Developers in Dubai should consider reintroducing rent-to-own schemes as expats are struggling to afford to buy a property in the emirate, it is claimed.

Such schemes were popular during the early 2000s when Dubai was establishing its own property marketplace. They helped those struggling to afford to buy amid stricter regulations designed to cool rising prices.


According to international real estate firm Chesterton, such a move would also inspire confidence in buyers and reduce the risk element in buying into the UAE market.

Although property prices fell considerably (by up to 60% in some locations) during the economic downturn, they have now recovered well. On top of this, new mortgage caps have been introduced which make it harder for expats to get loans as they are required to have a 50% deposit.

‘There are several expats who have been here for years and are now looking at buying a property, but are finding it difficult due to the current mortgage cap restrictions,’ said Robin Teh, country manager, director valuations and advisory at Chesterton MENA.

‘The mortgage regulations have stabilised the market, but at the same time, made property investment unaffordable for most expat residents who usually cannot cough up the deposits required,’ he added.

He explained that the rent-to-own option would make it much easier for expats to buy, as it offers the flexibility to terminate a contract towards the end of the tenure if the decision has not been made to purchase the house without any penalty.

A typical rent-to-own real estate agreement is structured like an option contract. It allows the tenant to purchase the property at a fixed price within a specific period of time. A portion of the monthly rent paid during the lease period is counted towards the down payment on the property. Usually the property is leased higher than the market rate to cover the option price or the deposit that tenant has to pay to activate the option. If the tenant is unable to exercise the option to buy, the owner is then free to rent or sell the property to another buyer.

According to Simon Gray, managing director of Chesterton MENA, rent-to-own schemes have various benefits for both tenants and developers. ‘While sellers get an option fee and potential buyer, tenants get to live in the property and try out the neighbourhood before actually settling in for the long term,’ he said.

‘It also provides an opportunity for the seller to sell the property at a higher asking price because buyers who cannot own a house in any other way are usually willing to offer a higher future price based on the assumption that the market will improve,’ he pointed out.

‘From the developer's point of view, offering a rent-to-own scheme will surely open up an additional pool of potential buyers and is an option worth considering as the market starts to further consolidate,’ he added.

The objective of these schemes will inspire confidence in buyers and reduce the risk element in buying into the UAE market. Such schemes would benefit the investors and sellers in the current scenario, where the property prices have become more stable after exponential growth over the last year,’ he concluded.