Freehold vs Leasehold Property: Which is Better for Dubai Investors?
Freehold vs leasehold property. Which one is better for you?
As a starter, there are three types of property ownership for foreigners in Dubai:
- Freehold Properties
- Commonhold Properties (a.k.a Freehold Apartments)
- Leasehold Properties
Not sure which one is a better investment? Let’s explore the pros and cons of freehold vs leasehold property to help you choose the ownership type that best fits your needs.
1. Freehold vs Leasehold Dubai: Freehold Properties
Freehold is complete ownership of the unit and land the property is built on. As it sounds, the owner ‘holds’ the property ‘freely’. When buying a freehold property in Dubai, typically villas and townhouses, Dubai Land Department will register your name as the ‘landowner’ and grant you a title deed for the property. You are completely in charge of the building, any repairs or upkeep, what happens to it, and how it’s used.
Often, people get confused with “Free Zones” and “Freehold Zones”. Here is the difference:
- Freehold Zones are specially designated zones where foreign citizens can buy and 100% own residential real estate.
- Free zones in Dubai are zones where foreign citizens can own and manage their businesses 100% and without paying taxes.
Freehold Properties Dubai – Pros ✅
- Complete control over the unit and the land. These properties can be rented, sold to another person, or inherited.
- You can renovate the home interior and unit structure, as long as it follows the developer’s guidelines and the government’s regulations.
- Full rights over the property. The owner can sell, occupy or put the apartment for rent at their discretion.
Freehold Properties Dubai – Cons ❎
- Although there is plenty of off-plan (properties still under construction) and ready properties to choose from, they are all within designated zones approved by the government.
2. Freehold vs Leasehold Dubai: Freehold Commonhold (a.k.a Freehold Apartments)
Typically apartments, commonhold property gives the owner the right to buy, sell, rent out or pass the property down, similar to freehold. However, since the land is not owned by a single buyer, all owners share recurring fees for the maintenance and upkeep of common areas such as pool, landscaping, cleaning, chiller-free or district cooling unit, and security staff. This is done through the payment of “Service Charges”, paid to the Dubai Land Department.
The maintenance charge is based on the RERA service and maintenance index, and charges vary depending on the property developer and the services it offers. The fees are calculated per square foot and can range from AED 3 to AED 30 per month depending on which area of Dubai. Service charges for villa communities are typically charged based on the plot area.
If you have your Title Deed Number, you will be able to calculate your service charges at Dubai Land Department ‘Service Charge Index’.
Sinking Fund
In addition to annual Service Charges, property owner will also contribute to a ‘sinking fund’, a reserve fund set aside to help maintain the service charge funds from falling short. It’s typically set aside for major repairs, especially for those communities with district cooling units that need chiller replacements. It will also be used when elevators, safety systems, and parking areas need to be repaired or replaced.
Freehold Commonhold Property – Pros ✅
- Complete control over the unit only (not the land). These properties can be rented, sold to another person, or inherited.
- You can renovate the home interior and some parts of the unit structure, as long as it follows the developer’s guidelines and the government’s regulations.
- Full rights over the property. The owner can sell, occupy or put the apartment for rent at their discretion.
- The freehold property will stay in the family. It will be passed on to an heir if the owner passes away.
Freehold Commonhold Property – Cons ❎
- Responsible for the maintenance and upkeep of the property. For instance, if the owner has leased out the property to a tenant, the former will be responsible for any major repairs or maintenance.
- Although there are plenty of off-plan and ready properties to choose from, they are all within designated zones approved by the government.
3. Freehold vs Leasehold Dubai: Freehold Leasehold (Uncommon in UAE)
Leasehold is when you buy the rights of the property typically for about 99 years. However, you will not own the property’s land. The ultimate ownership goes back to the freeholder when the lease is complete.
Leasehold Property Dubai – Pros ✅
- Although it comes with a limit of 99 years, leaseholder can renew the contract end of the term and continue to live on the property.
- Leasehold vs freehold: When owning a leasehold property in Dubai, the leaseholder will face limited liability for repairs. In most cases, the freehold owner is responsible for repairs, especially if they impact the property’s structure.
Leasehold Property Dubai – Cons ❎
- Do not have complete ownership of the property. Ownership goes back to the freeholder when the lease is complete.
- Leasehold buyers will require approval from freehold owners to do maintenance work and home improvements, sublease the property, or to owning pets.
- Leasehold vs freehold: Average sales price for leasehold properties may be relatively lower than for freehold properties.
So, Which One is Better?
Well, it Depends.
There’s no one-size-fits-all answer to this question. Choosing between freehold vs leasehold property really comes down to your personal preferences, budget, and long-term plans.
If you’re looking for full ownership, long-term investment potential, and flexibility, a freehold property may be the better choice.
But if you’re looking for a more affordable option and don’t mind a bit of leasehold limbo, a leasehold property could be a more suitable option, though with less control over the asset.
Ultimately, both leasehold property vs freehold in Dubai can be good investments, but the decision should be based on the buyer’s individual circumstances and preferences.
If you’re still not sure, it never hurts to seek advice from a real estate agent who can help guide you in the right direction.
