Rent-to-Own in Dubai

June 25, 2019
Written by Arpan Ghosh

Buying a ready property in Dubai a fair bit of financial consideration. There is the deposit, which amounts to 25% of the sale price, along with a 4% fee to register the transaction with the Dubai Land Department, agents’ fees, and so on. That can in certain cases be a hefty sum to pay upfront and is one of the factors that makes off-plan property a more attractive option for many investors. If you are looking to acquire a ready property over the long term, however, you might consider looking into rent-to-own, which gives you a bit of leeway in terms of payment by significantly reducing the upfront costs and spreading out payments over a longer time period.

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What is rent-to-own?

Through a rent-to-own scheme, a potential buyer can rent a property for a specified time period, which is typically between two to ten years, after which they will have the option to purchase the property or to exit the agreement. The total rent paid during that period, or a portion of it, can be converted into equity for purchase. It is essentially a deferred payment plan where your initial monthly installments are paid in the form of rent. The remaining amount can then be paid as a lump sum or paid off in the same way as a mortgage until the property is fully in your name.

Under this scheme, rents tend to be slightly higher than they would be for a property that is only available for rent, but the extra cost is worth it when it gets deducted from the purchase price at the end. The higher rent also helps to mitigate the developer’s risks when offering a rent-to-own scheme.

What are the benefits of rent-to-own?

The most significant benefit of choosing a rent-to-own option is time. By paying part of the property cost as rent, buyers have more time to gather the resources necessary to pay the full price at a later date. This is also beneficial for developers as they can sell their ready stock more easily by removing the hurdle of high down payments. In a market where new units are always being released for move in, buyers can be enticed to pick up an older unit that has a rent-to-own payment scheme.

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Which developers are offering rent-to-own?

While the concept of rent-to-own has existed across the UAE for some time, it is not widespread across the market. A handful of developers offer this option, especially in family communities. One of the most notable new communities with a rent-to-own option is Sienna Views in Jumeirah Golf Estates.

 

Through the scheme provided at Sienna Views, you can rent a villa for 4 years before you have the option to buy. Should you opt to buy at the end of the rental period, the total rental amount and the deposit on the villa will be subtracted from its sale price, leaving you to only pay the balance amount.

Why is rent-to-own not more common?

For both buyers and developers, rent-to-own can be extremely beneficial. However, there are several factors that might prevent developers from jumping on board.

 

A rent-to-own property is considered to be ‘slow money’, as it is paid off in installments rather than with a lump sum. There is also the risk of a buyer defaulting on a payment or opting to exit after the rental period is over. In such a case, the developer would have to seek out another buyer.

 

There are other questions to consider as well. What happens if the market experiences a downward shift during the rental period? What if the tenants’ financial situation changes and they can no longer afford the property? Is it possible to sell the villa while it is being occupied on a rent-to-own basis? Further regulation is required to manage these risks and ensure minimal fallout from an unexpected end to a rent-to-own contract.

In Conclusion

In recent years, we have seen greater flexibility in payment plans for off-plan projects and the introduction of new rules that make it easier for investors to buy off-plan properties, which has led to rising interest in that segment of the market. Rent-to-own schemes could provide a similar boost for ready properties and, coupled with the right kind of regulation, could prove to be a very attractive option for home buyers in Dubai.