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Dubai developers tempt off-plan buyers with 1% payment

Box, Ball, Baseball 2RD2M3G Young arab man smiling confident unpacking cardboard box at new home globe off-plan developers payment plan Dubai Aaron Amat/Alamy via Reuters
The payment plans could make home buying more affordable and help a younger demographic get onto the housing ladder
  • Payment plans to entice buyers
  • Market reaching saturation point
  • Experts say tactic carries risks

Dubai developers are offering 1 percent payment plans in an attempt to maintain interest in an increasingly crowded off-plan sales market and to delay an anticipated slowdown after years of record growth.

Yet experts warn that this tactic carries significant risks, drawing parallels to the precedents set before the 2008 housing crash.

Ziad Hinnawi, sales director at RAK Properties, describes the move as a strategic effort to “widen the investment pool”.

“These plans are created to spotlight developments with early potential or with stagnating interest, drawing in a more varied group of investors,” he tells AGBI.

The scheme allows buyers to gradually own a property by paying 1 percent of its total cost each month, after an initial down payment of 5-20 percent.

Its financial allure lies in sidestepping substantial upfront and interest payments.

While some prime projects don’t need to offer such incentives, Hinnawi says one of his newer projects – which was marketed with a 1 percent plan – immediately sold out, illustrating the appetite among buyers for the alternative financing scheme.

One analyst, who declined to be named, says developers are “getting anxious” over the increased competition and the glut of off-plan projects and developers entering the market.

“The market isn’t in distress, but they’re worried about where new customers will come from at such steep prices,” he says.

“The pool of Russian buyers has dried up, and the flows from high-net-worth individuals have tapered off, partly due to the increasing difficulties in moving money here and citizenship by investment schemes elsewhere.”

He says the 1 percent plan is designed to help get first-time buyers on the property ladder – a demographic considered vital for the next phase of Dubai’s property market.

“But, if we have learned anything from 2008, we should know this is also the segment developers need to be most careful and responsible with,” he says.

This also complements the recent change to the golden visa rules, where minimum down payments were removed to apply for a visa

Alois Kugendran, Huspy

Alois Kugendran, real estate general manager at mortgage platform Huspy, says the dream of home ownership is still out of reach for many, due to rising prices and higher interest rates, but that a growing number of residents are keen to own as rents become more expensive. 

“Anything that makes home-buying more affordable, like 1 percent plans, will remain in demand,” he says.

Kugendran says the scheme also helps developers “to move inventory faster,” noting that the off-plan market in February 2024 was 18 percent larger than in the previous year.

“This also complements the recent change to the golden visa rules, where minimum down payments were removed to apply for a visa,” he says.

“The combination of 1 percent payments with the option for long-term residency is very attractive for homebuyers and could help the market through another growth cycle.”

Suchit Odhrani, senior client manager at Betterhomes, adds that the payment plan has “opened up a whole new market”.

“You can pay with ease, without hassle to seek approvals from financial institutions,” he says.

Doing the maths:

1% payment plan example

  • Property price: AED1,000,000
  • 5% down payment: AED50,000
  • Monthly payment: AED10,000
  • Repayment duration: 95 months or 7 years and 11 months
  • Total payment: AED1,000,000

Traditional financing

  • Property price: AED1,000,000
  • Down payment: AED250,000
  • Loan amount: AED750,000 (remaining after down payment)
  • Annual interest rate: 4%
  • Mortgage term: 25 years
  • Monthly payment: AED 3,958
  • Total payment over the life of the loan, including the initial AED 250,000 down payment: AED1,437,633

Sean McCauley, co-founder and CEO of Dubai-based Devmark Group, calls flexible payment plans a “crucial factor” for new project launches, which “often lead to faster sales absorption”.

But, despite its allure, he urges prudence, pinpointing the double-edged sword of developer reliability and market volatility.

“For buyers, their exposure is to the extent of the developer’s ability to complete the project,” he cautions, though the extent of the risk is mitigated by regulated escrow accounts.

“If there are a large number of defaults, they may face challenges in terms of cashflow.”

Delivery times can also be an issue. Figures from real estate consultancy company CBRE show that of the 70,957 units scheduled to be ready in 2023, only 39,190 were delivered.

Rizwan Sajan, founder and chairman of Danube Group, which owns Dubai’s Danube Properties, urges investors to diligently vet developer credibility, warning of the heightened risk of insolvency during crises, a scenario all too familiar post-2008.

“A developer might offer you a deal that’s cheaper, but in case of any crisis – which can happen anywhere, and we’ve seen it happen before – they will be the first to run away,” he says.

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