Answer to a question from a reader

How do rent-to-buy properties work?

The short answer

There are two lease contract options: lease option and lease purchase.

The long answer

The Ooba website says that rent-to-buy is becoming especially appealing to young buyers who aren’t able to qualify for a bond, as the rent-to-buy leasing option provides a window of time to build up a deposit and a healthy credit history.

The Ooba website quotes Mr Dyer's explanation that “an upfront option fee will need to be paid, plus additional ongoing option fees, which are on top of the agreed rental payments. These fees help the buyer build up a deposit, so at the end of the rental period, they have a smaller balance to pay on the agreed property value if the purchase goes ahead. However, if it doesn’t, the vendor will keep the fees. The normal rental payments don’t go towards the sale as they’re covering the landlord or owners.” 

The Private Property website explains the types of lease agreements involved:

“The lease contracts entered into in this regard are lease option and lease purchase. The difference between the two options is that the lease option grants you the flexibility of refusing to buy at the end of the lease agreement. In short, you are under no obligation to buy. Lease purchase on the other hand puts you under obligation to buy as agreed initially.”

But the Private Property website also gives a list of things to consider before entering into a rent-to-buy arrangement, which include:

• There is always the risk of losing money should the seller choose not to sell the property

• Should you find a better home and neighbourhood, it will be difficult to change your mind because you are already tied to a contract

• Should property prices fall, you are likely to buy a property at a relatively higher price than the prevailing market conditions

• Late payments may cause you to lose your right to buy. This could mean losing the amount you’ve accumulated for eventual purchase

But in general, it seems that rent-to-buy is becoming increasingly popular in South Africa. 

Ask your local estate agents and your friends to be on the lookout. 

Wishing you the best,

Answered on Nov. 24, 2023, 12:48 p.m.

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Please note. We are not lawyers or financial advisors. We do our best to make the answers accurate, but we cannot accept any legal liability if there are errors.