As off-plan payment plans with low instalments like 1%, 0.5%, and 0.8% become more common, many Dubai buyers find it challenging to stay on track with their payments.
Dubai’s off-plan property market continues to dominate, but many buyers face difficulties meeting their payment obligations according to the sales and purchase agreements (SPAs). Developers are working to offer ‘pain-free’ solutions for buyers who miss their instalments, particularly in cases where monthly payments are overdue.
Developer sources indicate that payment defaults have become more frequent, especially for projects with monthly instalment plans of 1%, 0.8%, or 0.5% of the property value. These payment schemes were initially introduced to reduce the larger instalments and interest rate costs of mortgages. However, while these options encourage sales, keeping buyers on track with their monthly payments has proven to be a challenge.
“When payments are missed, developers are often willing to waive penalties to help buyers get back on track,” said one developer. “However, it becomes much more complicated when the buyers are based overseas. This is not the case when a default involves a bank, where penalties can accumulate quickly.”
As mortgage rates rise, developers have increasingly turned to offering monthly instalment plans to attract buyers, with many now offering plans as low as 0.5%. For example, under a 0.5% plan for a Dh1.5 million property with a 10% down payment, the monthly instalment would be Dh6,750. Even as interest rates in the UAE may eventually ease, it could still take some time for mortgage rates to return to comfortable levels for property buyers.
The key concern for developers is the potential for defaults to become frequent, which could cause significant financial strain. Buyers need to understand the developers’ position when payments are delayed. “Delays in payments place a lot of pressure on developers’ balance sheets,”
Explained Panaav Gehani, Director at Zabadani Properties.
“Property buyers should take a holistic approach to their investments, considering not just location and pricing but also the long-term impact of payment delays on project values and secondary market prices.”
Smaller Developers Face Challenges:
Mid-sized and smaller developers with just a few off-plan projects are hit hardest by payment delays. They report that it’s not just the time it takes to get buyers back on track, but the internal costs of managing delayed payments. “We have to assign staff specifically to handle payment schedules, which adds to our costs,” said a developer.
Tizian Raab, spokesperson for Azizi Developments, noted that while their contracts include standard late payment penalties (1% for a delay of one month, and 2% for each additional month), they make every effort to support buyers facing financial difficulties.
“We work with our buyers, not against them,” Raab said. “We offer reminders, personal account managers, and sometimes even set up a dedicated committee to find tailored solutions for delayed payments.”
No Impact on Credit Scores for Offplan Buyers:
Unlike mortgage payments, missing payments on off-plan properties typically do not impact buyers’ credit scores. Most developers have moved to direct debit systems for payments, so defaults on instalments do not trigger the same consequences as missing mortgage payments, which would be reported to credit bureaus.
As of 2024, off-plan sales continue to lead Dubai’s residential property market, driven by both local and international buyers. Many investors are drawn to the high rental demand in Dubai, which remains strong, ensuring sustained interest in off-plan properties.
“Developers in Dubai have been flexible, offering even sub-1% monthly schemes for some new projects,” said Florine Rusu of Market Price Real Estate. “With price discounts and payment flexibility, developers are doing everything they can to attract investors, which is why off-plan sales remain dominant.”
Developers will need to maintain flexibility when dealing with payment defaults to avoid further complications and retain investor confidence.
