Don’t keep stretching property payment plans too far

Liberal post-handover payment terms have been in vogue in the Dubai property market for some time now. When it was launched, industry pundits were of the view that that these affordable payment plans will provide the much-needed fillip to the sector in the short- to long-term.

Increasingly, post-handover payment plans for residential property have been getting more attractive — particularly for those buyers with limited or no access to mortgage. This was also a significant step in wooing foreign investors interested in owning real estate in the emirate.

Hence, it came as no surprise that the response from buyers to these extended terms was positive, as it provided them with the option to tailor payments as per their own financials and without the need of getting into a mortgage arrangement with any bank. The payment terms also offered buyers the flexibility to structure smaller payments — especially on off-plan properties with the bulk of the value to be paid post-handover.

Not only buyers, in hindsight, this also meant a win-win situation for developers, who benefited by gaining access to a larger pool of buyers and increased sales volume.

Having said this, the trend of late has heavily tilted towards progressively smaller instalments with post-handover payments stretching from two years to even up to eight years. Although reasonable post-handover payment plans benefit developers as well as buyers, this trend has definitely shifted the paradigm.

While payment plans are clearly attractive, there is a definite concern that this could lead to an unsustainable market situation. Long post-handover periods have practically pushed the developers into banks’ territory and are often looked at as the mortgage alternatives by the buyers.

Considering that investors in Dubai’s property sector come from diverse geographies, the implications of this trend takes a whole new dimension as developers are not well equipped to conduct the necessary background checks and/or have access to credit scores to take informed lending decisions, especially across the pool of international investors.

These too-good-to-be-true payment plans also prove lucrative for non-serious speculative buyers, who normally have a short-term market outlook.

This puts the onus of due diligence on the serious investor who takes a long-term view of the market and understands the inherent risks involved in any investment. These investors need to be cautious about the developer’s credibility, track record, adherence to delivery, construction quality and project location before deciding on the investments.

Even though there are inherent risks involved in the payment plan paradigm, done right and within reasonable limits, this could help the industry in the short- to medium-term. Developers who hold on to their own without getting involved into risky payment plans stand to gain the most, in terms of customer satisfaction, customer commitment as well as gaining market share.

As of now, from a buyer’s standpoint, there is a window of opportunity for those seriously considering buying ready units or where developers offer them the option of move-in today but pay over the next few years.

Editor's Note: This article was published in Gulf News on March 10th 2019 http://bit.ly/GNDeveloperPaymentPlans