Why rent to own property deals are popular in Dubai?

While housing is an economic necessity for owners/tenants on the one side and the government on the other, real estate developers everywhere come with innovative business tactics to get more people to move into built homes. In Dubai rent to own scheme has been introduced with gusto and has turned out to be the most effective business tactics.

The largest real estate developers such as Nakheel, Emaar and Azizi Developments are in the forefront bringing more UAE residents and the Expats into housing market where they can move into their dwellings with a smaller down payment than what is required for mortgage financing. This down payment may be 5% or negotiable according to the financial plans of the would be owners. It compares favourably with 25% equity value insisted by mortgage lenders.

In the case of expats there is a small snag; they prefer to rent apartments as tenants as they are not sure how long they are going to live in Dubai. The recent announcement that 10 year visa is made available and as a resultant fact, companies are pegging into longer term employment due to rising cost in recruiting skilled employees have given unexpected boost for longer than usual stay of expats.

Seizing up the market potential, real estate developers have come out with simple studio and 2-room apartments to expensive beach front villas that are available on rent to own basis. There are number of locations such as JVC, sports City and Palm Jumeirah with this facility.

Essentially rent to own works well with long term residents. Yet even those who are going to stay less than 10 years could opt for rent to own contract because at the time of leaving they can transfer the contract to another potential buyer with profits. Incidentally, these schemes stretch from 10 to 15 years in general with future rentals guaranteed by the developer.

Major plus point  for rent to own scheme as business tactics is that it saps over-supply of housing units either resulting from economic down swing or property down-turn. In fact it lubricates the marketing engine to function smoothly amidst financial crunch.

It does not mean these schemes are without any disadvantages. One big negative is the high premium that is added to the cash-price to absorb interest cost which in turn is spread over a period say 15 years. The monthly rental therefore contains the interest factor and is usually around 10 to 20% higher than rents of similar properties on tenancy agreements.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist