Buying freehold vs leasehold property in Dubai

Till the year 2002, there was no provision in Dubai that would allow the expats, who constitute 70% of the country's population, to own properties and therefore a large number of them who were residents of Dubai would have no option but to choose other countries for investment opportunities. 

However, things started changing slowly when in 2001, when the government of Dubai introduced provisions, according to which expats could enjoy 99-year lease of properties in around designated areas of the city. In 2002, when the government issued the Freehold Decree, which allowed foreign nationals, who are minimum 21 years of age, to buy, sell, lease and rent properties in specially designated areas around the city.

In this article, we shall discuss the difference between buying a freehold and a leasehold property and highlight their pros and cons.

Buying A Leasehold Property

A Leasehold Property is one that can be leased from its owner for a period of 99 years or less in certain cases. Buying such a property gives the owner the right to the home for a long-term but not to the land that it is built on. Once the lease period is over, the right of the property goes back to its freeholder. However, the lease can be renewed once it expires. Such a property can be sold, used or rented like a freeholder would do with almost the same benefits.

When it comes to making changes to the property such as additions, remodelling, alterations, or renovations, one would require to take permission from the freeholder. Repair works are mostly taken care of by the freeholder.

Pros

1. Since expats in Dubai are not allowed to buy properties on freehold in non-designated areas, the option to buy properties on leasehold gives them more options to choose from in terms of price as well as the area.

2. Owners of leasehold properties get to enjoy limited liability when it comes to maintenance of the property as mostly it is the responsibility of the original owner to pay for repairs of the property.

3. Leasehold properties generally have a lower upfront cost compared to freehold properties, making them more accessible to a wider range of buyers.

4. Lessors often offer flexible payment plans for leasehold properties, allowing buyers to spread the payment over several years.

5. Leasehold properties are available in prime locations such as Jumeirah, and include areas with luxurious amenities and scenic views.

6. Leasehold developments often come with shared amenities such as swimming pools, gyms, parks, and communal areas, enhancing the overall living experience.

Cons

1. Making changes in a leasehold can get a bit complicated. When it comes to remodelling, alterations or renovation, one will need written approval from the original holder of the property.

2. Subletting will not be allowed in this case.

3. Some leasehold contracts might have restrictions on resale, making it more challenging to sell the property compared to freehold properties.

Buying A Freehold Property

Buying a freehold property in Dubai enables the owner to enjoy complete ownership over the home along with the land that the property stands on. Such a unit can be freely sold, leased or occupied on the complete will of the owner. 

Expats can buy Freehold Properties only from designated freehold areas. There are a number of neighbourhoods in Dubai that are part of freehold areas and offer freehold properties for expats to buy. The most popular freehold areas in the city include Palm Jumeirah, Dubai Hills Estate, Emirates Living, Downtown Dubai, Dubai Marina and Jumeirah Beach Residence. 

Pros

1. Owners of Freehold Properties and their immediate families are entitled to renewable UAE residence visas if the property value is above AED 1 million.

2. They can have complete control over the property and would not require to seek permission from anyone before making changes to it, unless it's to the facade of the house, for which they will need to seek permission from the developer.

3. If the owner of the property passes away, their heirs will inherit it, with or without a presence of a will. This will enable his family to continue staying in the home even if he is not alive.

4. The property can be sold or rented out at the complete discretion of the owner. 

5. Foreigners who are not residents of the UAE and stay outside the country can also buy freehold properties.

6. As a freehold property owner, you have the liberty to modify and personalize the property to suit your preferences and needs with developer approval.

Cons

1. Owners of these properties are completely liable and responsible when it comes to its maintenance which includes all kinds of structural repairs.

2. Buyers have limited options to choose from as they can only buy properties from designated freehold areas in the city.

3. Yearly maintenance charges are billed to the owner, so this is an additional expense.

4. Freehold properties typically have a higher upfront cost compared to leasehold properties, which might be a barrier for some buyers.

5. Freehold properties are not available in all areas of Dubai, limiting the choices for buyers looking for specific locations.

6. While freehold properties generally offer more stability, they are still subject to market fluctuations, which could impact property values.