Many ways to own a home

Al Forsan Village in Abu Dhabi is offering lease-toown as an option for its completed villas and town houses in Khalifa City A areaImage Credit: Gulf News Archives

Given the soft market, developers are looking at all options to attract a bigger pool of buyers, particular tenants who are planning to buy their own home. A number of attractive schemes such as rent-to-own and “pay 10 per cent and move in” have already started to surface in the market.

“This tactic has been offered by a number of developers, including Danube in Dubai and Aldar in Abu Dhabi,” says Craig Plumb, Head of Research at JLL Middle East and North Africa (Mena). The reason behind this, he says, is that the sales market has been slow and as a result developers are looking for new ways to attract buyers and sell property.

Although not strictly rent-to-own, there are some similar schemes in the market. “Developer Danube is offering a 10 per cent deposit followed by 15 per cent in 60 days, with the balance amount payable over 75 equal monthly instalments of only 1 per cent each for its Glitz project in Dubai Studio City,” says John Stevens, Managing Director of Asteco. “Union  Properties also has a payment plan for phase three of its Green Community West development: 50 per cent upon handover with the remaining balance to be paid over eight years.”

Another project, Dubai South (formerly known as Dubai World Central) has also confirmed that rent-toown will be part of the incentives attached The Villages development. The project, which is expected to have as many as 20,000 homes, will start its first handover in 2019.

“It has also been reported that the Falconcity of Wonders will have a version of rent-to-own, [while] Al Forsan, the Abu Dhabi-based sports resort and housing complex, has come up with a rent-to-buy offer targeting Emiratis,” says Stevens.

Al Forsan Village in Abu Dhabi is offering lease-toown as an option for its completed villas and town houses in Khalifa City A area. The company says this option was announced to provide UAE nationals with the best community living experience at affordable prices.

“Our lease-to-own offer has been well received by the investors and they are looking at buying these villas for both personal use and investment purposes,” says Rashed Al Qubaisi, General Manager of Al Forsan International Sports Resort.

Deal for Emiratis

Under this plan, a villa at Al Forsan Village could be purchased and owned for as low as Dh300,000 per year. “We sold several units under the lease-to-own scheme at the Cityscape Abu Dhabi show in April. Abu Dhabi market is consolidating and is currently attracting several residents from across the UAE and the region,” says Al Qubaisi.

However, Al Qubaisi says that the lease-to-own offer is solely aimed at UAE nationals as the project is not located in a freehold area. Expats are, however, free to rent a villa in the project.

According to him, UAE nationals are keenly pursuing the lease-to-own offer. “We wanted to complete the project and ensure that the amenities are functional so that investors don’t have to live on a construction site. With the lease-to-own offer, investors can now have the opportunity to buy and start living in the community from day one.”

Dubai-based Falconcity of Wonders, on the other hand, has launched a  “pay 10 per cent and move in” scheme. The company reveals that it is an extended payment plan for its ready units.

“Under this new payment scheme, customers only have to provide a  down payment of 10 per cent before they move in,” says Alharith Bin Salem Almoosa, Vice-Chairman and Deputy General Manager of  Falconcity of Wonders. “This option is available to buyers of our residential units such as town houses, detached and semi-attached villas.”

He says the bold move has helped the company make payments easier and lighter for their clients. “It also helped clients enjoy moving into their newhomes faster, and this has given investors higher confidence in our project,” says Almoosa. “Clients like it because they save on bank charges ”

Almoosa says Dubai is typically a highly competitive market just like London, New York and other well developed cities, prompting developers to offer innovative options to buyers. “Dubai is not a sluggish market and we introduced this payment plan to meet the requirements of the market and different customers, who need more time to complete their payments and want to move in to their new homes [immediately].”

Considering the rising cost of living and the growing demand for affordable housing, industry experts says schemes such as rent-to-own will garner more momentum with both developers and buyers.

“Tenants can try before they buy where they get to experience the community before taking that first step onto the property ladder,” says Declan McNaughton, Managing Director UAE of Chestertons Mena. “The reduced risk element and the opportunity to save a deposit are also important factors, particularly against a backdrop of increased living costs.”

On the other hand, he says developers have the opportunity to target a larger market segment and generate more sales.

The rent-to-own model is not new and it has been successfully used by  developers in the last decade. “It is undoubtedly a scheme that is viewed as a positive enhancement to re-energise the market in its current lull and re-establish investor confidence.”

Win-win solution

The rent-to-own schemes benefit both tenants and developers. “There are expatriates who have been in the UAE for some years and who are now looking to buy a property, but are finding it difficult due to the current mortgage cap restrictions,” explains McNaughton. “Potential buyers also get to live in the property and experience the local community before actually settling in for the long term.”

It is estimated that more than 80 per cent of expatriates in the UAE still rent rather than buy, so many consider this is a huge untapped market for developers seeking to sell units.

In this set-up, the developer gets an option fee, while it also provides an opportunity to sell at a higher asking price because buyers who cannot own a house in any other way are usually willing to pay based on the assumption that the market will improve. However, industry experts suggest that it will ultimately be the price and the amount of monthly rental payments that will make the scheme attractive.

“Earlier versions of these schemes were not particularly attractive to tenants as the agreed purchase prices were still too high,” says Plumb.

Stevens warns that rentto-own schemes could become complicated for both the buyer and seller, with a number of points to be taken into consideration.

“For renters or buyers, the risks are predominantly concerned with the ability to make the monthly payments, which could ultimately result in forfeiting the right to buy the property,” says Stevens. “The risk of failing to qualify for a loan at the end of the rental period is also something that should be considered before signing a contract, which could result in losing money or prolonged periods of rental.”

The risks to the seller include instances where the renter fails to follow through with the purchase. “There is also the consideration that there is no large lump sum upfront; rather this is a longterm scenario with scheduled rental payments in the beginning,” Stevens says.

Another factor to consider is the sales price, which is usually locked in at the start of the transaction process. That means if the market is on an upswing, house prices may well increase and there is no option to renegotiate, leaving the developer with no other option than to sell at a lower price.

Conversely, house prices may fall and the renter may not end up following through with the purchase, leaving developers with hard-to-shift assets in a downturn period.

To minimise risks, Stevens says it’s important for buyers to ensure that they get sound legal advice before proceeding. For sellers it is important to have a watertight contract in place.

“Developers will tend to use rent-to-buy schemes to move existing stock and will, therefore, be aware of the potential price deviation risks,” he says.

Plumb adds: “If priced correctly and with full offset of all rents paid against purchase price, this could be an attractive proposition. Most people would prefer to stay where they are rather than to move, so if they are given attractive terms then some are likely to go for it.”

Source: Syed Ameen Kader, Special to PW


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