What is leasehold and how did it come about?
Leasehold is a form of property right under which you acquire the right to use a property for a defined period, in Dubai up to 99 years. You do not own the land; that remains with the ground landlord (often the government or a master developer). You do own the right to use, occupy and lease out the property for the duration of the contract.
Historically, leasehold was the only option for foreign nationals in Dubai until the introduction of freehold ownership in 2002. Many of Dubai's older districts were not designated as freehold zones at the time and therefore still operate under the leasehold system. The legal framework for leasehold is set out in Law No. 26 of 2007 regulating the relationship between landlords and tenants.
Important: leasehold in Dubai differs fundamentally from the British leasehold system. In the United Kingdom, leasehold is very common and well regulated. In Dubai it is less common and the rights of the lessee are more limited. This makes sound legal guidance essential.
Areas where leasehold applies
Leasehold primarily applies in the older, non-designated districts of Dubai. These are areas developed before 2002 that were not included in the list of freehold zones:
Deira: the historic trading district on the northern bank of the Creek. Here you will find commercial property and older apartment buildings. Bur Dubai: the oldest part of the city, with a mix of residential and commercial property. Al Karama: a densely populated residential district popular with expats on lower budgets. Satwa: a district in transition near Sheikh Zayed Road. Jumeirah (old): the original coastal strip, not to be confused with newer freehold developments such as JBR or Palm Jumeirah.
In addition, there are some mixed areas where certain plots are freehold and others leasehold. This occurs in transitional areas where newer developments (freehold) border older districts (leasehold). It is essential to verify which property right applies on a property-by-property basis.
Rights and restrictions under leasehold
As a leasehold holder, you have the right to occupy, lease out and renovate the property (with the ground landlord's approval) for the duration of the contract. You may transfer your leasehold right to a third party, although the ground landlord may impose conditions or need to grant approval.
The main restrictions compared with freehold are: you do not own the land: at the end of the contract the property reverts to the ground landlord, unless the lease is extended. Mortgage financing is more limited; many banks do not finance leasehold. Leasehold does not qualify for the Golden Visa, regardless of the amount invested. The resale value can be lower than comparable freehold property, because buyers factor in the remaining term.
Extension is generally possible and is negotiated with the ground landlord. In practice, most 99-year leases are extended, but there is no legal guarantee of renewal. This is a risk you must weigh in your investment decision.
Usufruct: an intermediate form
Alongside freehold and leasehold, Dubai also recognises usufruct. This is a property right that entitles the holder to use a property and enjoy its fruits (such as rental income) for a defined period, generally up to 99 years.
Usufruct differs from leasehold in that it is a right in rem rather than a personal right in personam. This means it enjoys stronger protection and is more readily transferable. Some developers in non-freehold areas offer usufruct as an alternative.
In practice, the difference between leasehold and usufruct is limited for the average buyer. Both grant a temporary right of use without land ownership. The main difference lies in the legal classification and the degree of protection in transfers or disputes.
When can leasehold be of interest?
Despite the restrictions, there are situations in which leasehold can be relevant for foreign buyers:
Commercial property: if you are looking for business premises in a specific non-freehold location, such as a shop in Deira or an office in Bur Dubai, leasehold is sometimes the only option. The lower acquisition cost can produce a higher rental yield.
Lower entry cost: leasehold property is generally cheaper than comparable freehold property. For buyers with a limited budget this can be a consideration, although we generally advise redirecting the budget to a more affordable freehold zone such as JVC or Dubai South.
Specific location requirements: if, for business or personal reasons, you specifically want to live or invest in a non-freehold district, leasehold is the only option.
In most cases, however, we recommend freehold over leasehold. The stronger legal certainty, qualification for the Golden Visa and higher resale value outweigh any price difference.
Our advice to international buyers
At Augusta Properties, we generally advise international buyers to choose freehold property. The advantages are substantial: perpetual ownership, better financing options, qualification for the Golden Visa and a stronger position on resale.
Should you nevertheless consider acquiring leasehold property (for example for commercial purposes in a specific location), we will of course guide you through that as well. We ensure the leasehold contract is carefully reviewed by a real estate lawyer, that the remaining term and renewal conditions are clear, and that you have a realistic view of the resale value.
Augusta Properties Brokerage LLC (RERA licence 52101) is at your disposal to help you make the right choice. Contact us for a complimentary, no-obligation consultation.