Dubai’s real estate market is appealing to global investors, attracting many buyers and sellers. However, buyers often need bank mortgages to afford property in Dubai, which usually requires a 20% down payment. This can be a significant obstacle for some buyers.
However, Dubai real estate never ceases to amaze us. That said, developers offer rent-to-own properties in Dubai that allow buyers to gradually own a property without a large upfront payment.
In this guide, we will explore rent-to-own properties in Dubai, their benefits, and the legal aspects of purchasing such properties.
What Are Rent to Own Properties in Dubai?
A rent-to-own property in Dubai is a scheme by developers where buyers rent a property for a set period with the option to buy it later. The rent buyers pay during this time counts towards the property’s down payment. Here’s how it works:
- The buyer signs a rental agreement with the developer, who acts as the landlord.
- Both buyer and the developer follow UAE rental laws. This plan is great for people wishing to buy a home in Dubai or UAE without a large-sized initial payment.
- The buyer and the developer agree on the rental period and the amount of rent. The rental period can be as long as 20 years.
- The upfront payment is usually around 5% or less, much lower than the 25% required for a traditional mortgage in Dubai.
Although rent might be higher than average due to this convenience, it can be worth it if saving for a large deposit is difficult. These properties are usually rent-to-own apartments in Dubai.
Agreements Available for Rent to Own Properties in Dubai
The first question that may concern may buyers is that are rent-to-own properties in Dubai even legal? Yes, these agreements are legal in Dubai and UAE while Dubai Land Department has officially launched a rent-to-own service that regulates these types of agreements and develop legal frameworks.
Here are the two types of agreements available for rent to own properties in Dubai.
a) Purchase Agreement
In a purchase agreement, the buyer and the developer agree on
- The monthly rent,
- The total price of the property,
- Its future value on a certain date, and
- The number of monthly payments.
These terms are based on the property’s future price and market trends.
b) Option to Purchase
With the option to purchase, the buyer can choose to either buy the property or keep renting. If the buyer decides not to buy, they can stay as a tenant. There is an option fee, which is non-refundable and depends on the property’s total price.
Benefits of Rent to Own Apartments in Dubai
Rent to own apartments or properties in Dubai and UAE and getting popular due to their various benefits such as.
Benefits for Buyers
Rent to own or lease to own properties in Dubai are beneficial for buyers as well as developers. Here are the benefits for buyer.
1. Lower Upfront Cost
For rent-to-own properties in Dubai, buyers can pay the down payment through monthly rent instead of a large upfront sum. This plan in Dubai lets you avoid saving a big amount for a down payment by offering easier installment options. The initial payment required is much lower compared to a traditional mortgage, and the buyer can pay it in manageable installments.
2. Try it Before You Buy it
The “option to purchase” feature in rent-to-own properties in Dubai allow the buyers to have a test drive before they buy the property. That said, they can live in the property as a tenant and can opt out of the contract if they want later. They can also keep living in that property as a tenant if they don’t want to buy it.
3. Maintenance Cost
During the rent-to-own period, you live in the property as a tenant. Typically, the developer takes care of maintenance while you (buyer) are paying rent. However, this can differ between developers, so it is important to clarify this before finalizing the agreement.
4. Building Equity
As you pay rent each month, you build equity toward eventually owning the property. This setup also protects you from rising property prices, as you will buy the property based on its current value.
Benefits for Developers
Developers also benefit from rent to own properties in Dubai.
Finding Buyers in a Tough Market: This method helps in attracting buyers, especially when selling the property is difficult.
Saving on Maintenance Costs: Depending on the contract, long-term tenants who look after the property can help save on maintenance costs, even if the sale does not go through.
Important Regulations and Points Related to Rent to Own Properties in Dubai
When finalizing a rent-to-own agreement for a property in Dubai, make sure to include the following points:
- Rental Period: Agree on the length of time that you will be paying rent.
- Future Property Value: Set the future value of the property, as it will impact your future payments.
- Penalties: Outline penalties for missed payments or delays in handing over the property.
- Initial Payment: Confirm that the upfront cost is between 5% and 8% of the total property price.
- Contingency Clauses: Address scenarios like job loss, missed payments, or mortgage rejection, especially towards the end of the lease.
- Exit Terms: Define exit terms, especially what happens if you encounter financial difficulties.
- Refundable Down Payment: Specify if any of the down payments will be refundable if the contract ends.
- Property Value Agreement: State the agreed property value clearly.
- Lease Duration: Specify how long the lease will last.
- Title Deed Ownership: Ensure you maintain ownership of the title deed throughout the lease.
- Maintenance Responsibilities: Clearly state who is responsible for maintaining the property during the lease.
Difference between Home Mortgage and Rent to Own Properties in Dubai
Rent-to-own schemes and home mortgages in Dubai have several key differences, and the key difference is the down payment amount.
