Over the years, Dubai has become one of the world’s most sought-after investment destinations. Many people are interested in this diverse real estate environment because apartments, villas, and gated communities provide excellent returns on investment and unique lifestyle experiences.
The architectural wonders across Dubai, some fully developed and others on their way to completion, bear witness to this truth.
When purchasing a home in Dubai, most people find it impossible to pay in full upfront. This is why the trend of purchasing real estate in instalments is so popular. For the simplicity and convenience of their buyers, property developers provide a complete payment plan for buying off-plan properties or even ready-made properties.
When purchasing a property in Dubai, a payment plan outlines the number of instalments to be paid over a set length of time, as well as the amount to be paid in each instalment. It’s worth noting that different developers provide different payment options.
In this article, we’ve discussed the most prevalent forms of payment plans for real estate investing available in Dubai.
3 Most Common Payment Plans when Buying a Property in Dubai
1. Post-Handover Payment Plans
A common way to pay for properties is through a post-handover payment plan. As the name implies, post-handover payment allows the buyer to pay after the property in Dubai is handed over to them, which can be anywhere between 3 to 10 years. However, they must pay a portion of the whole sum before they acquire the property.
Post-handover payment options were first introduced in late 2013 for larger government-backed developments. However, because of the popularity of this payment plan, private developers have also jumped on board.
This type of payment arrangement is mostly aimed at investors seeking properties for rental income in Dubai. It is quite convenient for them because they can take over the property with a nominal down payment and rent it out after the handover. They settle the remaining balance with the rental income.
The fact that the return on rental investment in Dubai is strong, has contributed to the success of this payment plan. End-users (buyers looking to reside in the property) also choose this payment plan since it allows them to settle into the home they have acquired while still managing the remainder of the payment.
Benefits of Post-Handover Payment Plans
The benefits of post-handover payment plans are as below:
- The post-handover payment plan has 0% interest.
- Payments can usually be structured on a case-by-case basis within a certain timeframe.
- For the investor, a post-handover plan may provide substantial savings, as part of the rent is used to cover the instalments on the purchase price.
2. During Construction & On Handover Payment Plans
The most common payment arrangements are separated into percentages paid at various points over the course of the project’s construction, till handover.
If you have a 60:40 payment plan, for example, you will pay 60% in instalments based on construction milestones, until the property is handed over i.e. during the construction phase and the remaining 40% when the property is handed over.
The following ratios are frequently observed in this type of payment plan:
- 20:80, wherein you will pay 20% in instalments during construction and the remaining 80% when the property is handed over. You can avail of a mortgage of up to 80% as a UAE resident.
- 40:60, wherein you will pay 40% in instalments until the property is handed over and the remaining 60% when the property is handed over.
- 50:50, wherein you will pay 50% in instalments during construction and the remaining 50% when the property is handed over.
- 60:40, wherein you will pay 60% in instalments until the property is handed over and the remaining 40% when the property is handed over.
Similarly, other ratios like 70:30, 25:75, and so on are frequently observed in this type of payment plan. These aren’t set ratios; they differ from one developer to the next.
Benefits of During Construction & On Handover Payment Plans
The benefits during construction and handover payment plans are as follows:
- This plan bears the least risk for the buyer because the payment is not timed and is totally related to the construction progress.
- The Developer is incentivized to complete the project on time in order to maintain a steady cash flow.
- Based on the plan you choose, you can easily avail of a mortgage at the time of handover to cover the balance purchase price.
3. Rent-to-Own Payment Plans
In many nations, it is a very popular method of homeownership. End-users are targeted for the rent-to-own payment plan, which is only offered for ready-to-move-in residences. It is a better idea for buyers who do not have the financial resources to pay for a property in Dubai upfront.
A tenancy contract for X number of years is signed between the landlord and the tenant under this model. In this payment plan, the annual rent is more than the market price.
If the provisions of the contract are effectively completed by both parties, the tenant will become the buyer of the aforementioned property in Dubai, according to this agreement, once the tenure is completed.
The tenant can use the rent money as a down payment on the property with this strategy.
Benefits of Rent-to-Own Payment Plans
The benefits of rent-to-own payment plans are as follows:
- Rent to Own can allow a person to begin building equity in a home they like without having to take out a mortgage or come up with a large down payment.
- This plan can be especially beneficial for those without the financial means to make a down payment due to a lack of savings or qualify for a mortgage due to low credit scores.
- With rent-to-own houses, people can usually move in within a week or two of the deal being made and the documentation being signed.
Given the current state of the Dubai real estate market, where costs in certain areas are high, the aforementioned payment arrangements are extremely beneficial to both investors and buyers.
Buyers have the option to choose a plan that suits their financial situation and post-handover plans, and probably don’t even need a bank. One must note however that not every project or property in Dubai comes with the same payment plan, so you will need to research to see which project you like and if they offer a payment plan that suits you.
If you have no idea where to begin, contact ZāZEN Properties at +97150 170 9376 for more information. ZāZEN Properties has delivered its first sustainable community development in the established Jumeirah Village Triangle community of Dubai, with over 70% already sold. Visit www.zazen.ae.