Dubai real estate: What happened to rent-to-own properties? Experts weigh in

Here is all you need to know about the current rent-to-own property segment in Dubai’s booming real estate market In the rapidly changing real estate market of Dubai, the rent-to-own (RTO) model once popular as an accessible path to home ownership, is being reassessed as Dubai’s property market undergoes significant transformations, according to industry experts.

“In the dynamic landscape of Dubai’s real estate, the rent-to-own property market is currently in a unique position. While RTO models once seemed like a promising alternative to traditional home buying, the current buoyant market conditions have shifted priorities

According to Singh, the “strong demand for rapid sales at premium prices have reduced the necessity for RTO schemes.” However, Artaches Grigorian, Broker at Whitewill Dubai believes that the RTO market is “experiencing significant growth” driven by rental costs and the rising desire among tenants to become homeowners, “without the need for a large downpayment.”

“This market offers a viable entry into property ownership and stable income for landlords,” he said.

Amid the increasing rents in the city’s booming real estate market, residents are seeking investment options as monthly rent payments can match up to mortgage costs. In May, Arabian Business reported on the increasing number of tenants choosing to downsize apartments or buy in affordable areas, driven by the increasing rental prices.

“In JVC, you can buy an affordable property where today’s monthly mortgage payments can match yesterday’s monthly rental payments,” said Louise Heatley, Owner and Managing Director at Exclusive Links Real Estate Brokers.

Changes in demand for rent-to-own properties in Dubai

In recent years, interest in rent-to-own properties has evolved. “The demand for rent-to-own properties in Dubai has surged in recent years as it is an attractive option for both renters and buyers. In the first three months of 2024, there has been an increase in leases converting into sale and purchase agreements,” Grigorian said, highlighting key trends which include, economic factors, market adoption, rising rental prices and more.

Key RTO trends

• Rising rental prices: Increasing rental costs in areas like Downtown Dubai and Dubai Marina have made traditional renting less appealing. Many tenants now prefer rent-to-own to stabilise housing expenses and work towards ownership.
• Economic factors: Economic uncertainty and the high upfront costs of traditional home purchases make rent-to-own schemes attractive. These schemes allow tenants to avoid large down payments and build equity over time.
• Regulatory support: Adjustments by the Real Estate Regulatory Authority (RERA) have encouraged rent-to-own agreements, helping tenants manage housing expenses and providing landlords with secure investment options.
• Market adoption: The concept has gained momentum in upscale and mid-range neighbourhoods. Developers and landlords offer these schemes to attract long-term tenants and ensure a steady income stream.

On the contrary, Singh believes that the purchase model despite initial enthusiasm has now lost attractiveness due to “Dubai’s real estate market thriving post-pandemic” which has led to investor preference “to purchase properties outright.”

RTO buyer benefits

• Lower initial financial commitment: RTO allows buyers to move into a property without the hefty upfront payments required by traditional purchases.
• Equity accumulation: During the rental period, buyers can build equity that contributes towards the purchase price.
• Assessment period: Tenants have the opportunity to evaluate the property and their financial situation before committing to a full purchase.
• Accessibility: For those unable to secure traditional financing at present, RTO provides a more accessible route to homeownership.

“In today’s Dubai market, traditional buying stands out over rent-to-own arrangements. Immediate purchases are preferable, allowing buyers to benefit from property appreciation in a strong market. While rent-to-own provides unique benefits like equity building and reduced initial costs, its appeal diminishes when financing is accessible, and property values are rising quickly,” Singh said.

Adding that, renting remains an option for those not yet ready to buy, but the dominating market trend heavily favours outright property purchases.

However, Grigorian argues that, “The steady increase in property prices makes it difficult for potential buyers to afford large down payments, thus driving interest in rent-to-own schemes, which spread the cost over time. Additionally, escalating rental costs make the predictable expenses of rent-to-own agreements more appealing.”

“This market offers a viable entry into property ownership and stable income for landlords,” he said.

Top rent-to-own property areas

• Business Bay
• Downtown Dubai
• Jumeirah Lakes Towers
• Dubai Marina
• Dubai Hills
• Jumeirah Village Circle

In addition, he emphasised on the benefits for those with lower credit scores, with RTO providing the opportunity to “improve credit scores during the rental period, making it easier to secure a mortgage later.” The investment strategy could also prove to be beneficial as maintenance and repairs are “often shared between the tenant and landlord, reducing financial burdens.”

Challenges for RTO buyers and sellers

According to Singh, despite the potential benefits in the rent-to-own market, there exists relevant challenges for both sellers and buyers:

For buyers:

• Complex Contracts: Navigating the intricate terms of RTO agreements requires careful attention and sometimes legal guidance. Terms of the contract need to be reviewed carefully as it may be misleading and at times the contract is binding and then the buyer ends up having to purchase the property regardless.
• Higher Monthly Costs: RTO payments typically include a premium over standard rents, reflecting the option fee for eventual purchase.
• Risk of Non-Purchase: If buyers decide not to buy or cannot secure financing at the end of the term, they risk losing the premiums paid.

For sellers:

• Extended Timeframes: Sellers must wait through the rental period before the sale completes, which can impact their financial flexibility.
• Uncertainty in Sale: There’s always the possibility that tenants might not exercise their purchase option, leading to potential re-listing of the property.

Looking ahead, the viability of rent-to-own properties in Dubai will “largely depend on market conditions,” Singh said, adding that, “should the market cool or economic conditions shift, RTO could re-emerge as a flexible alternative for those seeking gradual entry into homeownership.”

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