Time for Dubai developers to revive rent-to-own

Rent-to-own schemes will benefit the Dubai property market and developers should reintroduce them, according to a real estate agency.

“Rent-to own schemes have various benefits for both tenants and developers. While sellers get an option fee and potential buyer, tenants get to live-in the property and try out the neighborhood before actually settling in for the long-term,” said Simon Gray, Managing Director, Chestertons Mena.

“It also provides an opportunity for the seller to sell the property at a higher asking price because buyers who cannot own a house in any other way are usually willing to offer a higher future price based on the assumption that the market will improve.”

A typical rent-to-own real estate agreement is structured like an option contract.  It allows the tenant to purchase the property at a fixed price within a specific period of time.

A portion of the monthly rent paid during the lease period is counted towards the down payment on the property. Usually the property is leased higher than the market rate to cover the option price or the deposit that tenant has to pay to activate the option. If the tenant is unable to exercise the option to buy, the owner is then free to rent or sell the property to another buyer.

From developer’s point of view, Gray believes offering a lease-to-own scheme will surely open up an additional pool of potential buyers and is an option worth considering as the market starts to further consolidate.

“The objective of these schemes will inspire confidence in buyers and reduce the risk element in buying into the UAE market. Such schemes would benefit the investors and sellers in the current scenario, where the property prices have become more stable after exponential growth over the last year,” added Simon.

Exponential growth in the UAE property market has made buying a property - a near difficult proposition for majority of end-users.

UAE Central Bank regulations requiring 50 per cent of down payment for expatriates for an off plan property has further made the option to mortgage an expensive deal.

“The regulations have stabilized the market and at the same time made property investment an ‘unaffordable deal’ for most expat residents who usually cannot cough up down payment requirements,” says Robin Teh, Country Manager, Director Valuations and Advisory at Chestertons Mena.

“The solution to this is rent-to-own option which gives you the flexibility to terminate the contract towards the end of the tenure if the decision has not been made to purchase the house without any penalty,” he adds.

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