Can the rent-to-own scheme solve the dilemma of Lebanon's subsidized loans?

The rent-to-own scheme is more complicated than renting alone and must be approached with precaution in order to protect one’s interests.
by Wissam Moubarak

12 October 2018 | 13:05

Source: by Annahar

  • by Wissam Moubarak
  • Source: Annahar
  • Last update: 12 October 2018 | 13:05

The rent-to-own agreement can be excellent for homeowners who are not financially ready (HO)

BEIRUT: The Lebanese real estate market has recently had to confront quite the economic dilemma. Ready-to-buy products are stagnant while acquiring new assets is a major challenge. The central bank’s suspension of subsidized loans has resulted in pushing most buyers out of the market, which has left developers – be it large or small – with a mind-bending predicament: who can afford to buy today?

While this may seem like the perfect situation, it does carry its risks. The rent-to-own scheme is more complicated than renting alone and must be approached with precaution in order to protect one’s interests. It should be made as part of a plan to own a home, otherwise, it ends up costing more money. In the case where a buyer changes his mind in the future, extra money paid such as the option fee will have to be forfeited.

In the case where a landlord stops making mortgage payments and loses the house as a result through foreclosure, a nasty legal battle might ensue; after all you do not yet own the property meaning there is no total control over it. The agreement should address all scenarios before one signs, and one must ensure there are no late payments as one may lose the right to purchase.

The rent-to-own agreement can be excellent for homeowners who are not financially ready; it gives them many years to improve credit and save money while “locking in” the house. It still does not solve the case where people are unable to get mortgages, especially in very high-cost markets, but will do the trick for those who can.

If you decide not to purchase the property at the end of the lease, the option expires and you can walk away from it unless you have signed a lease-purchase contract. It is the lease-option contract that allows the option to buy without obligation; that is why it is a good idea to review the contract with a real estate attorney before signing anything. It also comes in handy to have a real estate agent in the loop before committing; they can guide you as to the credibility of the developer, and the conditions of your house-to-be.

Rent-to-own agreements should specify the purchase price when the contract is signed; it is often at a higher price than the current market value. In other cases, the price is determined when the lease expires based on market value then. The pitfall is that if the price of the home goes down considerably, then the renter would have been overcharged. We do know however from experience that the Lebanese real estate market is quite sturdy; the probability of a considerable drop in prices is significantly low. In any case, if property values plummet, the renter can remain a renter until the agreement expires. If values rise, then the rental payments count toward a home purchase within a specific time period.

Wissam Moubarak is the Country Manager of Propertyfinder Lebanon – part of the Propertyfinder Group, which was established in 2007 with the aim of bridging the gap between brokers, developers, and consumers. 

The views expressed in this article are those of the author and do not necessarily reflect the position of Annahar.

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