Done deal: Innovative financing brings more people into the market


Faced with challenging conditions in the real estate market, some property developers in the UAE have devised a number of incentives in order to attract buyers. Some are offering loan-repayment schemes to new buyers to facilitate purchases, such as rentto-buy options that enable people to make smaller down payments. Rent-to-buy schemes have a legal basis in Islamic finance jurisprudence and are regarded as a form of ijara (leasing). The government is also stepping in with financing solutions, offering grants and attractive loans for Emirati citizens to boost home ownership rates.

Loan Arrangements

The growth of rent-to-buy finance schemes is, in part, a reaction to moves by the Central Bank of the UAE (CBUAE) to create buffers to reduce the overexposure of banks to the real estate market. In March 2020 the CBUAE updated its regulations on loan-to-value (LTV) ratios that determine the size of mortgages banks can offer. The regulations stipulate that citizens must have a deposit of 25% of the value of a property to obtain a mortgage of up to Dh5m ($1.4m), while expatriate residents must have 30% of the value. For properties bought off plan, banks can only lend 50% of the total value of the property, with the potential buyer required to pay the remaining half.

While the regulation was designed in order to protect the financial security of banks, it also meant a number of potential buyers were excluded from the market, which had a wider dampening effect on real estate. “As things stand, LTV ratios can be a barrier for first-time buyers trying to get on the property ladder, as they may not have the money needed for a down payment,” Christopher Taylor, CEO of mortgage provider Abu Dhabi Finance, told OBG. “If lenders could develop mortgages based on more risky LTV ratios – with the risk reflected in higher interest rates for mortgagees – on a caseby-case basis, the market could be transformed. It would create a mutually beneficial solution for first-time buyers who qualify for the mortgage and the lenders who give them a loan, making property more affordable and giving a boost to the real estate market in the process,” he added.

New Incentives

Aldar Properties’ West Yas development offers a rent-to-buy scheme in which customers pay Dh220,000 ($59,900) a year for a five-year period, as well as management fees of Dh15,000 ($4100). After the total payment of Dh1.2m ($326,600) is made, the home becomes the property of the renter. Meanwhile, in September 2019 Bloom Holding began handing over 304 residential units at its newly built Soho Square on Saadiyat Island to homeowners and investors. The company has been looking to innovative financial products for future growth.

Government Loans

The government also provides assistance, with Abu Dhabi Housing Authority (ADHA) managing lending programmes through which citizens benefit from housing grants, as well as low- or zero-interest loans for the purchase, construction and renovation of a home. Prospective homeowners can obtain between Dh1.25m ($340,250) and Dh2.25m ($612,450) for ready-built homes under ADHA’s home-purchase loans. The loans are repaid in monthly or flexible instalments, with a maximum tenor of 25 years and a two-year grace period. Between its establishment in 2013 and mid-February 2020 the housing authority offered 30,632 housing loans worth Dh61bn ($16.6bn). With both the private and public sectors working to facilitate home ownership through innovative financing options, more Emiratis will have the ability to purchase property in the coming years. Looking ahead, it will be crucial to build upon the momentum that has been gained from previous efforts to develop the market and create financing options that are secure, attractive and meet homeowner needs.