Rent to Own in Dubai is the most happening thing. It is a scheme where a tenant tends to buy a house after renting it for a few years.
Under the Rent to Own scheme, the owner of the house would give the tenant a right to buy the house in the next few years for a certain amount of money according to the current house value. The buyer and seller would sign a lease contract adding the purchase value according to the current market value of the house. The lease would be 3-4 years and the tenant can purchase the house as per the fixed price of the contract or leave the house after the contract time has ended. If the tenant wants to buy the house, the rent paid by the tenant till date would be deducted from the selling price of the house.
The concept of Rent-to-Own is currently blooming in Dubai. Even though some of the terms and conditions may vary from seller to seller. The rents in the rent-to-own scheme may differ from the regular rents. This is to make the seller risk-free if the buyer exits don’t buy the house at the end of the contract.
Rent to Own Agreement
Usually, Rent to Own works with two different kinds of agreements, that is,
Option to Purchase: Under the “Option to Purchase” agreement, the buyer and seller sign an agreement with a deadline to purchase the property. The buyer pays an “Option Fee” to the seller. By the end of the deadline as per the agreement, if the buyer decides NOT to purchase the house, then he loses the “Option Fee”.
Purchase Agreement: Under the “Purchase Agreement”, the buyer and seller can mutually lock in a fixed price for the property purchase or can decide the price according to the market in the future.
If the buyer is planning to go with the price according to the market in the future then he must ensure to check historical appraisals of the market and decide.
Advantages of Rent-to-Own in Dubai:
Considering the advantages of the Rent-to-Own scheme, most of them are opting for this in Dubai. This scheme provides equal benefits for the seller and the buyer as well. Some of the well-considered advantages of Rent-to-Own are:
Down Payment– The first and foremost thing required to purchase a house is down payment. It is not easy to save for down payment unless there is a proper planning involved. Rent-to-Own helps you save for down payment. You can pay the seller in the form of rent which would, in turn, become the down payment by the end of the contract. Apart from paying the rent, it is important to save some money in order to bear the hidden fees and charges to purchase a house.
Credit Score- Credit score plays an important role while applying for a home loan in Dubai. If you have signed a rent-to-own contract in Dubai, then you need to start improving your credit score before the contract ends. Your credit score should not be a hurdle when you work hard all these years by paying additional rent than required.
Also, check: 5 Myths about your Credit Score
Price of the house– Currently, the real estate market is in a moderate state in Dubai. According to the experts, Dubai Expo 2020 will have a greater impact on real estate. It is definitely a good time to lock the price of a house you like the most.
Feel home– Moving to a different house after staying up for several years is not easy. Once the agreement is signed you can start planning for the maintenance, repairs, extensions and save for it accordingly. This is like a test drive before purchasing a car. You can know how comfortable are you in that house.
Money on rent– Money on rent is certainly dead capital. If the rental money is paid on a mortgage you will be an owner of the house in the next few years. Purchasing a house is never a bad idea if you are planning to settle in that particular region.
Disadvantages of Rent to Own in Dubai
When there are advantages, there would be disadvantages too like,
- What if your home loan gets rejected?
- What if you lose your job?
- What if the property value is lower than the agreed fixed price?
- There can be legal clauses you need to face if you don’t purchase the house as per the agreement
But these disadvantages can be avoided if you read the agreement properly, be determined and work according to that.
Important clauses to be noted before signing the contract are:
- House value: Make sure the house value is the amount you have agreed to.
- Years: Check the number of years on the contract
- Down payment: Make sure you check that your total rent amount would be deducted from the purchase value or only a certain percent of it would be considered.
- Refundable or Non-refundable rent: Some sellers refund certain percent of down payment if the buyer exits the contract. Check whether the down payment is refundable or not.
- Exit terms: Check the exit terms and conditions
- Additional costs: Check if any hidden charges are added
- Job loss: Look what if you lose your current job
- Mortgage rejection: Check what if your mortgage gets rejected at the time of purchase
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The concept of rent-to-own may seem new to Dubai residents but it is a good scheme for people who are planning to buy a house in the next 4-5 years. Many well-known builders are implying this scheme in their current constructions. Just make sure you have read the terms and conditions properly to avoid misconceptions.