Freehold vs. Leasehold Property in Dubai: Which is Right for You?

Understanding freehold vs leasehold ownership in Dubai

In 2003, the government introduced the notion of freehold property ownership to non-UAE nationals, transforming Dubai's real estate market.

Prior to this pioneering step, foreign property ownership was generally restricted to leasehold agreements, limiting international investors' rights and tenure. Establishing freehold ownership represented a watershed moment, bringing worldwide investors keen to capitalize on the city's economic vitality and ambitious goal.

So. what is freehold vs leasehold ownership in Dubai? 

Simply put, a freehold property in Dubai is one wherein the owner owns both the property and the land it has been constructed on. This gives them complete ownership rights and allows them to sell the property, lease it for rent, renovate it, or pass it on to an heir. 

On the other hand, a leasehold property gives the owner limited ownership rights - which generally span to 99 years. Owning property in leasehold areas in Dubai comes with limitations such as not being able to pass on property to an heir, not being able to make significant changes to the property, and more.

Key differences between freehold and leasehold properties

Before deciding whether you want a property that is either freehold or leasehold in Dubai, it is important to understand key differences in both concepts: 

• Price stability: A freehold property in Dubai is generally considered to be a very stable and valuable investment - especially in the long term. Leasehold properties can still be excellent investments, but their value is likely to decrease as the end of lease period nears.

• Ground rents: A freehold property in Dubai has no ground rent, while a property in leasehold areas in Dubai may be subject to ground rent, which is usually paid to the landlord. 

• Service and maintenance costs: Be it freehold vs leasehold in Dubai, any property that is bought will be subject to service and maintenance charges. A property in leasehold areas in Dubai is usually managed by the landlord or a property management company. A freehold property’s service and maintenance charges are usually managed by an owners’ association. 

• Designated areas: As both names suggest, you can only buy a leasehold property within specific leasehold areas in Dubai. A freehold property is only available in designated freehold areas of Dubai. 

Benefits of freehold ownership in Dubai 

When it comes to freehold vs leasehold ownership in Dubai, many buyers generally prefer freehold ownership due to its many benefits. Some of them include:

• Freedom to make changes: Whether you want to remodel your freehold property in Dubai or completely renovate your property, you will be permitted to do so as long as you align with the developer’s guidelines. 

• Pass to an heir: If the owner of the freehold property passes away, the property will be passed down to an heir. 

• Residency by investment: If you own a freehold property in Dubai, you and your family will be eligible for renewable UAE residence visas - given that they meet certain conditions. You could be eligible for a residence visa that spans as long as five or ten years. 

• Diverse property options: Freehold areas in Dubai generally have a diverse portfolio when it comes to the different kinds of properties that you can buy (such as apartments, townhouses and villas)   

Legal framework for freehold and leasehold properties 

Dubai’s real estate regulations are strict and straightforward. Understanding the laws for freehold vs leasehold properties in Dubai will help you understand how to buy a property quickly and in a hassle-free manner. 

Regulations governing freehold properties in Dubai

The regulation for freehold ownership in Dubai is governed by Dubai Law No. 7 of 2006. This law gives the right for citizens of the state, the GCC, and the companies they own, along with public joint stock companies, to own property in Dubai and the UAE. 

This also allowed non-UAE nationals to obtain freehold property in Dubai and the UAE across designated areas. The clauses in the law grant oversee property registrations, transfer procedures, and dispute resolution mechanisms, and grant the owner to use or lease the property. 

Leasehold ownership rules and limitations

While there is no specific law for a property within leasehold areas in Dubai, here are some references that are normally given: 

Dubai Law No. 26 of 2007, also known as the Dubai Tenancy Law, governs leasehold arrangements in the UAE and regulates the rights and responsibilities of landlords and tenants. People refer to this law for things such as lease duration, rental payments, and eviction procedures. 

As mentioned previously, one of the biggest challenge buyers have with a leasehold property is limited ownership rights. 

