Off Plan Property: Choosing Between Off Plan Mortgage & Payment Plans
Let’s dive into what you need to know about financing your off plan property. When buying off plan property, two primary financing routes stand out: off plan mortgages and post-handover payment plans. Understanding the key difference between these two options will help you make an informed choice for your investment journey.
In this guide, we’ll go through:
- How off plan mortgages work
- What post-handover payment plans is all about
- A comparison to help you choose the right financing method
- How to decide between an off Plan mortgage and payment plans
Can I Get a Mortgage for an Off Plan Property in Dubai?
Yes.
However, banks in Dubai have stricter down payment rules for off plan properties.
For Ready Properties:
- 20% down payment for properties valued below AED 5 million
- 30% down payment for properties valued above AED 5 million
For Off Plan Properties:
- Banks typically require a 50% down payment before offering a mortgage loan
- Example, For an AED 1 million off plan property, you’ll need to prepare AED 500,000 upfront
- The remaining AED 500,000 can be financed through a mortgage loan
Keep in mind:
- Not all banks finance every project; they usually prefer established developers like Emaar or Meraas.
- Mortgage loans come with fees such as DLD mortgage fee (0.25% of the loan), mortgage application fees (1%), property insurance (0.5%), and DLD registration fee (4%).
What Are Post-Handover Payment Plans?
If the buyer prefers not to put down 50% for an off plan, there are post payment plans offered by the developers, which allow buyers to pay in stages, even after receiving the keys.
In Dubai, you will hear often popular off plan payment terms: 80/20, 70/30, 60/40, 50/50, etc.
- 80/20 Plan: Pay 80% during construction and 20% at handover, usually in 3 – 5 years.
- 30/40/30 Plan: Pay 30% during construction, 40% at handover, and 30% remaining in 2 – 3 years after handover
The number of payment installments and due dates really depends on the project’s construction timeline, and can vary from developer to developer.
For example, Emaar’s Eden The Valley off plan payment plan require:
- 5% down payment
- 50% payment spread over construction
- Remaining balance payable in installments every 5 months across 2 years.
These plans are attractive to buyers who prefer lower upfront costs and interest-free installments.
Off Plan Mortgage vs Payment Plans – Which One Should You Choose?
Here’s a side-by-side breakdown:
1. Upfront Costs
- Mortgages: Higher down payment (20-30% for ready, 50% for off plan).
- Payment plans: Lower down payment (5-10%).
2. Additional Fees
- Mortgage: Bank interest, DLD mortgage fee (0.25% of loan), mortgage application fees (1%), property insurance (0.5%), and DLD fee (4%).
- Payment Plan: No bank fees or interest charges.
3. Repayment Period
- Mortgage: Flexible, up to 25 years (until age 65 for expats, 70 for UAE nationals).
- Payment Plan: Shorter, typically 2-5 years post handover (some developers may extend to be more competitive with mortgages).
4. Flexibility
- Mortgage: Adjustable loan types (fixed/variable mortgage rates, interest plus capital repayment, interest-only) and potentially cancel, renew or refinance if financial situation changes.
- Payment Plan: Fixed developer schedule with less flexibility.
5. Risks
- Mortgage: More security, as banks only finance vetted off plan projects, reducing risk exposure.
- Payment Plan: Risk of delays or developer bankruptcy; buyer may lose deposits, and need to continue renting elsewhere.
6. Eligibility
- Mortgage: Age limits (21-65 for expats, 21-70 for UAE nationals), require background checks and bank approval.
- Payment Plan: Accessible to all buyers with no background checks.
How to Decide Between an Off Plan Mortgage and Payment Plan
Not every investor is a cash buyer and not every investor qualifies for an off plan mortgage.
Payment plans may seem great on the surface but delays are very likely to happen and there are more financial risks than expected, so it’s important to do your due diligence and understand your risk and rewards.
If you are an off plan buyer, here are the crucial steps to help you decide:
1. Determine How Much You Can Afford
Calculate how much you can realistically afford, taking into account your income, expenses, and extra fees associated with buying a home.
Here is how not to buy ‘too much house’: “How Much Home Can I Afford?”
2. Down Payment Comfort
Decide on the maximum amount of cash you feel comfortable with as a down payment, keeping in mind the potential opportunity cost of tying up this portion of your funds.
3. Understanding Payment Schedules
Compare payment plan vs mortgage payment options. Find out which option will save you the most cash for the long run and/or give you the most flexibility.
Tip: Payment plans based on construction progress provide assurance that developers won’t run away with your money.
4. Risk Tolerance
What’s your timeline? Are you comfortable with project delays or potential developer issues?
Conclusion
- If you want long-term flexibility and don’t mind higher upfront costs, a mortgage loan might be better.
- If you prefer lower entry costs and short-term payment commitments, developer payment plans may suit you.
While off plan mortgages offer the advantage of spreading your payments over a longer term with potentially competitive mortgage rates, post-handover payment plans is zero interest and require less upfront costs. Making the right choice between an off plan mortgage and payment plans ultimately depends on your financial situation and investment goals.
