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Tight mortgage criteria introduced to cool the real estate market have become a big stumbling block for expatriates planning to buy a home. Keen to own a property, they often opt to stay in leased houses, unable to cough up the down payment for a house.
With tight market conditions and a slowdown in the uptake of properties, rent-to-own schemes are expected to make a comeback in Dubai and Abu Dhabi.
The rent-to-own scheme allows a tenant to purchase the property rented out to him at a fixed price within a specific period of time, mostly three years. A portion of the monthly rent paid during the lease period goes towards the down payment of the property.
For example, if a property developer introduces the rent-to-own scheme under a three-year plan, homeowners will pay yearly rent which will be fixed from the start of the agreement. If the tenant decides to buy the property at the end of the plan, 100 per cent of the first year’s rent, 90 per cent of the second year’s rent and 80 per cent of the third year’s rent will go towards the down payment of the property.
The scheme offers relief to homeowners who are cushioned from paying hefty down payments. The rents act as forced savings being utilised in buying the property.
The scheme also provides the tenants with a feel of the neighbourhood before taking the final call on whether it is good enough to buy a property there. They get to understand the workings of the owners association, service fee structure and utility charges. There is also flexibility for both parties because if the tenant refuses to buy the property, the developer is free to rent it out or sell it to another buyer.
Before finalising any deal, it is essential for any tenant to carefully go through the contract clauses to ensure the sales price is pre-determined and the tenant will not be affected if the market prices escalate in the future.
* Rent-to-own schemes allow property purchase at fixed price and period
* It gives the flexibility to terminate the contract towards the end of tenure
* Buyers can try out the community before settling down for the long term
Source: S. Dhar, Special to Properties
The writer is a freelancer