You bought the property. You want to sell it. You may not be allowed to. This is the risk in Dubai off-plan that almost nobody prices, and it does not require a large price fall to hurt you.
The situation, in numbers
Take a straightforward case. You bought an apartment at AED 2,000,000. You have paid AED 500,000, which is 25 percent. Your next installment is approaching, say AED 200,000. Your circumstances have changed, or you have simply decided you do not want to keep funding it.
So you make the obvious decision. Sell.
Except most developers require a minimum percentage of the purchase price to be paid before they will issue a no objection certificate and permit a resale. That threshold is commonly somewhere in the region of 30 to 40 percent, though it varies by developer and by contract and you should never assume it.
You have paid 25 percent. You are below the line.
AED 500,000
approaching
exit
You can want to sell. You can be willing to take a loss. You could potentially even find a buyer. And you still may not have an executable exit. We call it the locked exit, and it is why we think people are looking at this correction the wrong way round.
Distress does not require a large price fall
The public conversation assumes distress arrives when a property has fallen far enough to wipe out the equity. That is one route to it. It is not the common one.
Imagine your property has fallen eight percent. On the numbers above that is AED 160,000, which is uncomfortable but not catastrophic. Now add the AED 200,000 installment you cannot fund, and the fact that you sit below the developer’s transfer threshold so you cannot sell your way out of it.
That is distress. The price barely moved. The liquidity disappeared. Those are not the same variable and treating them as one is how people get surprised.
The second group, who can sell but find it is not free
Then there are the owners who have crossed the threshold and can transfer. They discover a different problem, which is that exiting costs real money.
- Dubai Land Department transfer fees
- Developer assignment or administration fees
- The no objection certificate fee
- Registration trustee fees
- Brokerage on the sale
Depending on the developer, the project and the structure of the deal, total round trip friction commonly lands somewhere around 6 to 11 percent. It varies and it should be calculated for the specific transaction rather than assumed.
Which produces the conversation we have almost every week. An investor says they bought at AED 1.5 million and someone is offering AED 1.6 million, so they are ahead by AED 100,000. On a 1.6 million exit, friction at even the low end of that range is a meaningful share of the gain. Once the actual transaction economics are calculated, the paper profit can disappear entirely.
The question worth asking instead
Most owners ask what their property is worth. In a correction that is the wrong question, because the answer is an opinion until someone signs.
The better question is this. If you needed to get out before your next payment, what would you actually walk away with?
Answering it requires four things. What percentage you have paid. What your developer’s transfer threshold actually is, from your own contract. What comparable units have recently registered at, not what they are listed at. And what the full round trip cost would be on your specific deal.
That number is knowable. Most owners have simply never worked it out, because in a rising market it never mattered.
Why this matters more than the price index
Liquidity problems do not begin when a property becomes worthless. They begin when you need money and the property cannot give it back to you.
A market where a meaningful number of owners are below their transfer threshold, facing installments, is a market with pressure building in a place that no price index measures. The index reports what completed. It cannot report what could not complete.
That pressure becomes considerably more interesting when a large volume of inventory reaches handover, which is where this series goes next.
Sources and method
- Developer resale thresholds, no objection certificate conditions and transfer fee structures vary by developer, by project and by individual contract. The figures given here are indicative ranges drawn from Cresco’s own transaction experience and are described as such. They are not a published standard and should not be relied on for a specific property.
- The worked example uses round numbers for clarity. It is an illustration of a mechanism, not a case study of a real transaction.
- Registered comparable transactions referenced in the method are available through the Dubai Land Department register. Cresco’s monthly analysis of that register is published in our market report series.
Cresco Real Estate is a RERA licensed brokerage, ORN 34288. This article is market commentary and research. It is not investment advice, it is not legal advice, and it is not a valuation of any specific property. Before acting on any transfer threshold or fee assumption, check your own sale and purchase agreement and take independent advice.
Part 1The correction has already startedPart 2Sellers trying to get out, not get richPart 3The locked exit (you are here)Part 4The supply already under constructionPart 5The full thesis, in six indicators