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Rent-to-own: an alternative way to finance your own home in the UAE

A rent-to-own scheme directly from a developer opens up the property market to a larger pool of potential investors.

The scheme is ideal for those who are looking to set their roots in the UAE for the next three years at least are provided with a more accessible route to owning a property The UAE property market has been coined a ‘buyers-market’ over the past 18-months, however, buyers are spoilt for choice According to fäm Properties, in 2019, apart from the overdue projects, there are around 59,976 properties scheduled for delivery, and new projects constantly being announced.

(Original article by Matthew Gregory, with additional comments added externally from Lewis Allsopp, CEO of Allsopp & Allsopp)

The UAE property market has been coined a ‘buyers-market’ over the past 18-months, however, buyers are spoilt for choice. According to fäm Properties, in 2019, apart from the overdue projects, there are around 59,976 properties scheduled for delivery, and new projects constantly being announced.

A mortgage is a popular means to owning a property in the UAE, and the Dubai Land Department’s (DLD) Registered Transaction Report for April 2019 reported that almost a quarter (22.75%) of the units sold in Dubai last month were mortgaged. Saying this, mortgaging a property in the UAE requires a substantial amount of capital, with at least 30% of the property’s value required for the down payment, transfer and agent fees, and property owners are usually tied into an agreement for 20-25 years.

When looking at the primary market, many developers offer affordable payment plans, making purchasing a property more accessible. However, once a property is handed over, typically, there is still around 60-70% of its value that is still payable to the developer. Those who do not have the capital to settle this amount often mortgage it, putting them in the same bucket as those mortgaging from the secondary market.

Read: What to look out for when choosing a mortgage

So what other options does that leave property seekers? This is where rent-to-own schemes come in.
A rent-to-own scheme directly from a developer opens up the property market to a larger pool of potential investors. Those who are looking to set their roots in the UAE for the next three years at least are provided with a more accessible route to owning a property, as it negates the need for large capital, eliminating the barrier to ownership. Essentially, the end-user will be paying the equivalent to what they are paying in rent each month, towards a home that they will own at the end of the 15 year period, making it a much more cost-effective option.

Such schemes have existed in the market since the early 2000s, however, became popular post-2008, and there are only a few developers who offer them. Prominent developers in the UAE such as Emaar are also adopting rent-to-own like schemes to open up their customer base to a new market of potential investors, however, the adoption of such schemes by more developers will support in driving the market forward.

In Abu Dhabi, Al Masaood recently announced the Azure project in Al Reem Island – a brand new, contemporary, high spec waterfront apartment building with a collection of one and two bedroom apartments.

Read: Going off-plan: rising sales in Dubai looks like a trend for 2020

The premise is a long payment plan directly from the developer for the duration of 15 years which provides full flexibility, allowing owners to pay off the yearly fee at their convenience, through their method of choice – i.e. direct debit, cheque, or credit card. At the end of this period, only 15% of the property value remains outstanding, which can be financed via cash, a smaller mortgage, or another finance package from the developer.

Such investment options offer a win-win situation for property seekers and developers. Those who are currently renting have the opportunity to join the property ladder and benefit from home ownership, and developers, including those that are new to the UAE, can finance developments more effectively.

Given that many of the developers are starting to focus on more affordable properties – properties that people are likely to move into as opposed to just an investment, I would anticipate the rent-to-own, or long term payment plans will become a more common feature of the primary market.

“I believe that buyers will be more encouraged to purchase a property through rent to own schemes and benefit from being able to invest, build equity and live in the property when they perhaps don’t want to rent and don’t have the funds available for a property deposit,” Lewis Allsopp, CEO of Allsopp & Allsopp, said.  “Buyers purchasing property with a mortgage currently have to put down around 33% of the property value to be able to step onto the property ladder which is unattainable for many first time buyers.” 

He continued: “Rent to own schemes are available in other property markets around the world and can be very successful. This will certainly add to the stability of the UAE property market and continue to build confidence amongst new buyers.”

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