• Friday, Feb 03, 2023
  • Last Update : 09:54 am

Rent-to-own: Revolutionary or redundant?

  • Published at 10:32 am March 17th, 2020
bproperty-issue 22

The “rent-to-own” approach to residential real estate has the capacity, if implemented properly, to be the future of the country’s housing sector

Wanting to buy a home is neither surprising nor impossible. But, having the means to do so is not always present at times. Sometimes, which is really rather many a times, we come across something that we instantly fall in love with but cannot make for due to financial constraints. For a lot of items, there are the easy monthly instalments or EMI feature that enables people to own and use it by paying its price in small amounts for a period of time. Homes or properties have that too. You will always find many developers offering such monthly instalments for their residential projects that make owning them easier.

However, this still leaves two particular problems for some hopeful homeowners — first, what if the property you want to buy is a pre-owned home or independently constructed, and second, if taking a home loan is the only option going forward, what if the instalment amounts are more than you can afford right now? If you live in Bangladesh, chances are, you would have given up on owning a home when faced with such a scenario even if you try to take a home loan since a lot of them fall out. But if living in the US, Australia or some other country, you may have been able to come up with an arrangement for “lease-purchase” without resorting to home loans.

The term “leasing” is associated only with commercial property or workable land in Bangladesh. Combining the concept with residential properties is, as far as we can tell, unheard of. But introducing the concept of “lease-purchase” to the real estate sector of the country and the masses — well, that is unfathomable at the moment. That should not be the case though. The idea is a solid one. If you don’t have the money or the means to pay the price of a home immediately, yet, want to ensure you will be its owner in the near future, maybe you can come to an arrangement with the seller — where you rent the property for a period of time, at the end of which you can pay an additional amount and become its proud owner.

But how would this work in real life, especially in the context of Bangladesh? Surprisingly, setting the terms for such an arrangement may not be too difficult even in this country. The majority of this “leasing-purchase” would rely on a legally-binding contract that would be a combination of the existing property purchase and residential rental contracts operating in the country.

Similar to rental agreements, the landlord-seller will rent out their property to a tenant-buyer for a fixed rent amount. This could be on the basis of the property’s value or the selling price which the tenant-buyer would agree on. Additionally, the landlord-seller would also set a tenure for renting as well, which will determine when the tenant-buyer would have to make the remaining payment equivalent of the property price. And once such payment is made, the property’s ownership will be transferred to the buyer.

In short, the two parties, the tenant-buyer and the landlord-seller, would come to an agreement on the rent tenure, monthly rent amount, selling price and responsibilities of both parties before and after the purchase is completed. Furthermore, similar to security deposits in rental situations and booking money in real estate purchases, the landlord-seller may ask for a mutually set amount from the tenant-buyer, which would be deducted from the final payable amount when the contract is signed.

This “rent-to-own” approach to residential real estate has the capacity, if implemented properly of course, to be the future of the housing sector of the country. In an ideal situation, this can be beneficial for a lot of tenant-buyers as well as landlord-sellers. A potential buyer would not have to jeopardize their immediate financial stability to pursue something they desire.

Taking out a home loan at the wrong period of your life can be a burden that haunts you for decades to come — as is settling for a less than desirable home. They would also not have to rely on the whims of the property market — which, to be fair, can be advantageous for both the buyer and the seller. Generally, property prices tend to move upwards in Bangladesh. However, Bangladesh has experienced a recession in the past where the housing market took quite a tumble. By agreeing to a “rent-to-own” approach, both parties can ensure they buy and sell a property at a fair and just price.

Another surprising benefit can come to the owners who are not yet ready to sell off their properties but want to in the near future. The “lease-purchase” agreement provides a safety net for the seller where they can enjoy the benefits of a steady income before a large payday. And for buyers, they will have a better and more accurate notion of their goal — that is visible and concrete — to spur them on forward.

But, then again, that is the ideal situation, and things in Bangladesh do not usually tend to be ideal. There is always a risk of forgoing commitment by either party that can leave the other devastated both financially and psychologically, since there is no “formal” precedence for such a scenario. In theory, this approach to housing has a lot of benefits for everyone. In practice, if we go by the examples of other countries, this is, undoubtedly, a viable and feasible solution for a specific portion of the market segment. In Bangladesh, well, like all things, it will probably be up in the air. But, we can always hope!

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