Around 70 percent of expats rent a property in Dubai, many choose to rent rather than own due to lack of down payment but recently, Rent-to-Own (RTO) schemes have gain popularity in the emirates opening doors for aspiring property owners.
How does Rent-to-Own scheme works?
The rent paid by a tenant on any property in Dubai that is a part of the rent to own scheme is converted into equity towards buying the home.
Bayut.com gives a perfect example using a 2-bedroom property on a rent-to-own scheme.
For three years you are required to pay Dh 120k as rent. Over the 3-year period, this amounts accumulates to Dh 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. Let’s assume that the total price of the property is Dh 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.
This scheme comes handy to expats who struggle with saving money for the downpayment or are finding it difficult to get mortgage and loan approvals.
However, the scheme has not gone mainstream as yet in Dubai real estate. Developer’s financial circumstance and risk appetite will play a key part in their decision on whether they offer a rent-to-own scheme.
But some Rent-to-own deals are rampant in locations where there are many small developers such as Al Furjan, Jumeirah Village Circle, Sports City and Dubai Investment Park as there is much more competition in these locations and each developer has to distinguish itself from competitors.
Nakheel and Emaar are also using RTO-like schemes to potentially bring a bigger pool of UAE residents into the property market.
In rent-to-own schemes, the time frame for renting a property before owning it typically ranges from two to 10 years.
Source: Khaleej Times and Bayut