Rent-to-own schemes on the rise in UAE, say experts.

A few developers in the UAE, mostly in Dubai, are offering rent-to-own schemes as demand and popularity for such projects has grown in recent years, say real estate industry executives.

In a rent-to-own scheme, the equivalent of monthly rental payment is used towards the down payment of the property. Rent-to-own schemes are usually offered by developers in mature markets to attract end-users from middle-income families. In the UAE, most of the properties being sold under rent-to-own schemes are apartments as villas are scarcely offered by developers with most of the demand coming from traditional markets – Asian and Arab nations.

Dubai was the first to introduce this scheme through the launch of the Ijarah service in 2018. While developers in Dubai and Abu Dhabi have taken the lead when it comes to rent-to-own schemes, other emirates such as Ras Al Khaimah are also steadily offering these attractive solutions to buyers, says Dounia Fadi, chief operating officer of Berkshire Hathaway HomeServices Gulf Properties.

Rizwan Sajan, founder and chairman of Danube Group, said as the market matures, there will be more of these rent-to-own schemes coming online. However, developers are offering seven to 10 years post-handover payment plans, which are similar to rent-to-own schemes but they are not promoted under this banner.

“We had launched a one per cent monthly payment scheme in 2014,” said Sajan. “Buyers usually pay a 25 per cent down payment in the first six months and then pay 75 per cent in 75 monthly instalments. The buyer usually gets his keys after paying roughly 50 per cent of the property price. We do not call it a rent-to-own scheme but in essence, it is but promoted in a different way. There are lots of rent-to-home schemes that are being offered under different names and schemes.”

Growing demand

The Danube chairman said demand for rent-to-own schemes is on the rise, especially among families with a limited income.

“However, the rise in demand will be felt in the early next year, when things start to look up in terms of business and employment. Once the Covid-19 pandemic subsides, more people will relocate to the UAE that might push up the property prices and rents – forcing residents to invest in their own homes,” added Sajan.

Fadi also echoed Sajan’s views on the rise in demand and popularity for rent-to-own schemes.

“Properties under the rent-to-own schemes are much easier to acquire than those on the secondary market as the latter will require properly drafted legally binding contracts that should be registered with Dubai Land Department and are bound by a deadline. This combined with the financial ease to acquire properties and eventually receive complete ownership of the property are pivotal factors contributing to the increasing demand,” she added.

Rent-to-own preferred

Fadi said most of the nationalities living in the UAE are interested in exploring rent-to-own options but Indian and Arab nationals seem to have taken the lead.

Sajan revealed that the UAE residents from the Middle East, South Asia and the Philippines are the biggest customers of the rent-to-own homes, especially those whose household family income is between Dh12,000 and Dh20,000.

“The largest professional groups, owners of small and medium enterprises and the mid-income families from Egypt, Jordan, India, Pakistan, Bangladesh, Sri Lanka and the Philippines are the biggest applicants of these schemes,” he said.

Average ticket rate of rent-to-own varies

Fadi noted that the average ticket rate of the properties can vary, depending on its size and location but so far, such schemes are being offered mainly for low-to-mid-range properties.

Sajan noted that for a studio unit that is sold for Dh400,000, the monthly instalment could range between Dh3,333 and Dh4,000 or more depending on the duration of the payment package.

“For the one-bedroom apartment, the monthly payment is a bit higher, somewhere between Dh4,500 and Dh5,000. The equated monthly instalment (EMI) for a two-bedroom hall apartment could range between Dh5,500 and Dh6,500. These are a bit higher than the monthly rental packages in each category,” he concluded.