Choosing freehold versus leasehold when purchasing property in the UAE is one of the most critical choices that you will make. Although the names may be similar, they are accompanied by very different rights, responsibilities and investment returns. Being a first-time buyer, a long-term investor, or someone who is going to live in the UAE, you must know the difference between freehold and leasehold before making a decision.
This guide will define both the types of property ownership in a simple way, compare their advantages and disadvantages and assist you select the one which suits your requirements the best.
What is Freehold Property in UAE?
Freehold property in the UAE implies that you own the property and the land it is situated on fully. A freehold property is yours, once you purchase it. You are able to sell it, rent it or leave it to your children without any time restriction.
UAE established freehold areas in order to enable more foreign customers to invest in real estate. This reform allowed individuals who are non-GCC nationals to own property in such areas as Dubai, Abu Dhabi, Sharjah, and Ras Al Khaimah. Dubai Marina, Downtown Dubai, Palm Jumeirah and Business Bay are some of the popular freehold areas in Dubai.
Important aspects of Freehold Property
You possess the property and the land it is situated on.
- You may store it indefinitely or you can sell it to another person any time you wish.
- You have the freedom to modify or improve the property (within the local regulations).
- It is an excellent investment and a good inheritance to your family.
What is Leasehold Property in UAE?
Leasehold property implies that you are able to enjoy and occupy a property within a specified period of time, typically 30 to 99 years, however, you do not own the land that the building is constituted upon. The ground remains under the ownership of the government or the primary developer.
There are also places in the UAE where you can find leasehold property that expats prefer because it is cheaper to buy and does not carry the responsibilities of land matters.
The Major Characteristics of the Leasehold Property
- You rent the property in a specified period.
- The land is not yours, you have the right to use the space.
- Significant changes may require the consent of the freeholder.
- You can make a payment of service charges and ground rent to the freeholder.
Advantages of Freehold Property in the UAE
Full Ownership
The property and land are yours, and you can use it any way you like, leave it to your heirs, or sell it when you feel like doing so.
Greater Long-Term Value
Freehold is more likely to maintain its value and can increase quicker in good locations, so it can be a good long-term investment.
No Lease Expiry Fear
No lease to expire. It will not spend any money in the future to renew or extend ownership.
Greater Control of Changes
You can renovate, rent or redesign your property (this is subject to local authority approval), and you do not have to seek the consent of a landlord or developer.
Disadvantages of Freehold Property
Increased Upfront Cost
In sought-after places such as Downtown Dubai or Yas Island, freehold units are more likely to be priced more highly than leasehold units.
Comprehensive Maintenance Responsibility
Being the sole owner, you will be liable to repairs, upgrades and maintenance, which can be costly in the long run.
Advantages of Leasehold Property in UAE
Reduced Barrier to Entry
The purchase price of leasehold properties tends to be cheaper, making it a good option when buying a first house or younger investors, or second house buyers.
Shared Maintenance
In most leasehold developments, the freeholder takes care of the major maintenance work, which offers you peace of mind and reduced personal responsibility.
Bargain Destinations
Leasehold may provide access to well-located locations at a lower initial cost than freehold in the same zone.
Disadvantages of Leasehold Property
Restricted Period of Ownership
When the lease ends, the property returns to the freeholder unless you extend or buy the lease back – which may be complex and expensive.
Ground Rent and Service Charges
There is a possibility that you will be required to annually pay ground rent as well as regular service charges which accumulate over time.
Approval Restrictions
The leaseholders are usually required to obtain the consent of the freeholder in the event of alterations or substantial renovations, which is restrictive to control of the property.
Resale Complications
The shorter the lease term, the more the value of the property will be depreciated and this means that the property will be difficult to sell without renewing the lease.
Is Shared Freehold Possible in the UAE?
Although the shared freehold is common in other countries such as the UK where the freehold is shared by the owners of the flats, this is not a common option in the UAE real estate market.
The freeholders in the majority of UAE cases are the master developers or the governmental bodies and people buy either outright freehold properties or long-term leasehold agreements. Nevertheless, some developments provide common management of common areas through strata laws and homeowners associations, but not land ownership.
Freehold versus Leasehold in UAE: Which is your Better?
It all boils down to what you want to achieve, the budget you have, and the time you intend to hold the property.
Select Freehold When:
- You desire to be the exclusive owner and be free.
- You intend to invest or have a home in the long-run.
- You do not want to have to deal with renewal hassles or ground rent.
- You desire more resale value and flexibility.
Select Leasehold When:
- You are operating under a tighter budget.
- You desire to get the best sites at a cheaper rate.
- You want less maintenance responsibility.
- You want a smaller time investment or home.
Notable UAE-Specific Factors
Expat Freehold Zones
Every emirate has its specific freehold zones which can be purchased by non-GCC nationals. These are Jumeirah Village Circle, Dubai Hills Estate and Dubai Creek Harbour in Dubai. When buying an area, always check on its status.
Lease Agreements Have to Be Open
When purchasing leasehold either through a developer or a landlord, do ensure you read:
- Lease duration
- Service charges
- Renewal terms
- Regulations regarding resale or inheritance
The Real Estate Regulatory Agency (RERA) in Dubai, and land departments in other emirates, facilitate the adherence to the property laws, such as clear registration of the ownership rights and the security of both freeholders and leaseholders.
Converting Leasehold to Freehold: Is It Possible?
Although it is a standard procedure in the UK, it is not a common practice in the UAE when individuals want to convert their leasehold into freehold. When your lease is about to expire, then you should negotiate with the land-owning authority or the developer to extend or renew your lease.
The conversion or renegotiation in special cases may be permitted by some government-related entities, but it is at their discretion, and not guaranteed.
Final Words
One of the most important decisions you can make in your real estate process is freehold vs leasehold property in UAE. Each of the alternatives has its own advantages and disadvantages, and the best choice of yours depends on your financial state, investment perspective, and your preferred lifestyle.
A freehold property is the best choice when you want long-term stability, absolute control, and possible generational wealth. But when you are more interested in economical ownership or in the short-term, then a leasehold property can better fit your interests.
We realize that each customer at Roots Heritage Realty possesses a personal vision and financial roadmap. You may be interested in investing in Dubai, Abu Dhabi, or any of the other fast-growing emirates, but we can guide you through the advantages and disadvantages of choosing freehold or leasehold property and find you the right opportunity.