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Freehold Property vs. Leasehold Property: What makes sense for you?

While most expats might start with looking at property prices or the trendiest neighborhoods to live in, there's an even more significant consideration that needs to be factored in from the outset; is the property freehold or leasehold?

For expats looking to buy, there is an array of options available for them to invest in across the UAE – from plots of land, off-plan property or residences from the secondary market In 2002, the Dubai Government was the first emirate to issue the ‘Freehold Decree’ It is important for investors to understand the rights and responsibilities that come with each type of ownership

The introduction of the long-term residency visas for property investors and the much-anticipated launch of the Dubai Expo 2020 on the horizon have significantly boosted interest in the property market, encouraging both investors and end-users alike to take a look at the inventory on offer. For expats looking to buy, there is an array of options available for them to invest in across the UAE – from plots of land, off-plan property or residences from the secondary market.

While most might start with looking at the property prices or the trendiest neighborhoods to live in, there's an even more significant consideration that needs to be factored in from the outset; is the property freehold or leasehold? While it may not be the first thing that buyers consider when looking to invest in property, there is a reasonably significant distinction between the two, and it is essential to understand the difference, as this could well affect the buyer’s overall decision.

Freehold Property

In 2002, the Dubai Government was the first emirate to issue the ‘Freehold Decree’, which allowed foreigners to buy, sell, lease and rent properties in designated areas around the city. This form of ownership enables expat buyers to purchase both the property and the land it stands on, which in turn allows the owners to sell, lease or occupy the property and land freely. Since then, the property market has opened up, allowing investment into the country and flexibility for expats and foreigners for investment and living options.

In Dubai, freehold areas for expats span across more than 23 neighborhoods. According to the dubizzle platform, the most popular freehold areas in 2018 as per the number of searches per month included Palm Jumeirah, Dubai Hills Estates, Downtown Dubai, JBR, Dubai Marina, The Greens, and Emirates Living, with Marina receiving 4.2M searches for Q1 and The Palm with 2.2M searches for properties for sale

While Jumeirah has historically been owned by GCC residents only, Port La Mer by Meraas is the first freehold master community available in the area, providing more investment opportunities for expats in a popular area. With over 100 properties listed on dubizzle currently, The development will mark the change of Jumeirah’s developments in terms of popularity and amenities, boasting its own a private marina for property owners.

Read more: Dubai is the most attractive destination to invest in property

Leasehold Property

Buying a leasehold property means that the buyer has the right to occupy directly from the freeholder for a term of 99 years or less. Essentially, this type of ownership only grants the buyer rights to the property itself and not to the land, which is owned by the freeholder.  

Some of the popular areas for leasehold property include Jumeirah 1,2 and 3, Al Safa, Al Wasl, Umm Suqeim, Al Manara and Mirdiff.  Typically, these areas are open for GCC nationals to buy in.

Read more: Dubai’s residential market to remain buyer and tenant-friendly

So, with this in mind, what are the advantages of investing in each?

There are many advantages to investing in freehold. Firstly, investors have full ownership and control over the lot. Whether minor changes or significant renovation, landlords can make any structural changes that they want for villas, and also have the freedom to lease or sell the property at their discretion. Apartments are different due to the structural make up of the building and can be limited to what changes can be made, beyond minor interior changes. Owning a freehold property over the value of AED 1 million entitles the owner and family to a 2-year renewable UAE residency visa, which is an additional incentive for buyers.

In the run-up to Expo 2020, the property market in Dubai is opening up with more freehold launches planned, where investors will be able to access areas like Port la Mer, as Jumeriah was previously available to GCC residents only. Similar initiatives are taking place in Abu Dhabi, where 17 communities were converted to freehold last month. These decisions by the government encourage foreign investors to turn their attention to the UAE, as well as promote long-term investment opportunities, which will ultimately strengthen the economy.

While there are increasingly more areas to choose from for freehold properties, those looking at investing in a leasehold property have a much more extensive selection to choose from at a variety of price points. There is no limitation to a designated area and the leasehold property ownership can be renewed at the end of the 99-year term, meaning buyers and their family can continue to live in the house for the longer term. Leasehold investors also have 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.

Ultimately, when making the decision to invest in property in the UAE, whether it is more control over property or long-term future plans, it is important for investors to understand the rights and responsibilities that come with each type of ownership.