For many, the idea of owning an expensive asset in a foreign country is daunting. Yet many are spending tens of thousands of dirhams each year on rent, and while we are receiving something in return – a home to live in for a defined period of time – that money could be invested in an asset.
As property prices have come down, many are thinking this could be a good time to buy, but are hindered by the down payment requirement. As developers are grappling with how to sell unsold stock that just keeps piling up, we have seen the re-emergence of a previous concept called rent-to-own, which was originally introduced to the market in 2003 by Emaar in The Greens.
A potential buyer would pay what is considered rent for two to three years, and that amount is held as the down payment and the buyer then has the option to pursue traditional financing from the banks or a payment plan with the developer.
With the current supply and demand, we are seeing the re-emergence of rent-to-own as it is an excellent way for both buyers to become homeowners in a more affordable way and for developers to sell some of their available, ready stock.
Currently, developers are offering payment plans on off-plan units for five or seven years whereby the buyer owes a percentage upon booking and then various amounts due along completion stages of that property. Upon completion of the property and full payment by the buyer, ownership is transferred from the developer to the owner with a title deed. For the payment plans developers are offering right now, ownership is still held by the developer even after handover, while the payments are being made, and a transfer happens when the property is paid off.
Many buyers experience difficulty with purchasing a property this way as they are already paying rent on the property they’re living in and are further extending themselves by owing installments on a second property that is not yet ready. With rent-to-own, the property is already completed and can be moved into and the repayment period is almost triple that of traditional developer post-handover payment plans.
One agency in particular has introduced a payment scheme where owners have 20 years to pay off a ready property. Options range from paying in 10, 15 or 20 years, which mirrors the time frames many banks offer on mortgages. Properties that are available with this new rent-to-own payment plan are in locations like Motor City and Dubailand for both apartments as well as villas or townhouses.
Under the supervision and with the guidance of the Dubai Land Department led by Sultan Butti Bin Mejren, the DLD has created a new type of title deed through a rent-to-own scheme whereby buyers have up to 20 years to pay off the property while having the title deed in their name. This specific title deed reads that “this is a title deed registered against a payment plan”.
Participating in the rent-to-own scheme means that buyers can affordably purchase a property with no down payment, or as little as 5 per cent, without the hassle of interest rates or hidden fees. Additionally, the amount due can be settled early without any penalty and at that point, a standard title deed will be given in place of the one that says the title deed is against a payment plan.
In the event a buyer paying off a property as a rent-to-own wants to sell that property, it can be offered for sale and the new buyer can continue the same payment plan. A local bank account with cheques is required.
Like many of Dubai’s accomplishments, rent-to-own with a title deed registered in the owner’s name is a first for the larger Middle East and North Africa region and sets a trend for other markets to follow.
Lynnette Abad is director of research and data at Property Finder. Views expressed are her own and do not reflect the newspaper’s policy.