Rent-to-own scheme 'could benefit Dubai'
Dubai, July 19, 2014
Dubai’s property market could benefit further if rent-to-own schemes are reintroduced by developers, said International property agency Chesterton.
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.
Rent-to-own schemes were quite popular during the early 2000s when Dubai was carving a niche for itself in the property marketplace.
“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, Chesterton – Middle East and North Africa (Mena) said.
“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.”
“From developer’s point of view, 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.
“The real-estate markets have evolved and have now become more realistic in this part of the world. People from across various geographies have landed in UAE to make a new beginning. The one thing that many of these new UAE residents are looking at is - either renting or buying a home. There are several expats who have been here for years and are now looking at buying a property, but are finding it difficult due to the current mortgage cap restrictions,” said Robin Teh, country manager, director valuations and advisory at Chesterton - Mena.
“Exponential growth in the UAE property market has made buying a property - a near difficult proposition for majority of end-users. Mortgage regulations requiring 50 per cent of down payment for expatriates has further made the option to mortgage an expensive deal. The regulations have stabilised 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.
“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,” added Robin.
Chesterton Mena recently received the ‘Highly commended property consultancy in Dubai’ award during the recently held 2013th edition of Arabian Property Awards. The Arabian Property Awards is part of the ‘International Property Awards’, the world's most prestigious competition dedicated to finding the best real estate professionals across the globe.
Chesterton, which was established in 1805, offers a full range of property services, including residential and commercial sales and leasing. –TradeArabia News Service