans.

Seller financing may or may not charge interest depending on the developer’s policy, and bank loans have variable interest rates depending on the market conditions and the borrower’s profile. The average interest rate for an off-plan property bank loan in Dubai is around 4% per annum.

How Much Can I Borrow For An Off Plan Property?

The amount you can borrow for an off-plan property depends on the loan-to-value ratio (LVR) that the bank or the lender offers you. The LVR is the percentage of the property value that you can borrow as a loan. For example, if the property value is AED 1,000,000 and the LVR is 50%, you can borrow AED 500,000 as a loan.

The LVR for an off-plan property is usually lower than the LVR for a ready property, because of the higher risk involved in financing an unfinished project. The average LVR for an off-plan property in Dubai is 50%, which applies to both UAE residents and non-residents. However, some banks and lenders may offer higher or lower LVRs depending on their policies and your profile.

What Are Payment Plans For Buying Off-Plan Property In Dubai?

Payment plans vary from one developer to another, and from one project to another, but they usually consist of three main components, if you want to learn more about this then read our guide about payment plans for buying off-plan properties.

Bram Vermolen
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