Off Plan Property Mortgage or Post-Handover Payment Plan: Which One is Better?

Thing about buying an off plan property and curious about the payment plans? Deciding between off plan property mortgage and post-handover payment plan can be a complex decision. But, by understanding the key differences and weighing the pros and cons of each option, you’ll be in a better spot to pick the one that suits your investment goals.

Here, we will go through what you need to know about off plan property mortgage, what post payment plans is all about, and how to compare the options based on your financial circumstances.

Can You Get an Off Plan Property Mortgage in Dubai?

Yes.

Banks in Dubai allows expats buyers to finance a property with a minimum down payment of 20% on property valued at AED 5 million and 30% on property valued over AED 5 million. Off-plan will be at 50%.

For example, if the off-plan property value is AED 1 million, the minimum down payment required is AED 500,000, and the remaining amount can be mortgaged.

This means, buyer must have enough cash to cover at least 50% of the property value. If the buyer prefers not to put down 50% for an off-plan, there are other payment plans offered by the developers.

Note: Banks have their conditions on which type of off-plan projects (typically Emaar Properties and Meraas) they want to finance, so not all off-plan projects can be mortgaged. 

Post-Handover Payment Plans – What’s a 30 40 30 Payment Plan?

Developers are always looking for ways to incentivise potential buyers, so let’s go through their payment types.

In Dubai, you will hear often popular off-plan payment terms: 80/20, 70/30, 60/40, 50/50, etc.

As the name suggests, the 80/20 payment plan requires buyers to pay 80% of the property value (in installments) before completion, and the remaining 20% in installments at handover, usually in 3 to 5 years.

If post-handover payment plans schedule looks like this: 30/40/30.

This means, the developer requires 30% of payment during construction, 40% at handover, and the remaining 30% (in 2 to 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.  

As an example, let’s take a look at a payment plan for Eden The Valley project by Emaar.

For this development, you’d start with a 5% down payment. Then, you’d need to make a total of 50% payment before construction completes, with the remaining to be paid in installments every 5 months over the course of 2 years.

Off Plan Property Mortgage vs Payment Plans – How Do I Choose?

When choosing between an off plan property mortgage and a post-handover payment plan, there are several key criteria to consider:

1. Upfront Costs

• Mortgages for an off plan property typically require a higher down payment, typically ranging from 20-30% of the property’s value.
• Post-handover payment plans usually only require a 5-10% down payment.

2. Additional Fees

• Mortgage comes with extra fees like interest to the bank, DLD mortgage fee (0.25% of loan), mortgage application fees (1%), property insurance (0.5%), and DLD fee (4%).
• Post-handover plan has no interest charges or commissions to pay.

3. Repayment Period

• Mortgage offers flexible repayment terms up to 25 years or until age 65 for expats, 70 for UAE nationals.
• Post-handover plan typically has a shorter repayment period, typically lasting 2-5 years after handover, although some developers are extending this to be more competitive with mortgages.

4. Flexibility

• Mortgage allows buyers to customize the loan type (fixed/variable rate, interest plus capital repayment, interest-only) and potentially cancel, renew or refinance if financial situation changes.
• Post-handover plan locks buyers into the developer’s set payment schedule, offering less flexibility in repayment terms.

5. Risks

• Mortgage provides more security as banks only lend 50% of off-plan value, reducing the risk exposure.
• Post-handover plan requires buyers to continue renting elsewhere until handover if they can’t move in immediately. There is also a high risk of delays, and if the developer goes bankrupt, you could lose all your upfront deposit.

6. Eligibility

• Mortgage has age limits (21-65 for expats, 21-70 for UAE nationals) and require background checks.
• Post-handover plan is more inclusive, with no age limits or background checks, making them more accessible to a broader range of buyers.

Off Plan Property Mortgage – Pros & Cons

Off Plan Property Mortgage – Pros ✅	Off Plan Property Mortgage – Cons  ❎
1. Can customize loan (fixed / variable rate, interest plus capital repayment, interest-only)	1. Extra fees to banks & third parties (i.e. interest to bank, DLD mortgage fee 0.25% of loan, Mortgage application fees 1%, Property Insurance fee 0.5%, DLD Fee 4%)
2. Flexible Repayments – repay up to 25 years or until 65 years for salaried expats or until 70 years for UAE nationals and self-employed expats.	2. Higher down payment (20%) compared to post payment (5%-10%)
3. Can cancel or renew the loan if your financial situation changes. Can be refinanced.	3. Age limit – 21 to 65 years for salaried expats / until 70 years for UAE nationals and self-employed expats.

Post-Handover Payment Plan – Pros & Cons

Post Handover Payment Plan – Pros ✅	Post Handover Payment Plan – Cons  ❎
1. Investing early at lowest price, maximizing ROI	1. Delayed completion time – need to continue renting elsewhere or delay renting it out
2. Developers often waive portion of DLD Fee 4% to incentivise buyers	2. Developer go bankrupt / unable to complete – Lose all deposits completely
3. Lower upfront cost. Not required to pay any third-party fees or bank fees.
4. Pay 0% interest to developer
5. Lower down payment (5-10%) compared to mortgage plan (20%)
6. If buyers can’t qualify for a mortgage, post-payment is always available
7. More privacy. No background checks like the banks

The Bottom Line: Off Plan Property Mortgage or Payment Plan?

Not every investor is a cash buyer and not every investor qualifies for an off plan property mortgage.

Post-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

Carefully evaluate how much you can realistically afford, taking into account your current income, expenses, and extra fees associated with buying a home.

Here is a good read about not buying ‘too much house’ – “How Much Home Can I Afford?”

2. Determine how much cash you feel comfortable locking down as a down payment

Decide on the maximum amount of cash you feel okay with as a down payment, keeping in mind the potential opportunity cost of tying up this portion of your funds.

3. Understand the off-plan payment plans

Familiarize yourself with the various payment plan options offered by developers, and find out if there are any hidden charges or clauses you need to be aware of.

For example, a payment plan based on percentage of construction completion is an attractive option, as you have some sort of assurance that the developer will not just “run away” with your money.

4. Compare off-plan payment vs potential monthly mortgage payment

If you considering an off-plan mortgage, compare the expected monthly payments with what you’d pay in installments with post-handover plans. This way, you can identify which option will save you the most cash for the long run.

5. Determine how much cash you need to set aside for the installments or mortgage

Determine the amount of cash you need to set aside each so that it fits comfortably within your overall budget.

6. Stick to your home payment budget

Once you’ve come up with a realistic payment budget, commit to it and avoid the temptation to overextend yourself financially, even if it sounds like an attractive investment opportunity.

Next: What Homebuyers Wish They Knew about Mortgages in Dubai