Property developers are slashing down payments and sweetening payment plans to attract buyers amid fierce competition for investors as demand weakens.
The decline in property prices is encouraging developers to offer payment plans that require smaller upfront sums, with the bulk then being handed over on completion.
Aldar Properties recently announced an offer of a 30-70 payment plan on its 400-unit Meera Shams apartment towers on Reem Island, in which customers pay a 10 per cent deposit, followed by four instalments of 5 per cent each in the run-up to handover, when the final 70 per cent has to be paid.
Danube Properties has also marketed its latest Glitz3 project with a plan that allows buyers to pay 10 per cent upfront, a further 15 per cent within 60 days and the remainder at 1 per cent per month throughout the construction period.
The developer G&Co has announced an even more generous payment plan at its new Dh1 billion Jade at the Fields project in Mohammed Bin Rashid City, which was launched this week.
The company, which is owned by the former Menacom chief Joseph Ghossoub, asks investors to pay just 5 per cent of the value of a property, followed by a further 6 per cent every six months over the three-year building programme.
A further 15 per cent is payable on completion, totalling just half of the building’s overall value. The rest can be paid in quarterly instalments for three years after the handover.
Manish Khatri, the vice president of sales and business development at SPF Realty, which handles sales for G&Co’s projects, said that it had taken “a different approach” with its marketing of Jade at The Fields when compared with G&Co’s recent Dh1.5bn Millennium Estates and the Dh2.7bn Grand Views projects – both of which are in the nearby Meydan masterplanned site and were aimed at the premium end of the market.
Mr Khatri said that this was a result of market conditions, and that the starting price of Dh2.26m was within the most active segment of the current Dubai market – homes priced between Dh1.5m and Dh3m.
“Aside from the fact that you are getting homes at this price, in this location, the key selling point is the payment plan. Effectively, you have six years to pay. This is unheard of, especially for a villa project.”
Payment plans have become an increasingly important driver of off-plan properties as the market has cooled over the past year, according to Matthew Green, CBRE’s UAE head of research and consultancy.
“The key thing is it allows more end-users to get on to the ladder,” he said. “OK, so you still need to have that 10 per cent [deposit], but it allows you a bit more time to come up with the rest of the money you will need. Most banks will only lend 50 per cent of the value of an off-plan property, so that excludes the majority of end-users.
“In some ways, it outweighs price per square foot. You can offer something at, say, Dh1,000 per sq ft, but that doesn’t make a difference if you don’t have the equity to get on to the ladder.”
Jonathan Brown, the head of the property consultant Cavendish Maxwell’s Abu Dhabi office, said that developers “are having to make their payment plans more attractive because investors are no longer willing to accept all the risk [of development] being transferred to them”.
He added: “Investors are cautious because of uncertainty over future values, the potential negative effects on government spending of low oil prices, and the legacy of what happened in 2009.”
He pointed out that the payment plan for Meera Shams was originally a 50-50 split – with half of the consideration due on completion – when the project launched last month.
“Aldar has a proven track record of delivering a quality product, so if it has to offer more flexible payment plans, other developers will need to think seriously about how they are to attract investors,” said Mr Brown
Mr Green said that not every developer was in a position to offer payment plans, as it involved extra funding costs and administration of phased payments.
“Developers do not do this for the good of someone else’s fortunes. They are hoping it will lead to more sales.”