Rent-to-Own Schemes in Dubai
These plans let you start by renting a property with the option to buy it later. As you pay rent, part of it goes towards the purchase price, helping you save up for ownership. This option is appealing if you are not ready for a mortgage but still want to invest in property. Rent-to-own offers flexibility with various plans available throughout Dubai.
Home Mortgages
For a traditional mortgage, you need to pay at least 25% of the property’s value upfront, as per UAE Central Bank rules. This is not required in rent-to-own schemes, which offer more flexibility. The eligibility criteria and processes for mortgages and rent-to-own agreements also differ.
Rent-to-own vs Lease-to-own
In Dubai, rent-to-own properties and lease-to-own properties have some differences. With rent-to-own, the buyer covers the initial down payment, while lease-to-own agreements cover the entire purchase price. Because of this, lease-to-own deals usually last longer, often between 7 to 10 years, during which the buyer pays in equal monthly installments.
Another difference is how mortgages are handled. Rent-to-own plans are meant for buyers who plan to get a mortgage. In contrast, lease-to-own plans involve a Memorandum of Understanding (MOU) between the buyer and seller, so banks or other third parties are not involved.
Documents Required for Rent to Own Properties in Dubai
For Individuals
- A copy of the Emirates ID.
- A copy of the buying contract.
- For non-residents, a copy of a valid passport
For Sole Establishments
- Trade license copy
- Power of attorney, if applicable
- A copy of the valid Emirates ID and passport for the license owner
For Foreign/GCC Companies
- A valid trade license copy
- A copy of the valid Emirates ID and passport for the license owner
- Power of attorney, if applicable.
- A shareholder certificate copy
- A copy of the (MOA) Memorandum of Association of the company and appendices (translated into Arabic and authenticated by the Ministry of Foreign Affairs).
- A No Objection Certificate from the Free Zone areas, valid for one year (for foreign companies).
For Limited Liability Companies
- A valid trade license copy
- A copy of the valid Emirates ID and passport for the license owner
- Power of attorney, if applicable.
- Shareholder certificate copy
- A copy of the Memorandum of Association of the Company and appendices (translated into Arabic).
Cost of Rent to Own Schemes in Dubai
Transaction Fees: 0.25% of the rent amount.
Sale Price Fees: 2% of the total sale price, buyer and the seller have to pay this fee separately.
Additional Fees
- Innovation fee: AED 10
- Knowledge fee: AED 10 (added to each fee)
Developer Self-Registration Fee: AED 1,000 (for developers).
Process for applying for Rent to Own Schemes in Dubai
To apply for a rent-to-own scheme in Dubai, follow these simple steps:
- Go to the DLD website and select “register for rent-to-own” under the Contract service.
- Enter details about the financing entity and the amount.
- Complete the required information.
- Select your payment method.
- Upload the necessary documents.
- Submit your application online.
Once submitted, you will receive the document via email.
Frequently Asked Questions
What Are the Payment Plans for Rent-to-own Properties in Dubai?
Payment plans for rent-to-own schemes vary because they are set based on the agreement between the developer and the buyer.
Although the DLD provides guidelines and fees for registering, financing, transferring, and cancelling these contracts, each rent-to-own scheme is customized to fit the specific situation.
Where to Buy Rent-to-Own Properties in Dubai?
Rent-to-own properties are becoming very popular in Dubai because they offer financial benefits. Here are some recommended areas to consider for purchasing rent-to-own properties in Dubai:
- Dubai South
- Al Furjan
- Jumeirah Golf Estates
- Business Bay
- Dubailand
- Jumeirah Village Circle
- Al Barsha
- Dubai Silicon Oasis
- International City
What is Lease to Own property in Dubai?
Lease-to-own is a popular method for buying a home in Dubai. You begin by renting a property under a lease agreement. As you make regular rent payments, you eventually have the chance to buy the property at the end of the lease term. This approach allows you to live in the home while working towards ownership and offers a flexible option if you are not ready to pay the full price upfront.
Can I Do Rent-to-Rent in Dubai?
Yes, you can sublease a property in Dubai, but you must follow legal rules. Tenants need to get written approval from the landlord before sub-leasing the property. This helps maintain a good relationship with the sub-tenant and ensures you follow local regulations.
Summing it up
Rent-to-own properties in Dubai allow you to rent a home with the option to buy it later. Here is a quick summary.
How It Works: You rent the property, and part of your rent payments go towards the down payment. The initial payment is usually around 5%, much less than the 25% required for a traditional mortgage.
Legal Options: There are two main agreements:
- Purchase Agreement: Sets terms like monthly rent, total property price, and future value.
- Option to Purchase: Allows you to decide whether to buy or continue renting.
Benefits
- Lower upfront costs.
- Opportunity to live in the home before buying.
- Potential savings on maintenance if the developer handles it.
Requirements: Ensure you agree on the rental period, future property value, penalties for missed payments, and who is responsible for maintenance.
Application Process: Register on the DLD website, provide the required details and documents, choose a payment method, and submit your application online.