Gulf News, 2 March, 2019
Dubai: Non-developers in Dubai holding sizeable property assets could soon offer long-term payment plans that match those given directly by developers. If this happens, this could provide a boost to secondary market activity involving non-developers.
“They could be bulk buyers of property, or even banks with property assets on their books; allowing them the chance to offer stretched payment plans will create a level playing field,” said Firas Al Msaddi, CEO of fam Properties. “It is learnt that local real estate authorities have done a pilot project and, if all goes well, this could soon be formally allowed.
“The laws will need some changing, but it should happen.”
Right now, developers — the big ones among them, especially — are having it all their way.
Recent off-plan sales have been boosted whenever the developer has been willing to offer payment periods well beyond the handover.
This means the developers are indirectly financing the purchase of the unit, with the buyer not having to involve bank lenders at all in the process because the upfront payment is so low as well.
Interestingly, 15-year post-handover plans are starting to show up in property deals — Arthur Mackenzy Properties Group said it will offering such a payment period for the Casa Flores villas built by National Properties in Motor City.
In a statement, Shaher Mousli, CEO of Arthur Mackenzy Properties Group said, “The implementation of long-term UAE residency visas will encourage more residents to consider buying a home instead of renting one. A 15-year payment plan post-handover has never been offered before in Dubai.”
More non-developers want a chance to push the same formula. And they have been insistent about the need for some change to the status quo.
“Right now, developers get priority on pre-registrations, but if the rules change, all bulk owners of property will have the same status,” said Al Msaddi. “They could offer long-term payment plans closer to the property handover or whenever they choose to do so.
“Whenever flexibility is introduced in the selling and buying process, the market benefits as a whole.”
It will be no exaggeration to state that generous payment plans are what is driving sales activity these days.
The first two months have seen multiple off-plan launches, and two factors stand out — one, those projects gave buyers compelling prices, in the Dh1 million to Dh1.5 million range. And two, all of them had stretched payment terms, including periods well after handover.
By the looks of it, buyers bought into them. Whether the project was at Dubai South (Emaar Golf villas), Al Qudra (the Cherrywoods), Jebel Ali (the Gardenia town houses from wasl), or Meydan (MAG City), those properties were changing hands.
The pickup in sentiment is showing up in Dubai Land Department registrations. February had the best showing in eight months for off-plan deals, according to Reidin-GCP data.
Al Msaddi believes that even more could be done to charge up property demand — “There is a need to come up with a well-defined “rental guarantee” scheme,” he said. “With prices softening in the last two years, placing a guaranteed three-year or more rental income into the deal provides a level of certainty to the investor and allows them to weather the duration of a soft market. “The buyer has peace of mind that they will receive income on their property and can also capitalise on the market’s upside potential, knowing that it has to bounce back at some point.
“For these creative offers to work they must be very well defined contractually, both in the sales and purchase agreement (SPA) and on all marketing collateral, and they must be governed by the Land Department.”
Enforcing rental guarantees
The biggest drawback of rental guarantees in their current form is what happens in a market where rents are dropping and continue to be under pressure.
Sailesh Israni of Sun & Sand Developers suggests that a guarantee as such could turn out to be “too good to be true”. “No estimate can flawlessly guarantee future rentals. Instead, we believe offering a fair assessment of current rents and based on that, what the RoI (return on investment) could be. We also mention what rents may drop to. That gives a buffer.”
Banks as rental guarantor?
According to Fira Al Msaddi of fam Properties, banks could have a role in rental guarantees from developers.
“This way, the guarantees are provided by a legitimate entity that has its own assets and credibility, and not as is sometimes the case, by a real estate brokerage. Buyers often deal with a large developer but their contract is with a shell llc (limited liabilities company) that was created to develop the project.
“Developers tend to offer rental guarantees in a side agreement and not as part of the SPA. I believe there is an opportunity for major developers to collaborate with a bank or reputable financial institution to enhance the credibility of rental guarantee offers and in the same way as a developer asks for post-dated cheques from clients, so too could developers provide post-dated cheques to clients. Delays on projects are an important factor to consider, and buyers should request that developers confirm a start date for the rental guarantee, despite any potential delays.”