New Zealand’s new Labour-led Government is reported to be launching the rent-to-own home scheme. The exact details of the scheme isn’t clear at this stage but generally this unique concept might sound appealing to those who are unable to secure finance to purchase a home.
For those unaware, Rent-to-own or rent-to-buy schemes are effectively leasing arrangements, which provide for the rental of a property for an agreed period of time, plus additional payments, and at the end of a set time, the renter has the chance to buy the property.
The scheme on the face of it sounds appealing to the many Papua New Guineans who are having great difficulty in realizing their dream of owning a home.
One of the “benefits” of this scheme is that renters don’t need to come up with the substantial deposit requested by finance companies. In fact, renters may not need the help of a bank in the initial stages.
The concept provides an agreement on the final purchase price, which means that if the potential buyer decides to buy the property at the end of the lease period, the price is set. It seems like a “too good to be true” kind of concept but it’s doable.
Basically, you enter into a lease agreement with the vendor for a certain period and on expiry of that period, you as the renter can exercise the option of buying the property for whatever price that was agreed on.
During the lease period, the renter is normally responsible for payment of most of the outgoings such as maintenance, council rates, insurance on top of rental payments.
Many Papua New Guineans would welcome this scheme because being able to save for a deposit is increasingly out of reach for many would-be buyers.
The concept however isn’t as straight forward as it sounds and renters need to be aware of some of the risks and pitfalls of the scheme.
One of the most obvious risks about this scheme is that if anything goes wrong before expiration of the lease period, you could lose a substantial amount of money. Furthermore, during the lease, the title is held by landlord and should there be any problems in the lease that could result in its termination, it’s possible that all the money you’ve paid in rent as form of a “deposit” could vanish leaving with little or nothing in the rental you’ve paid as “equity”.
Ultimately, it’s a scheme that renters need to obtain specific legal advice on before embarking on the scheme.
The concept would also require the landlord to agree to it which in itself can be quite difficult as many vendors prefer to opt for the traditional way of sale and purchase rather than this rent-to-own scheme.
Seek legal advice if you ever find yourself in a situation where there is an opportunity for you to rent-to-own.