What is Freehold property vs. Leasehold property?
In a first-of-its-kind initiative in 2001 the Dubai government permitted 99-year ownership of Dubai real estate for non-GCC nationals. This was known as leasehold ownership. In 2002 Dubai Crown Prince, Sheikh Mohammed bin Rashid Al Maktoum, issued the freehold property decree, permitting non-GCC and non-UAE nationals 100% ownership in specific areas within Dubai, regardless of whether the buyer is living in the Emirates. This freehold property decree created a massive residential property boom in Dubai’s real estate sector and established the region as a leading player in the global property market through investment in Dubai.
Currently, the two types of legal real estate ownership for non GCC nationals are freehold and leasehold ownership. It is important to understand the differences and the advantages/disadvantages of each ownership status before making a purchase decision.
Leasehold Property Ownership
Leasehold ownership allows a buyer to take a lease from the freeholder of a property for a maximum period of 99 years, or as little as 50 years in some cases. All things considered, it is buying the right to purchase and occupy a property for a predetermined period of time, whilst also paying ground rent to the landowner. The ownership of the property, after the end of the lease agreement, will always revert back to the landowner.
For example, if you are an owner of a leasehold property it means that you own the physical property for the next 99 years. However, the land it was built upon is owned by the original freeholder. So, at the completion of the 99 year lease, the landowner will own everything that is built on his land, including the villa.
A leasehold property can be sold, occupied or rented out in exactly the same manner as a freehold property, with all of the same benefits. There are a few exceptions highlighted in the next paragraph. It is possible to renew the property ownership for another 99 years after the expiration of the initial leasehold contract.
Selling a leaseheld property to another non-GCC national only entitles the buyer to the remainder of the lease term; the 99 year lease does not reset upon resale. Upgrading a leaseheld property with extensions or renovations can be a slightly more complicated. As a leaseholder, one would require written approvals from the landowner of the property prior to any alterations are made. The landowner will be responsible for most of the repair arrangements, especially if the problem affects the structural integrity of the building or shared areas. At the end of the lease agreement; alterations, additions and improvements become the property of the landowner without any cost or obligation to reimburse the leaseholder.
Freehold Property Ownership
Freehold ownership implies taking complete ownership of a property, outright; including the structure and the plot of land it sits on, with the buyer’s name as the registered “land owner” at the municipal land registry from the Dubai Land Department. The Dubai property landscape has established freehold districts within which the majority of properties will be designated as “freehold”. These properties must be purchased from government approved developers or real estate agents. To learn about available freehold properties you may contact a Zola Group property consultant here.
Freehold property owners can pursue property upgrades, fit-outs or upgrades as they see fit on their freeheld property. They also have full rights to sell or lease their property at their own discretion and also have the right to pass the property ownership through inheritance.
Freehold ownership also entitles owners and their family members to a UAE residency visa, without having to reside in their property. Many investors benefit from a UAE visa and buy property for investment purposes.
Which is Better for Investment in Dubai?
The most obvious difference between the two is obviously the extent of ownership and the obligations of each. Freehold owners have more control over their property than leasehold owners have, although they are ultimately the only responsible party for all service charges, repairs, land issues, structural issues etc. related to their property. Leaseholders should be clear about the extent of their rights and responsibilities, but generally speaking, they are not heavily obligated to their property.
When it comes to investment in Dubai, Freehold is the ownership option of choice for most investors. This is due to the simple fact that an investor will benefit greatly from a freehold property’s capital appreciation. The only scenario, which makes it sensible to invest in a leasehold property, is if an investor expects to recoup his initial investment, completely through rental yields. The lack of excessive service and repair costs, and because of the shortage of rental properties in leasehold areas, net rents can be significantly higher than freehold property (+ 2 to 5%).
Looking for property in Dubai?
Are you searching for a Leasehold or Freehold property for investment in Dubai? You’re invited to speak with one of our leasehold or freehold property specialists here to discover your options.
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