Rent-purchases
"Rent-purchases" formulas: a win-win formula for you as a developer and the eventual occupant? An ideal combination of both worlds?
We can no longer ignore it, the sale of residential real estate (and mainly off-plan new construction) is under pressure. After all, increased real estate prices, rising interest rates, and stricter credit criteria are at the root of the decline in purchasing power when purchasing a property (partly compensated by, among other things, wage indexation and stretching of mortgage home loans).
Temporary rental....
Affordable housing will be the challenge for the coming years. In addition, we note that the rental market is already booming. However, many of the tenants still see the rent paid as a lost investment.
As a developer, why not opt to temporarily rent out (temporary cash in) and then sell afterwards, given that the purchasing power and associated start-up capital are currently lacking in many of the Belgians. An observation that may only increase as single people increase proportionally within the Belgian population.
With a view to a subsequent transfer of ownership
Owning your own home is still the dream of many Belgians. The "rent-to-buy" formula is an accessible stepping stone to a sale as it allows the tenant to save some money first and finally buy his dream home. The rental period seems to be the perfect incentive to the final purchase within a period in which the resident gets his finances in order and thus works on his creditworthiness.
Hire purchase, rent-to-buy,... what's in the name? In the first place, it is important whether you rent out the property with a purchase obligation or with a purchase option. In the latter case, the tenant can choose to become the owner of the property by lifting the option. The rents already paid will then be (partially) deducted from the agreed sales price. So no lost investment for the tenant.
In the event of a purchase obligation, the tenant always becomes the owner of the property. However, the question arises: "Will the tenant have the necessary starting budget and corresponding loan available?" What is the value of a purchase obligation if the funds are not finally available? Integrating an option can therefore arouse an extra interest in the tenant, the ultimate buyer.
Rental price and purchase option: what to take into account?
It is important when setting up "rent" formulas that the following variables must be carefully considered:
Purchase price |
Do you set a price, or do you let the price evolve with the index? (health/ABEX index) |
Rental amount |
Are you renting out the property at a higher price than market rent? |
Purchase option (premium) |
A premium for the purchase option can be an additional incentive for the tenant to actually proceed with the purchase. However, this must be proportionately lower than VAT or registration fees. |
Rent settlement |
Will the entire rent be charged at the time of purchase, or only a part? By making the rent count on a degressive basis, you motivate the tenant to buy more quickly. |
Purchase option period |
Are you free to choose within a period when you make a purchase, or is the exact moment fixed in advance? If determined in advance, when exactly: on 1 or at several moments? |
Non-deductible VAT |
How do you deal with the non-deductible VAT if the property is finally sold under registration fees? |
Financing charge |
What financing costs can you settle, and how, since as a developer you continue to finance the property as an owner. |
The aim should be to achieve a "win-win" formula for both the developer and the
specific target group of residents, where feasibility is and remains a challenge. Transparency is very important in this respect, as are conclusive legal contracts (rental – option agreement,...). Overly complex formulas, settlement and indexation methods can deter tenants/buyers.
Conclusion
"Rent-purchase" formulas are certainly worth, considering to structurally support affordable housing and can be a partial solution for the developer if we want to compensate disappointing sales in the short term with interim rental income.
A "rent-purchase" formula works well only if it has a carefully planned beginning. That is why you can turn to Voka and our specialised partner Deloitte Private for maximum support.
*Median house price vs interest rate at 10 year source: NBB, Statbel, ING (1/09/2023)
