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A leasehold is a time-limited transfer of ownership of a property. This type of property ownership can loosely be called a long-term lease, since the contract is not about renting housing for six months or a year, but about owning it for decades or even centuries. For example, in British law, from where the term leasehold was borrowed by Arab officials and lawyers, a contract with a leaseholder can be signed for 999 years.
In the Emirates, the buyer (lessee) receives a limited yet sufficient set of rights for most needs based on a leasehold. They can resell the property before the end of the term of use, mortgage, organize redevelopment and reconstruction, lease the premises to third parties under a sublease agreement.
A leasehold is necessary for the authorities to support the local population. For example, the UAE citizens pay for housing and utilities at reduced rates, apply for construction loans and mortgages at a lower percentage, and receive monetary incentives from the state. Foreigners of non-Arab origin do not have the right to buy real estate in leasehold, although this option is cheaper.
There are special zones in the Emirates for foreigners, where real estate is sold in a freehold.
A leasehold is a type of real estate ownership that is only available to citizens of member states of the Gulf Cooperation Council (GCC). For many potential buyers this type is irrelevant.
It is too early to talk about drastic changes in the state policy of the Emirates towards foreigners. But gradually the set of options available to foreign investors is growing.
The natural trend in the market is that the domestic demand of UAE citizens and expats from the GCC countries does not cover the entire volume of supply, and the interest of foreign buyers is concentrated on properties that are purchased with exclusive ownership rights. This explains the fact that the leasehold is losing its position, and the number of free zones for foreign investors is increasing.
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "The trend has been developing over the past ten years. Buildings and areas that opened as leasehold are transferred to freehold. For example, there is the Silicon Oasis district in Dubai, where all property traditionally was in a leasehold. But now it is actively transferred to a freehold, as developers understand that it is profitable to sell real estate to expats from other countries, not just from the Arab ones.
Economically, it is more profitable to build in a freehold area. Buyers rely on real estate that is in their full ownership, that they can pass on to their children and grandchildren. It seems to me that over time there will be no leasehold zones in Dubai. All new projects are being built in free zones."
Freehold is the exclusive right to own real estate in the Emirates. The buyer gets the right to freely use the property, dispose, sell, lease, give or bequeath it.
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "What does freehold give us? We can buy an real estate object, sell it, pass it on by inheritance, or rent it out. It is worth noting that if the property that a person has purchased exceeds the threshold of 1 million dirhams ($272,000), then a foreigner can get a long-term visa in Dubai. This is a big advantage of freehold, the opportunity to become a resident of the Emirates and live in the UAE."
In 2002, by order of Sheikh Mohammed Bin Rashid al Maktoum, citizens of any country in the world were granted the right to buy local real estate in full ownership.
In 2006-2008, a number of regulations were issued, which approved the list of free zones in Dubai, Umm al-Quwain, RAS al-Khaimah and Ajman, and in 2019, the freehold for foreigners became available in Abu Dhabi. Zones with freehold properties are available for sale not only to citizens of the UAE and people from the countries of the Commonwealth of the Persian Gulf States, but to everyone else too.
There is a popular opinion that even the purchase of an object in a free zone does not give rights to the land plot on which the property is built. According to the expert, this is not so: "Freehold – by this term we mean unlimited ownership of the property itself. In this case, the land also belongs to the owner. Regardless of whether it is a Villa, a townhouse or an apartment in an apartment building."
However, the rights to land and buildings in the UAE are legally separate. These rules apply to Dubai and Abu Dhabi (see article 8 of the Dubai Direction for General Regulation (2010) and article 61 of Abu Dhabi Law 3/2015).
There is a prejudice among foreign investors that freehold real estate is significantly more expensive than leasehold. And it's not about the form of ownership, but the status of the location.
For example, real estate in Dubai that is popular among foreigners is located in the most prestigious areas and along the coast, which subsequently increases the price. In elite neighborhoods there is no hope for a low cost per square meter (for example, you will have to pay about $9,000-10,000 per square meter next to the Burj Khalifa skyscraper).
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "Unjustified extras on properties in freehold zones are a myth. Since almost everything in Dubai is a freehold, the prices are now on the average market level. There is no difference. In other Emirates, the freehold zone is gradually growing: we know that new projects are being built for foreigners in Al Fujairah and Ras al-Khaimah, in Sharjah."
Foreigners often worry about real estate purchased in another country. If, for example, the house has been purchased as a summer residence, then it is empty for six months or more. Concerns about its safety cannot be simply solved with insurance.
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "The Emirates is a very safe state, no one can visit private territory without permission. That is, stories about some neighbors, who can legally enter your property to repair communications, are a myth. This is criminal, unless the police have a search warrant. But in this case, the entry of government representatives into a house or apartment is possible in any other country."
In popular tourist destinations (Dubai, Abu Dhabi, Sharjah), free zone areas will only grow in the coming years. Developers offer a variety of projects created specifically for foreign investment. The main thing that foreigners value freehold for is the ability to transfer property by inheritance.
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "95% of Dubai is a freehold zone. The trend is that even the strict Emirate of Sharjah removes restrictions and opens territories for freehold development, because local authorities want to attract foreign capital to the country."
Investors may also encounter other terms that indicate the type of property ownership.
According to the civil code, it is legitimate to own real estate on the terms of a musataha right in the UAE. It is the right to build and develop land for a limited period of time (up to 50 years). In this case, the developer owns all the buildings that are built on it. The contract can be extended, as well as freely dispose of the real estate of the site. This type of ownership is more common in Abu Dhabi.
Usufruct is another term that is essentially identical to the concept of "leasehold". Although ownership of real estate under usufruct prohibits any modification of the property (redevelopment, major repairs, reconstruction, etc.). At the same time, the term of use of the land or real estate is limited and should not exceed 99 years.
Thus, both terms refer to options for limited ownership and use of real estate. In this context, freehold ownership gives more advantages.
Once again: regardless of how your rights to real estate are registered (a freehold, leasehold, musataha, usufruct), its inviolability is protected by the laws of the UAE. It doesn't make sense to be afraid that officials will illegally deprive you of a land plot or real estate.
Victoria Kochergina, Senior Sales Specialist at H&S Real Estate: "Hypothetically, you can imagine that the President suddenly issues a decree and takes away your real estate... But in reality, this cannot happen. The entire economy of the country is supported by external investment. Oil is no longer so relevant. The authorities bet on tourism and business immigration. It is unlikely that the idea of nationalizing private property will receive any kind of support.
In urban development departments, all development areas, including road infrastructure, are pre-planned. Therefore, the situation in which your property is seized in order to build a high-speed highway is simply excluded."
Photos: pixabay.com
