PW PW6 7AnalysisAnalysisProperty WeeklyAugust 10, 2016

Property WeeklyAugust 10, 2016

Many ways to own a homeSome developers are offering rent-to-own and other sales schemes to attract buyers. Will others follow suit?

Given the soft market, developers are look-ing at all options to attract a bigger pool

of buyers, particular ten-ants who are planning to buy their own home. A number of attractive schemes such as rent-to-own and “pay 10 per cent and move in” have already started to surface in the market.

“This tactic has been of-fered by a number of devel-opers, including Danube in Dubai and Aldar in Abu Dhabi,” says Craig Plumb, Head of Research at JLL Mid-dle East and North Africa (Mena). The reason behind this, he says, is that the sales market has been slow and as a result developers are look-ing for new ways to attract buyers and sell property.

Although not strictly rent-to-own, there are some similar schemes in the mar-ket. “Developer Danube is offering a 10 per cent de-

By Syed Ameen KaderSpecial to PW

posit followed by 15 per cent in 60 days, with the balance amount payable over 75 equal monthly instalments of only 1 per cent each for its Glitz project in Dubai Stu-dio City,” says John Stevens, Managing Director of Aste-co. “Union Properties also has a payment plan for phase three of its Green Communi-ty West development: 50 per cent upon handover with the remaining balance to be paid over eight years.”

Another project, Dubai South (formerly known as Dubai World Central) has also confirmed that rent-to-own will be part of the incen-tives attached The Villages development. The project, which is expected to have as many as 20,000 homes, will start its first handover in 2019.

“It has also been reported that the Falconcity of Won-ders will have a version of rent-to-own, [while] Al For-

Pictures: Gulf News Archives

san, the Abu Dhabi-based sports resort and housing complex, has come up with a rent-to-buy offer targeting Emiratis,” says Stevens.

Al Forsan Village in Abu Dhabi is offering lease-to-own as an option for its completed villas and town houses in Khalifa City A area. The company says this option was announced to provide UAE nationals with the best community living experience at afford-able prices.

“Our lease-to-own offer has been well received by the investors and they are looking at buying these vil-las for both personal use and investment purposes,” says Rashed Al Qubaisi, General Manager of Al Forsan Inter-national Sports Resort.

Deal for Emiratis

Under this plan, a villa at Al Forsan Village could be purchased and owned for as low as Dh300,000 per year. “We sold several units un-der the lease-to-own scheme at the Cityscape Abu Dhabi show in April. Abu Dhabi market is consolidating and is currently attracting sever-al residents from across the UAE and the region,” says Al Qubaisi.

However, Al Qubaisi says that the lease-to-own offer is solely aimed at UAE nation-als as the project is not locat-ed in a freehold area. Expats are, however, free to rent a villa in the project.

According to him, UAE nationals are keenly pursu-ing the lease-to-own offer. “We wanted to complete the project and ensure that the amenities are functional so that investors don’t have to live on a construction site. With the lease-to-own offer, investors can now have the opportunity to buy and start living in the community from day one.”

Dubai-based Falconcity of Wonders, on the other hand, has launched a “pay 10 per cent and move in” scheme. The company re-veals that it is an extended

payment plan for its ready units.

“Under this new pay-ment scheme, customers only have to provide a down payment of 10 per cent be-fore they move in,” says Al-harith Bin Salem Almoosa, Vice-Chairman and Deputy General Manager of Falcon-city of Wonders. “This op-tion is available to buyers of our residential units such as town houses, detached and semi-attached villas.”

He says the bold move has helped the company make payments easier and lighter for their clients. “It also helped clients enjoy moving into their new homes faster, and this has given in-vestors higher confidence in

our project,” says Almoosa. “Clients like it because they save on bank charges ”

Almoosa says Dubai is typically a highly competi-tive market just like London, New York and other well developed cities, prompt-ing developers to offer in-novative options to buyers. “Dubai is not a sluggish market and we introduced this payment plan to meet the requirements of the mar-ket and different customers, who need more time to com-plete their payments and want to move in to their new homes [immediately].”

Considering the rising cost of living and the grow-ing demand for affordable housing, industry experts

✚ Dubai South

says schemes such as rent-to-own will garner more mo-mentum with both develop-ers and buyers.

“Tenants can try before they buy where they get to experience the community before taking that first step onto the property ladder,” says Declan McNaughton, Managing Director UAE of Chestertons Mena. “The reduced risk element and the opportunity to save a deposit are also important factors, particularly against a backdrop of increased liv-ing costs.”

On the other hand, he says developers have the op-portunity to target a larger market segment and gener-ate more sales.

Alharith Bin Salem AlmoosaVice-Chairman and Deputy General Manager, Falconcity of Wonders

Craig PlumbHead of Research, JLL Mena

Declan McNaughtonManaging Director — UAE, Chestertons Mena

John StevensManaging Director, Asteco

Rashed Al QubaisiGeneral Manager, Al Forsan International Sports Resort

The rent-to-own model is not new and it has been successfully used by devel-opers in the last decade. “It is undoubtedly a scheme that is viewed as a positive enhancement to re-energise the market in its current lull and re-establish investor confidence.”

Win-win solution

The rent-to-own schemes benefit both tenants and developers. “There are ex-patriates who have been in the UAE for some years and who are now looking to buy a property, but are finding it difficult due to the current mortgage cap restrictions,” explains McNaughton. “Po-tential buyers also get to live

in the property and experi-ence the local community before actually settling in for the long term.”

It is estimated that more than 80 per cent of expatri-ates in the UAE still rent rather than buy, so many consider this is a huge un-tapped market for develop-ers seeking to sell units.

In this set-up, the de-veloper gets an option fee, while it also provides an op-portunity to sell at a higher asking price because buyers who cannot own a house in any other way are usually willing to pay based on the assumption that the market will improve. However, in-dustry experts suggest that it will ultimately be the price

and the amount of monthly rental payments that will make the scheme attractive.

“Earlier versions of these schemes were not particu-larly attractive to tenants as the agreed purchase prices were still too high,” says Plumb.

Stevens warns that rent-to-own schemes could be-come complicated for both the buyer and seller, with a number of points to be taken into consideration.

“For renters or buyers, the risks are predominantly concerned with the ability to make the monthly pay-ments, which could ulti-mately result in forfeiting the right to buy the prop-erty,” says Stevens. “The risk of failing to qualify for a loan at the end of the rental period is also something that should be considered before signing a contract, which could result in losing money or prolonged periods of rental.”

The risks to the seller include instances where the renter fails to follow through with the purchase. “There is also the consideration that there is no large lump sum upfront; rather this is a long-term scenario with sched-uled rental payments in the beginning,” Stevens says.

Another factor to consid-er is the sales price, which is usually locked in at the start of the transaction process. That means if the market is on an upswing, house prices may well increase and there is no option to renegotiate, leaving the developer with no other option than to sell at a lower price.

Conversely, house pric-es may fall and the renter may not end up following through with the purchase, leaving developers with hard-to-shift assets in a downturn period.

To minimise risks, Ste-vens says it’s important for buyers to ensure that they get sound legal advice before proceeding. For sellers it is important to have a water-tight contract in place.

“Developers will tend to use rent-to-buy schemes to move existing stock and will, therefore, be aware of the potential price deviation risks,” he says.

Plumb adds: “If priced correctly and with full offset of all rents paid against pur-chase price, this could be an attractive proposition. Most people would prefer to stay where they are rather than to move, so if they are given at-tractive terms then some are likely to go for it.” n

✚ Green Community

✚Al Forsan Village