According to Bayut.com, average rents in Dubai and Abu Dhabi showed modest declines during the third quarter of 2016 as compared to the previous quarter. In Dubai, average rents fell by two per cent in Q3, and the same fell by four per cent in Abu Dhabi.
While the slowdown in the drop in rental values in Dubai is a sign that the market is slowly recovering, this can also be attributed to the increasing number of people opting for rent-to-own schemes, offered by several developers.
In September last year, Dubai South (formerly Dubai World Central) announced that its new planned residential development ‘The Villages’, will offer rent-to-own properties to tenants. The aim is to target middle-income households, a market which has been under-served over the past few years as developers and buyers invested into mainly luxury projects.
More recently in April this year, Abu Dhabi property developer Al Forsan introduced the rent-to-own option for 50 of the 385 villas and town houses in Khalifa City A, Abu Dhabi for Emirati buyers.
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How does it work?
Under rent-to-own schemes, an agreement is formed between a tenant and a buyer at the start of the lease. It essentially works like an option contract, allowing the tenant a window of time (usually two to three years) before they make a decision. If they opt to purchase, they can do so at a fixed price, and a significant percentage of the paid rent would be returned to the buyer in the form of credit towards the purchase. Should the tenant decide not to buy at the end of the lease’s term, there would be no penalty.
How can rent-to-own schemes benefit you?
Going down the rent-to-own route allows the tenant the opportunity to try before they buy and the option to put their paid rent to good use. The fixed price in the contract can also translate into a good deal given the recent volatility in the Dubai and Abu Dhabi property markets.
From the potential buyer’s perspective, the process can also be less complicated than applying for a traditional mortgage, as you won’t have to bear the burden of putting down a hefty down-payment. At the same time, landlords also stand to benefit as they will be selling directly to stable end-users who are able to make regular payments.
What should you be aware of?
Besides the advantages of rent-to-own schemes, there are also some extra costs and risks involved with this type of purchase. If you are renting under this type of a contract, you will have to pay a premium in order to have the option to do so. But if you decide not buy, you will have to forgo the extra money paid towards the higher rent.
Then, there’s also the risk of not qualifying for a home loan or not getting approval on time. And, what if you violated one or more terms listed in your tenancy contract unknowingly, which would deny you the right to buy the property? It’s always a wise decision to read all the fine print before entering such an agreement.
Growing popularity of rent-to-own schemes
These types of programs are resurfacing in countries like the US and the UK as housing markets recover. They are usually offered by smaller scale real estate companies, some of which buy properties to resell them under this system. Considering the rising cost of living in many larger cities around the world and lack of affordable housing in such areas, it’s only a matter time until we see more of these schemes popping up.