Choosing between freehold and leasehold in Dubai

As a buyer, you may often question which option is better for you, a freehold vs leasehold ownership in Dubai. Depending on various factors, you can make an informed decision before proceeding with a purchase. 

Factors to consider when investing in freehold properties

Here are certain factors you should study and consider before investing in a property in a freehold area of Dubai: 

• Location: The location of your freehold property matters, as it will impact your lifestyle. Do you prefer the bustle of a city or a secluded, private space that is closer to nature? Do you require proximity to schools and hospitals, business districts and commercial spaces, or both? If your property is located in an area with high-ticket projects (e.g. Dubai Metro), its value will appreciate over time. 

• Property type: What kind of freehold property do you want? Depending on your budget, lifestyle, and intent (e.g. residing in Dubai or investing in a property), you will have to decide what kind of freehold property you wish to invest in - be it an apartment, villa, office space, or otherwise. 

• Due diligence: While owning a freehold property in Dubai can be a straightforward process, conducting your due diligence and especially understanding the legal aspects and documentation will ensure that you have a smooth, hassle-free journey to becoming a property owner in Dubai. 

When leasehold ownership might be a better option

Here are certain factors that may make owning a property in leasehold areas in Dubai a good option for you:

• Less maintenance liability: Leasehold property owners in Dubai generally have limited liability when it comes to maintenance, renovation, and construction work within that property. If they have leased the property to someone else, the lessees are responsible for the maintenance and repair work on the property - once they have obtained the owner’s permission. 

• Costs of buying: The upfront cost of buying a leasehold property is generally lower than a freehold property. Therefore, if you have a strict budget, leasehold ownership may be the better option for you. 

• Fixed term: As leasehold properties have a fixed term, they can be subject to lower market fluctuations and financial risks - barring any major market volatility.

Popular areas for freehold and leasehold properties in Dubai

The area of your freehold or leasehold property matters. Whether you want to live in the property or sell/lease it for rent in the future, the area of your property will impact your investment and lifestyle. 

Here are some of the most popular areas for freehold and leasehold properties in Dubai:

Top freehold locations for foreign investors

Some of the top freehold areas for foreign investors are:

• Palm Jumeirah 

• Downtown Dubai 

• Arabian Ranches 

• Dubai Hills Estate 

• Mohammed Bin Rashid City (MBR City) 

Leasehold zones and restrictions in Dubai

Here are some popular leasehold areas in Dubai:

• Al Barsha

• Umm Suqueim

• Mirdif

• Al Warqaa

• Umm Al Sheif

There are certain restrictions to owning leasehold properties in Dubai, including: 

• You must renew your leasehold contract upon its expiration or find a new property. 

• Repairs, renovation, or additional construction is only permissible under the landlord’s rules. 

• Some leasehold properties might have rules such as no pets - which could cause inconvenience for pet owners. 

• While you have limited ownership rights over the property, you have no ownership rights over the land it is on. 

Investment strategies for freehold vs. leasehold properties

Generally, there are two investment strategies buyers and investors adopt for properties, be they freehold or leasehold properties in Dubai. Those two strategies are either long-term investment or short-term investment - depending on the buyer’s circumstances.

Long-term benefits of freehold investments

Whether you opt for a long-term or short-term investment strategy for your freehold property, here are some benefits you could potentially expect: 

• An increased property value as freehold properties can appreciate significantly over time. 

• Since there is no lease renewal in a freehold property, it is a one-time investment that offers security and stability. 

• Investing in a freehold property gives you higher flexibility to change the property according to your liking. 

Cost-effective leasehold opportunities in Dubai

A property in leasehold areas in Dubai is generally much more cost-effective. With a lower initial payment, a leasehold property could be an option for owners who wish to diversify their investment portfolio and invest in different kinds of properties. 

Developers of leasehold properties may give incentives to buyers such as payment plans, post-handover payment options, and guaranteed rental yields.

Ready to find your perfect property? Contact us for expert guidance and support

Whether you're looking for a leasehold or freehold property, Engel & Völkers can provide you with the guidance and support you need to achieve your real estate goals. 

Contact us today to learn more about how we can support your property journey.