Everything You Need To Know About The “Rent to Own” Scheme in Dubai

Dubai attracts a large number of visitors each year due to its thriving economy, tallest buildings, world-class attractions and monuments. Tourists, entrepreneurs, shoppers, job seekers, and people searching for a new place to live are among them. It is now feasible to live in Dubai and other emirates for an extended period of time because the UAE now offers long-term residence in the shape of silver and golden visa programmes.

Having said that, the most significant barrier here is the high home costs. It goes without saying that real estate in Dubai is pricey, especially when it comes to ready-to-move-in apartments. Even if you buy it in a remote location, you will have to burn a hole in your pocket. There is, however, a method to purchase a house in the emirate without breaking the bank. In this article, we will discuss the rent-to-own strategy in Dubai. Let’s learn everything we can about this strategy right now!

• What exactly is a Rent to Own Scheme?

A rent-to-own arrangement is essentially a contract between the buyer and the property developer/owner. In this system, the rental payments made throughout the course of the agreement total the down payment for the property. This method eliminates the buyer’s need to manage both the rent on one house and the down payment on another property they want to purchase, as it combines both possibilities for them.

In layman’s terms, a rent to own arrangement allows the buyer to acquire the home they rented when the agreement expires. Aside from the amount they have already paid (as a down payment), they can acquire a home mortgage loan for the remainder of the money or terminate the arrangement without any obligation.

• Rent to Own Agreement Varieties

In general, rent to own plans have two types of agreements. They are as follows:

• Purchase Option

The buyer is required to pay an option fee at the time of contract signing, according to this agreement. It is often a percentage of the total property values agreed upon by both parties. This agreement says that the buyer retains the right to purchase the property at a later date. If the buyer does not purchase the property for any reason, they forfeit the option money, which is non-refundable.

• Purchase Contract

There is no option cost in this agreement. At the time of contract signing, the buyer and developer agree on the conditions, including the fixed purchase price. In certain circumstances, the purchase price of the property is not determined before the agreement is signed. It is determined at an agreed-upon future date depending on market conditions.

• The Legal Importance of Dubai’s Rent-to-Own Scheme

In Dubai, it is a legal arrangement. The Dubai Land Department (DLD) has created a rent-to-own (ijarah) service to facilitate transactions involving this program. It is essentially a specific title deed record that offers a clear legal framework for rent to own transactions and negotiations.

• What Is the Difference Between a Home Loan Mortgage and a Rent to Own Scheme?

Many individuals confuse a rent-to-own arrangement with a house mortgage loan since both include recurring payments needed to purchase a home. However, there are three fundamental differences between these two methods.

• Initial Investment

Both rent to own and mortgage alternatives necessitate a down payment. It is referred to as a down payment in the first choice. However, the amount paid as an upfront expense varies greatly in both of these circumstances. In the event of a bank mortgage, the buyer is obliged to deposit a minimum of 25% of the purchase price as a down payment, according to UAE Central Bank regulations. The initial cost for a rent to own arrangement, on the other hand, ranges between 5% and 8% of the property value.

• The Objective

As previously stated, under a rent to own arrangement, the buyer pays periodical instalments in the form of property rent. The house loan mortgage option, on the other hand, does not include a rent aspect. The complete property price is paid in monthly installments. In the former case, the instalments are utilized as a down payment.

• Other Charges

Aside from the down payment, purchasing a house with a home mortgage loan has additional upfront costs. These include DLD fees (about 7 to 8% of the purchase price), bank costs, real estate agency commissions, and so forth. Buyer costs (2 percent of the selling price), title deed issuance charge (AED 250), map issuance fee, 0.25 percent of the rent amount, and knowledge fee (AED 10 added to each fee) are among the expenditures faced by the buyer when entering into a rent to own arrangement, according to DLD. In addition, they must pay a registration fee. If the property is less than AED 500000, the fee is AED 2000. The registration cost rises to AED 4000 if the property price surpasses AED 500000.

The Most Important Advantages of the Rent to Own Scheme

• A Simple and Low-Cost Way to Purchase Real Estate

Because there is no big down payment required, this program allows a renter to become the owner of the property in a simple, hassle-free, and cost-effective manner.

• It is not associated with the complications of a home loan mortgage

Obtaining a house loan may be a difficult process. It is necessary for the candidate to fulfill tight qualifying standards. Failure to do so may result in the rejection of your application. These concerns do not arise with a rent to own arrangement because the procedure is quite simple.

• Before purchasing a home, spend some time living in it

The rent to own arrangement is advantageous in that the buyer may live in the house before purchasing it. It allows them to experience living in the house and ensures that it suits their needs.

• Easy Exit

In general, once the contract has matured, a renter can easily depart the plan without purchasing the property. They are not required to purchase the property; but, if they have paid the option fee, the developer will keep it.

Things to Consider Before Investing in a Rent-to-Own Scheme

• In this plan, the rent is frequently more than the market value
• After the agreement expires, you must qualify for a home mortgage financing in order to complete the acquisition.
• The payment schedule for rent to own plans varies per property. It is based on both parties’ mutual understanding and agreed-upon terms and conditions.

The contract should be properly written. It should include the following:

• The property’s purchase price (if both parties have agreed to decide it initial stages)
• Contract duration, title deed ownership
• Terms of exit
• Penalty clause in the event of late repayments
• If both parties agree that the developer would reimburse a set percentage of the down payment if the buyer cancels the contract, this should be included in the contract.
• Clauses dealing with mortgage rejection (after the lease term expires), late payments, job loss, and so on.
• Terms used in property management. It should clearly clarify who is responsible for the property’s care and upkeep during the term of the contract.

It is critical to comprehend the contract’s terms and conditions. If any departure provisions are specified in the agreement, you should be fully aware of them.