There’s a new way to own property in Dubai! Rent to own schemes gain popularity

One of the biggest things that stop potential investors in the Dubai property market is the amount of money that they need to save up for the initial downpayment. To save up 25% of the total cost of the property, along with all the other initial costs of buying property in Dubai, puts a significant strain on the pocket. The alternative then is to obviously look at off-plan projects in the Dubai real estate market for investments. But there is a large population that would still prefer to buy a ready property and this is where the rent to own schemes in Dubai and the rest of the UAE comes in handy.

Although not widely available across all property types, they are becoming popular and special regulations have been put into place by the government to ensure these are legally sound property investments in Dubai. 

How do rent to own schemes in Dubai work?

The rent paid by a tenant on any property in Dubai that is a part of the rent to own scheme (RTO) is converted into equity towards buying the home. Let's look into how this works. There is usually a lock-in period, at the end of which the payments made so far, can be converted into equity (similar to what you would have spent on downpayment) if you decide to purchase the unit. As part of this scheme, the rents are structured as payments or instalments towards eventually acquiring the property. Once the lock-in period is complete, you continue paying instalments, usually through a mortgage, until you acquire the property as a whole.

There is a small upfront payment in most cases of the lease to own schemes in Dubai, but this is significantly lower than the 25%, that is the norm for buying ready properties in Dubai. In many cases, this is 5% of the total property valuation. 

Here is an example. Say you are looking at a 2-bedroom property on a rent-to-own scheme. For three years you are required to pay AED 120k as rent. Over the 3-year period, this amounts to AED 360k. This amount or a portion of this amount (depending on what is stipulated in the contract) becomes your equity towards the total valuation of the property. Again, let's assume that the total price of the property is AED 1.2M. You would then need to complete the rest of the payments over the years and acquire the property, similar to how you would on a mortgage. 

Those who struggle with the saving money for the downpayment or are finding it difficult to get mortgage and loan approvals will welcome this scheme. 

The rent for properties on this scheme tends to be higher than if you were to lease other villas and apartments in Dubai on a normal tenancy contract. But this higher rent is justified since this becomes the capital towards owning the property in Dubai and not money you have spent on rent without any returns. 

Tenants opting for such schemes are usually tied into longer lease agreements, usually for 2-3 years or more. In a way, this is positive news as this means that their rent is fixed for those years and one can really evaluate whether this is the right property to invest in. After the lock-in period, the rent can increase. 

The official service by the Dubai Land Department, called Ijarah, allows clients to register for rent to own schemes in Dubai between a buyer of a ready property and a financer, under which payments are made by the buyer to the financer. This is similar to the mortgage services one obtains from a bank, but in this case, the downpayment is also borne by the financier until you acquire equity. When you reach the end of the contractual period, the ownership of the property is transferred to the buyer. This service is provided by the Department of Real Estate Registration Services.

Fees for rent to own schemes in Dubai 

As per the Dubai Land Department, the following are the fees to be expected while entering into the rent to own schemes in Dubai. 

For Seller: 2% of the sale price

For Buyer:

• 2% of the sale price
• AED 250: Title Deed issuance fees
• Map Issuance Fees (Varies based on the type of property)
• 0.25% of the rent amount 
• AED 10: Knowledge Fee 
• Registration Fees: AED 4,000 for properties equal to or exceeding AED 500k or AED 2,000 for properties priced at less than AED 500k

Why Dubai rent to own schemes are popular for developers

While it's easy to see why rent to own schemes in Dubai would be appealing for tenants, there are also benefits for developers. This is a great way for them to sell their existing stock of ready properties without incurring any damages. With the supply steadily increasing in the real estate market in Dubai, it's important to make sure that older properties find buyers. This is one of the benefits of rent to own schemes in Dubai from a developer's perspective. 

Industry experts comment on rent to own schemes in Dubai

Tarek Bou Karroum, the Managing Partner of fäm Properties is of the opinion that it is important to look at both the parties involved with rent to own schemes in Dubai: the seller and the buyer. 

He said: "For the developer or the seller, it is very important to tap into a new stream of buyers, beyond the classic investor to respond to the market conditions. RTO motivates even those without enough money for a downpayment to buy and even exposes the idea of property investments to a whole new set of people who wouldn't have considered investments earlier. 

On the same note, what is really worthy to mention, is the fact that the scheme of rent to own is extremely healthy for the market today. Capitalising on the buyer's market, tenants can now become owners with a much more viable payment plan and once the market turns around – because nothing ever stays as is, they are already homeowners."

Tarek went on stress the importance of regulations around these schemes.

"What will decide and dictate the success and the progress and the growth of this trend in the Dubai market is the regulation around this. Both buyers and developers need to be mindful of the terms and conditions of RTO schemes, and circumstances that can affect either side over the course of the transaction. 

Considerations need to be made for market fluctuations, who is responsible for the upkeep of the property, title deed ownership throughout the contract, the time frame for RTO and exit clauses; all questions which you should be asking, and should seek professional help in answering. The fact that the DLD is working tirelessly to establish regulations is creating a lot of positive press for this scheme and I think it's great as this ‘trend’ can turn many dreams into reality!"

Farooq Syed, the Managing Director of Springfield Real Estate believes this is a great strategy that will benefit the property market in Dubai as a whole by prompting more people to buy property and make UAE their home.  He said: "I believe it will encourage a number of end-user buyers who are unsure of their tenure of stay in Dubai to venture into the property market. It’s a great strategy for developers to sell stock to a new untapped segment of the market."

Leila Esfandi, Sales and Leasing agent with the highly respected Prestige Real Estate agency is in agreement that both parties would benefit from such a scheme. She said:"I think rent to own schemes will bring more permanent residents to Dubai. It will be a great way for developers to sell their properties for long-term investment. Also, families who struggle to put together the initial deposit or self-employed people who find it difficult to get mortgage approvals because of lack of consistency in income will have a great way to own their own house in Dubai. "

Bayut CEO Haider Ali Khan also welcomed the RTO scheme as a good addition to the real estate market in Dubai. 

Several developers in JVC, Dubai Sports City, Al Furjan and Palm Jumeirah are offering such schemes to cater to a large population of potential buyers. You can inquire with any real estate agents in Dubai to check if any of these sound feasible for you. 

It's important to also note that this is not the first time that rent-to-own schemes were popular in Dubai. In early 2010-2011 many developers were offering the scheme and they were rather popular. Are you interested in these rent to own schemes in Dubai? Let us know in the comments section below.