Are large down payments preventing you from becoming a property owner in the UAE? Discover how rent-to-own schemes could be the perfect solution.

What is rent-to-own?

Rent-to-own is a property scheme in the UAE aimed at helping more buyers become homeowners. As the name implies, it allows buyers to rent the property for a set amount of time and then gives them the option to purchase the property afterward, with the previous rental payments going towards the down payment. Developers in the UAE can decide if they want to offer any of their completed properties under a rent-to-own scheme. 

Let’s look at how this works in practice. Typically, the prospective buyer enters a rental contract with the developer for 2-5 years with some sort of upfront fee (aka the option fee), usually 5-8% of the purchase price. During the contract tenure (the length of the contract), the buyer lives in the property as a tenant and makes fixed rental payments to the developer who acts as their landlord. Like a normal rental contract, the landlord is generally responsible for service charges and maintenance during the tenure, while the tenant must take care of general wear and tear on the property. The rent-to-own contract will specify the terms of conditions and how much of each rental payment will go towards the down payment. After the contract ends, the buyer has the option to purchase the property like a normal sale, either with cash or through a mortgage loan. The down payment is offset by the rental payments the buyer made during the contract. 

Rent-to-own schemes were more common in 2010-2011 when the real estate markets in Dubai and Abu Dhabi were experiencing a downturn, but they are now gaining traction again across the UAE. As construction rolls full steam ahead with many new properties planned or under construction, developers are looking to sell their ready properties now. Since the rent-to-own scheme eliminates the burden of a large down payment, it can help more buyers afford a property purchase.

Benefits

The most obvious benefit of rent-to-own schemes is that buyers can work toward home ownership without having to make a large, initial down payment. Each bank in the UAE has its own minimum down payment requirements for UAE nationals, residents, and non-residents. A down payment of at least 20% is typically required, although it could be as low as 15% for nationals. However, in many cases, the down payment can be even higher, especially if you’re a non-resident, are self-employed, or have a low credit score. This scheme gives buyers that don’t have the ready cash to make a down payment the opportunity to become a player in the property market. 

You also get to build equity on your property through rental payments. Instead of leasing a property and making monthly payments without seeing any returns, you’re putting your rent money directly toward the down payment. As you put your own money towards a property (typically by paying back a mortgage loan), you are increasing the home equity that you can then borrow against with an equity release loan. Additionally, since the rent payments are fixed, you can confidently budget for the monthly payments while building home equity.  
A man placing a coin in a piggy bank.

Another benefit is that you get to try out the property before you actually buy it or commit to a mortgage loan. A property purchase is a big commitment, so a rent-to-own scheme can give you a test run to make sure it’s the right property for you.

Drawbacks

While it can be a great option for some, there are a few drawbacks you should consider before deciding on a rent-to-own property. 

First and foremost, rent will be higher than the market rate for a rent-to-own property since the rental payments are going toward the down payment. In general, you can expect these properties to be 10-15% (in some cases up to 20%) more expensive than a traditional property. This extra cost is what makes it a worthwhile venture for developers. The initial flexibility when it comes to the down payment is balanced against a higher total cost. 

If the buyer decides not to buy the property once the contract ends, they forfeit all of the rent they’ve paid and the option fee. Given the higher rent that comes with rent-to-own properties, you’ll likely be forfeiting more money than if you were just leasing a normal for-rent property. So while you can test-run a property, you should be fairly certain that you want to buy the property following the rent-to-own contract. 

Rent-to-own schemes are only available for ready properties that the buyer intends to reside in. This means that they are not available for off-plan, under-construction, or investment properties. The property generally can’t be subleased to any third party during the rental contract or after the property purchase. Rent-to-own schemes are geared toward the buyer being the end-user of the property.

Rent-to-own contract and fees

The contract for rent-to-own properties is similar to a normal rental contract, in the form of Ejari in Dubai. 

The contract typically includes the following details:
  • Property value
  • Contract length (tenure) 
  • Title deed ownership
  • Exit terms
  • Penalty clause for defaulted repayments
  • If you exit the contract, the percentage of the option fee to be refunded (if any)
  • A clause related to sudden job loss, missed repayments, or mortgage rejection during purchase (following the contract) 
  • Property maintenance terms (related to upkeep, etc.)

If the sale is occurring in Dubai, the developer will also have to request for registration of the rent-to-own property through the Dubai Land Department (DLD)

In order to complete this registration, individuals need:
  • A copy of the sale and purchase contract
  • A copy of a valid Emirates ID
  • A copy of a valid passport for non-residents

The costs associated with the registration process are as follows:
  • 0.25% of the rental value (tenant)
  • Seller (developer): 2% of the sale value
  • Buyer: 2% of the sale value
  • AED 10 Knowledge fees per fee
  • AED 10 Innovation fees per fee
  • Self-registration fee for developers: AED 1,000 

Learn more about the DLD registration process for rent-to-own properties here

How we can help

Now that you’ve learned about the specifics of rent-to-own schemes in the UAE, you might be interested in taking advantage of this unique opportunity. However, it’s still not very common for developers to offer rent-to-own schemes in the UAE. Here’s where a mortgage broker, like Kredium, can help. With our extensive portfolio of over 5,000 Dubai properties from the top developers, we can help you find a rent-to-own scheme or another payment scenario that fits your financial needs. Kredium can do the research for you, providing you with multiple property options and personalized offers whether you are a UAE national, resident, or non-resident. 

We are your one-stop shop for all of your mortgage needs in the UAE. Our blogs can help you become an informed buyer, with topics such as mortgage prepayment, late mortgage payments, mortgage refinancing, and many more. Or use a mortgage calculator to estimate your payment schedule and rental profit. Our experts at Kredium are here to guide you through the entire process, just contact us or register on our website.
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