Freehold Vs Leasehold: Which Makes Sense For You?

Freehold Vs Leasehold: Which Makes Sense For You?

In the battle for your buy-in, we take a closer look at freehold and leasehold property ownership and outline the case for both options…

 

We’ll be the first ones to admit, there is a lot of legal jargon that comes with buying a property. Whether you choose to buy in the UAE or elsewhere in the world, there are some key terms that everyone should understand before they make arguably the biggest purchase of their lives. Supercars aside, of course. 

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While most might start with looking at the financials or the trendiest neighborhoods to live in, there’s an even bigger consideration that needs to be factored in first; do you want to buy a freehold or leasehold property? It may not be the first thing that pops into your head when house hunting, but there is a fairly large distinction between the two and it’s important to understand the difference, as it will affect your overall decision.

With this in mind, we examine what the differences are, weighing up the pros, cons and everything in between for buying a freehold or leasehold property in Dubai.

FREEHOLD 101

The good, the bad & everything in between 

What is it? ‘Freehold’ in real estate terms refers to the ownership of a property and the land on which it is built. Depending on where you are in the world, different restrictions apply and Dubai is no different. The law grants non-GCC nationals the right to purchase a freehold property in the Emirate, but only in specific ‘designated areas’. If you choose to purchase a property in any of the freehold areas, you’ll need to register your name with the Dubai Land Department (DLD) to become the ‘landowner’, which in turn grants you the title deed for the property. If you’re planning to stay in the UAE for a while or consider it a future asset, a freehold contract is particularly appealing as it runs for an infinite amount of time. 

The Good

  • Total Control: Before you get any ideas about world domination, we’re talking about control over the property unit and the land. Still, this is also pretty impressive as owners can make any structural changes or modifications that they wish. 
  • Full Rights: As a caveat to the point above, having complete ownership of the property allows you to lease or sell on at your discretion, as well as ensuring your property stays in the family if the original owner passes away. 
  • Investment Opportunities: As the market opens up with more freehold launches planned in the run-up to Expo, investors can access traditionally-held leasehold areas, such as developments in and around Jumeirah. 
  • Visa Perks: Aside from the existing two-year property investor visa and six-month multiple entry visa already on offer, the government’s decision to introduce long-term visas at the end of last year offers further incentive for freehold buyers to invest. 

The Bad

  • Restricted Purchase Areas: Buyers can only purchase in designated areas, which can limit the selection on offer. However, as Expo 2020 approaches there are significant off-plan developments that are bolstering the freehold inventory and providing more choice, not just in the established ready property hotspots. 
  • You’re Responsible: Landowners are responsible for all maintenance of the property. If you have bought to live in this won’t come as a surprise, however, if you have leased your property out, you are responsible for any structural works that need to be done.

The Top Freehold Areas To Consider: Downtown, JLT, Emirates Living & Arabian Ranches

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LEASEHOLD 101

The good, the bad & everything In-between 

What is it? Buying on a leasehold basis means that you have the right to occupy a property from the freeholder for a term of 99 years or less. Crucially, this type of ownership only grants you rights to the property and not to the land; that is owned by the freeholder. The freeholder ‘leases’ the land that the property is built on for the term outlined and once this comes to an end, ownership reverts back to the freeholder. Leasehold ownership is both flexible and restrictive depending on your outlook, as there are definite benefits and drawbacks to opting for this over freehold. 

The Good

  • Wider Selection: The limitations placed on expats wanting to buy freehold properties don’t apply here, which is a huge tick in the plus column for long-term lease owners. As you don’t have to buy in a designated area, there is a much wider selection and price points to choose from. 
  • Renewal Options: 99 years is a long time – we tend to forget that when talking in infinite freeholder terms – so if you and your family do still want to live in the property when the contract expires, then the leasehold can be renewed. 

 

The Bad

  • Limited Control: There’s only really one big con when it comes to leasehold ownership and that’s the limited control you have over the property. If you want to make any modifications or improvements, however big or small, you will need to get written approval from the freeholder first. 

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The Leasehold Areas To Consider: Check out our top spot neighborhood guide here. 

Ultimately, deciding whether to go for a freehold or leasehold property comes down to a combination of factors that take into account your circumstances, budget and primary reason for buying in the first place. For example, if you are an experienced investor looking to maximize your returns, then leasehold may make the most sense, but if you are an expat considering settling in the UAE for the long-term, then freehold naturally becomes the more attractive option. 

Either way, it’s important to do your due diligence on both types of ownership before making a commitment. Understanding all the legal rights and responsibilities is key to assessing the investment opportunity overall, so park everything else and get clued up first; you’ll thank us in the long run. 

Still unsure about which type of ownership is right for you? Check out dubizzle for our extensive list of freehold and leasehold properties on offer, or if you’re still undecided about buying a property, read our other home buying hacks on the blog.
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