Rent-to-own at the Sun Tower a first for Abu Dhabi

Sorouh Real Estate offers the capital's first rent-to-own scheme as developers try to jump-start sales.

It is unknown how many apartments in the Sun tower will be rent-to-own. Sammy Dallal / The National

Sorouh Real Estate is rolling out the capital's first rent-to-own scheme as developers look for new ways to jump-start sales, with more than 16,000 homes expected to come on to the market this year.

Abu Dhabi's second-largest developer is offering the ownership option on apartments in Sun Tower on Reem Island. Renters will be offered the option to buy their apartments in the 65-storey tower after three years of paying rent at a fixed price.

Buyers will be able to convert 90 per cent of the rent paid into equity.

"The sentiment in the market is fairly poor," said Paul Middleton, Sorouh's executive director of sales and marketing. "In any market, when the sentiment is poor, you have to bring different products to the table."

Rental and sale prices in Abu Dhabi have been steadily dropping as more homes are built. The 16,000 units expected this year compare with 8,200 units completed last year, according to the property consultancy Jones Lang LaSalle.

Average rents fell 14 per cent last year, with older neighbourhoods reporting drops of 35 per cent, Jones Lang LaSalle reported.

Variations on the rent-to-own approach have been used in Dubai. But Sorouh's deal is a first for Abu Dhabi, which is wrestling with a regional slowdown in sales.

The rent-to-own offer is "a good move", said Paul Preston, the managing director of Elysian Real Estate. Sorouh's prices on the apartments are still higher than the resale market, averaging about Dh1,500 (US$408) a square foot.

But Mr Preston said people may be open to buying at that price with the advantages of the lease-to-own deals.

"Financing is still quite expensive," he said. "This offer gives people a chance to buy if they can't get financing from the bank."

Sun Tower is half the Sun and Sky complex, which started handing over apartments to buyers in April. Eighty-five per cent of the 680 apartments in the tower have been pre-sold; Sorouh controls the remaining 102 units.

Under terms of the deal, the rent will be fixed for three years and the buy-out price set in the initial agreement. Rents start at Dh89,000 a year and can be paid in four cheques.

The rents offered by Sorouh through the programme are about 5 per cent higher than the market, agents say. But that is offset by the option to pay in four cheques instead of the typical one or two.

Sorouh also has promised to pay the agent's commission on sales.

Rent-to-own "is an option for people who are little cautious at the moment", said Andrew Covill, the head of investment sales at LLJ Property, an estate agency. "It gives them the option to freeze a price."

Prices may be better in the secondary market, but the rent-to-own deals would allow a prospective buyer to settle into the apartment before buying, Mr Covill said. He added that few buyers wanted to commit to a purchase with the market in a state of flux.

The developer has yet to decide how many units it will offer through the rent-to-own programme.

"We know there is a latent demand for purchases in the market, but people are not prepared to take on the risk of mortgages," Mr Middleton said. "This gives people access to the property at a low risk."

Buyers in traditional schemes through Sorouh typically need to make a downpayment of at least 15 per cent of the purchase price. Lenders often require as much as 50 per cent down.

Last year Sorouh introduced a lease-to-own deal for commercial property space in the Sky Tower.