Freehold, leasehold and what foreign buyers can own in Dubai

Buyers arriving in Dubai hear that the market has been freehold since 2002. On built apartments that shorthand mostly works. On land it does not. A plot can be freehold, leasehold, usufruct or musataha. The four rights differ in what you may build, how long you hold the land and what you can sell afterwards. The type of right is written on the title deed.

The legal frame in one paragraph

Two instruments govern the question. Law No. 7 of 2006 created the Dubai Land Department register. Under it, an interest in land exists only once it is entered on that register. Regulation No. 3 of 2006, amended several times since, lists the areas where non-GCC nationals may hold freehold or long leasehold. UAE and GCC nationals may own land anywhere in the emirate. Everyone else is confined to the designated areas. Those areas now cover most of New Dubai and several older districts, but not all of them.

Freehold

Freehold means the land and anything built on it belong to you, with no end date. You appear on the title deed. You may mortgage, sell, gift or bequeath the plot. No ground rent is payable, because there is no landlord.

In practice, freehold plot inventory concentrates in the designated zones. Those include Jebel Ali Hills, Al Furjan and its sub-communities, Nad Al Sheba Gardens and Dubailand. Dubai South, Majan and the Sheikh Zayed Road corridor also carry freehold plots. If a plot there is offered to a foreign buyer as something other than freehold, ask for the reason.

What freehold does not give you

Ownership is not permission. The plot still carries a Dubai Municipality affection plan. That plan fixes the use, the setbacks, the height and the permitted built-up area. A freehold owner who wants a G+4 on a plot zoned G+1 has the same problem as a leaseholder.

Leasehold

Leasehold grants possession for a fixed term, commonly up to 99 years. At the end of the term the land reverts to the freeholder. In Dubai the arrangement is most visible in the industrial and logistics parks. Examples are Dubai Investments Park, parts of Jebel Ali and the free zone estates. There the master developer keeps the freehold and grants long ground leases to occupiers.

Leases longer than ten years must be registered with the DLD to bind third parties. Two clauses decide whether the lease is financeable:

• Assignment. Can the lease be transferred without the landlord's consent, or only with consent that cannot be unreasonably withheld? A consent-at-discretion clause makes your exit depend on a counterparty with no obligation to cooperate.
• Reversion of improvements. At expiry, does the building revert to the landlord for nothing, at a valuation, or under a compensation formula? On a warehouse with a thirty-year economic life under a fifty-year lease, the answer moves the numbers a long way.

Usufruct and musataha

These two appear on plot title deeds often enough to matter.

Usufruct is a right to use land owned by someone else and take its benefit. The term runs up to 99 years. The usufructuary may not alter the substance of the property, so no new construction is allowed.

Musataha is the right to build on and exploit someone else's land, granted for up to 50 years and renewable by agreement. It is used where a developer needs construction rights on land it does not own. The musataha holder owns the building for the term of the right. The land stays with the owner throughout.

Both are registrable interests, and both can be sold and mortgaged. Neither is ownership of the land, and neither should be priced as if it were.

Reading the deed

The DLD title deed states the type of right, the area in square metres and the plot number. It also names the land use and the registered owner. Three checks are worth doing before any deposit moves:

1. Confirm the right type on the deed itself. A listing or a broker's summary is not enough.
2. Pull the current affection plan from Dubai Municipality. Compare the permitted use and GFA with what the seller has described.
3. Ask the DLD for the encumbrance position, including mortgages, caveats and any pending case that would block a transfer.

The practical rule

For a family building a house, freehold in a designated area is the simplest structure. The same holds for an investor holding land for capital growth. Leasehold makes sense where the income is industrial and the tenant base already accepts the tenure. Dubai Investments Park is the clear example. Usufruct and musataha are tools for specific structures, and they are not substitutes for ownership. A price that ignores the difference is not a bargain.