Buying property in Dubai or anywhere in the world is an important decision. It is just as important, if not more, to understand all facets of property ownership before you take the plunge and put down your hard-earned money towards a home. For a long time, expatriates were not entitled to own property in the UAE. Leading the charge in this was Dubai, the first emirate to open its doors and allow expats to own property. Property ownership for expats was however divided into two categories, freehold and leasehold
Creating an inevitable boom in the real estate sector, this move also turned out to be great news for those who had come to consider the UAE as their home. The country has a growing expat population which shows no signs of slowing down. Many around the world are still flocking to the UAE for growth opportunities, stability and a bit of good old sunshine. And being able to own property in the UAE is a dream come true for most foreigners.
Leasehold Property Ownership
Dubai Government granted foreign nationals the right to buy leasehold property in Dubai back in 2001. The lease term is generally 99 years but can be less in certain cases. Prior to this, expats only had the option to rent an apartment or villa in Dubai.
Buying leasehold property essentially means buying the right to live in or occupy the property from a freeholder for a period of 99 years (or less). This form of property ownership only grants the buyer rights to the unit, not the land it is built on. The land is owned by a freeholder who leases the property built on it for the term period. At the end of the lease period, ownership of the purchased property unit reverts to the freeholder.
Pros of buying leasehold property
- Since expats in the UAE cannot own property in non-designated areas, long-term leases offer buyers more options in terms of area selection and price range
- Leasehold property ownership can be renewed at the end of the term, so you and your family can continue to live in the house by renewing the leasehold contract upon expiration
- Limited liability in terms of repairs. Most of the time, it is the landlord’s responsibility to take care of repairs, especially if they impact the structure of the property
Cons of buying leasehold property
- Improvements on the property to suit your needs such as remodelling, alterations or renovation, require a written approval from the landowner (i.e. freeholder)
Freehold Property Ownership
The decree for buying property in Dubai on a freehold basis was passed in 2002 by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President & Prime Minister of the UAE and Ruler of Dubai.
What is freehold property?
This form of ownership gives the buyer absolute ownership over both, the unit and the land that it stands on. Dubai Land Department (DLD) registers the buyer’s name as ‘landowner’ in the registry and grants a title deed for the property. Freehold property in UAE unit can be freely sold, leased or occupied at the will of the freeholder. The freehold contract is applicable in perpetuity, and when the owner passes away, an heir can inherit it. So essentially, the property stays in the same family.
It is important to note, though, that foreign nationals can only purchase freehold property in UAE from the designated freehold areas. Freehold areas in Dubai for expats span over 23 neighbourhoods. Non-citizens can buy freehold property in most parts of Dubai, including Palm Jumeirah, Dubai Marina, Emirates Hills and Al Barsha.
In addition, freehold property owners and their families can get renewable UAE residence visas. However, being a resident in the UAE is not a requirement to own freehold property. Foreign nationals living abroad can also own freehold property in UAE. Buyers should only buy freehold properties from government-approved real estate agents or developers.
Pros of Buying property in Dubai that is freehold
- Freehold meaning complete control over the property unit and the land. Owners can make changes to the structure and renovate as they see fit
- Property stays in the family, passed on to an heir when the owner passes away
- The owner can sell or lease their freehold property in Dubai at their own discretion
- Owners of freehold property and their immediate families can get a renewable UAE residence visa
Cons of buying freehold property in Dubai
- Landowners (freeholders) of freehold property in Dubai are responsible for maintenance of the property. For example, if the owner has leased the property, he/she will be responsible for structural repairs
- Buyers can only purchase property for full ownership in designated freehold areas
Freehold and leasehold: Which one should you choose when buying property in Dubai?
When making the decision to buy property in the UAE, it is important to understand the legal rights and responsibilities that come with each type of ownership. The most prominent difference between leasehold and freehold ownership is control. Freehold owners have more control over the property unit and land compared to leasehold owners. But practically speaking, 99 years is also quite a long time, and leasehold owners do have some control. It’s simply a question of how far into the future you are looking at this point.
Other factors to consider include your long-term needs, property use, budget and the home you are considering. For instance, if you are a seasoned property investor basing your decision on expected returns, leasehold might be the best option for you. If however, you plan on living in the UAE for a long time and find a home that you love and would like to keep in the family, then freehold might be best for you. Sometimes, your decision may vary based on the house itself. If it’s worth holding on to for a long period of time, you might find yourself considering freehold ownership.
At the end of the day, both options have their perks. It really boils down to what you need from your property investment. So do your due diligence to ensure you make a decision that you won’t regret in the long term.
Buying a home in Dubai is a huge financial commitment. Once you’ve decided on the type of property ownership and a home you like, here are some tips to save for a down payment in Dubai.
Wondering where to invest in Dubai? Read our Dubai Real Estate Report 2017 to see which areas fared best last year.