Rent-to-own schemes in Dubai: With transaction values down 16% YoY, a mortgage alternative emerges…

Rent to Own

There is a new option on the table for aspiring property owners: rent-to-own.

Each rent-to-own scheme is unique, but they are all basically an agreement between the developer and the property seeker whereby the rent paid goes towards the purchase of the property. There is a small upfront payment (which varies depending on the payment plan but is substantially lower than the 25% downpayment required for a mortgage), and the rent is slightly higher than if the same property was being rented in the normal way. However, the higher rent is justified, as this amount is put towards the down payment and purchase of the property. 

Importantly, the scheme offers the same protections to consumers set up by the Dubai Land Department for developers and developer sales, assurring property seekers of the legitimacy of their contract.

The scheme works well in Dubai due to the high down payment needed to purchase a property and the increased amount of ready-to-move-in stock that is available in the market. Since 2016, Dubai had over 33,000 units delivered into the market with an additional 7,839 delivered the first half of this year and another 8,000 expected to be delivered by end of year.

With transaction values down in the first half of the year, master developers are increasingly offering rent-to-own schemes to entice buyers who might not otherwise have the large down payment needed to buy.

“Today, about 70% of expats rent, mostly due to lack of a down payment to purchase a property or uncertainty on how long they plan on staying in Dubai,” says Lynnette Abad, Director of Data & Research at Property Finder Group.

Large developers like Nakheel and smaller shops like 21 Century Property are using rent-to-own schemes to address the hurdles of large down payments and huge fees that may have otherwise kept UAE residents away from making a property purchase, and there are such deals to be had in places like Jumeirah Village Circle, Palm Jumeirah, and Sports City.

“To purchase a mortgaged property that is less than five million UAE dirhams, one would need to have 25 percent of the property value plus approximately eight percent in fees, which is a lot of money for most,” Abad said in an interview with Thomson Reuters Projects.

While rent-to-own isn’t in the mainstream of Dubai real estate just yet, it’s proof positive that developers are willing to get creative to get their units occupied — and it is in the interest of getting more UAE residents on the property ladder.

 

Fees to Register for a Rent to Own Contract*

    1. Seller (typically a developer): 2% of the sale price
  • Buyer: 2% of the sale price, in addition to the following:
    1. 250 Dirhams as Title Deed issuance fees
    2. Map Issuance Fees (based on the type of real property)
    3. 25% of the rent amount
    4. Knowledge Dirham Fee of 10 Dirhams (added to each fee)

*Source: Dubai Land Department

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