In real estate investment, doing your homework means practising due diligence. But what exactly does this crucial step involve when you are buying a property?
Due diligence in real estate entails investigating and scrutinising the physical condition of a property and the area where it is located. By completing this in-depth process, you can verify that you will invest in the right property, one that meets all your needs. This due diligence applies whether you intend to resell it or rent it out later. (To help you decide, you can start with this comprehensive guide on renting versus owning a property.)
Since the process involves inspecting the property, this step is a must when buying a newly built or completed project. Practising it, however, can be a bit challenging when you are interested in an off-plan house, villa, or apartment.
But even if doing your homework can be more difficult when buying an off-plan property, it doesn’t mean that you should be lax about or skip the entire process.
If you are interested in buying a house in one of the new residential projects in Dubai, you might want to read up on the more relaxed property ownership laws the government recently introduced to attract more investments.
Meanwhile, here are the seven best practices for carrying out due diligence:
1. Checking the property developer’s track record
Conducting due diligence when investing in an off-plan property starts with researching the project developer.
Go online and read as many articles as you can about the developer. Take note of their developments and their record in the delivery of projects within the specified timelines.
Additionally, try to look into the company’s directors and board members so you have an idea of who the key players are.
This step, though, does not end here. Carrying out due diligence means talking with authorised sellers and representatives of the developer and asking them questions regarding their projects.
Additionally, find out if the developer is a member of a professional organisation that advocates for better market conditions for buyers and developers.
A developer that has been in the market for many years and has a history of completing their projects within their stated time frame is preferable for obvious reasons if you are investing in an off-plan property.
2. Digging deeper
When doing your homework, it is also a good practice to look into the project team, which includes the architects and the main contractor.
Doing so helps you get an assurance that the project is in good hands.
Look into the background of the team. Check their experience regarding construction. Most companies and their team of professionals publish their qualifications on their website and employment networking sites so you can find these details online easily.
Take the time to check the certifications and licenses of the consultants, as well.
3. Studying the plan and specifications thoroughly
Another key practice that you should exercise when planning to invest in an off-plan property is reviewing the plans and specifications of the property carefully.
Study all the measurements. These include the floor area of the entire property and that of every room. If you are interested in a house or villa, check the dimensions of the outdoor space, too.
Additionally, take note of the height of the ceiling and dimensions of the doorways, cabinets, closets, and arches and stairways, if any.
Review all the other features in the plan as well, including the number of lighting fixtures and electrical outlets in each room and taps in the kitchen and bathrooms.
If you don’t feel confident doing this, work with a consultant to review these.
4. Visiting the project site
Checking the location of your prospective property is something that you can do when buying into an off-plan development.
As a potential buyer, you have the right to visit the project site. There have been cases where clients bought a unit or land which turned out to be completely non-existent. You can avoid this unfortunate situation by viewing the property yourself.
Plan to visit the construction site several times. Once there, look around and talk to the architect or supervisors to get a few more ideas about the project.
If you can’t go to Dubai or are overseas, ask a friend or someone you trust who is in or visiting the city soon to check the site to give you an assurance that there is an ongoing construction project and you are investing in something real.
5. Reviewing the payment schedule
Once you have a copy of the payment schedule, read it carefully.
Most of the time, an off-plan buy involves clients negotiating with the developers on a suitable payment plan. If you are allowed to do this, do not hesitate to suggest one that is convenient for you.
A payment plan that favours clients should last up to the end of the completion dates of the project. If it’s your first time to read one for an off-plan project, consider seeking legal advice to understand all the terms and conditions fully.
While going over the contract, make sure it also clearly states the amount of initial deposit agreed upon and the specific dates when you can expect to make the other payments until the completion of the project.
6. Scrutinising the contract
Contracts due diligence means reviewing and documenting the terms of the purchase.
During this step, make sure to review and understand the following stipulations:
- The overall purchase price
- Your agreed mode of payment
- Your pulling out options
- The dimensions of the property
- Defect liability period
- Legal actions you can take in case of default of conditions and warranties
- Expiration of the contract
Additionally, take note of how well prepared the contract is. If it is detailed and well-written, you can take this as a sign that you are working with trustworthy and professional developers and sellers. It is also an indication that the-off plan property you are interested in is legitimate.
7. Evaluating the developer’s and seller’s communication efficiency
Before committing to anything, try to gauge the reliability and efficiency of the developer or realtor in terms of communication. A staff should be able to answer your queries and always be professional when talking to you by phone, e-mail, or chat.
As an investor, you need to get periodic updates on the project plan, especially major milestones such as the expected date of ground-breaking. Make sure the developer or seller provides you these details even if you do not request them.
If you think the company is hesitant to share information now, even if you are still in the negotiation stage, consider looking for another off-plan property.
Whether you want to buy an apartment in Dubailand or a villa in DAMAC Hills, if you are thinking of getting an off-plan property, make sure you follow these due diligence practices.
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