Rent or buy? Now you can lease

Expatriates can now buy properties in Dubai on 90 year leases, but will anyone want to?

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By  David Ingham Published  November 6, 2003

|~||~||~|Dubai residents who don’t want to pay expensive rents, but aren’t convinced about buying a freehold property now have an alternative way of spending their cash. Properties Investment is now selling 90 year leases on a variety of residential properties within its new Green Community development.

Buyers can opt to pay for a property in full or spread the cost over a five or ten year period. Prices range from Dhs275,000-900,000 for a garden apartment, to Dhs1,350,000-1,485,000 for a townhouse and Dhs2,250,000 for a luxury villa.

Anis Al Jallaf, chairman of Union Properties and Dubai Investments (the owners of Properties Investment), expects the leases to prove “very popular” with buyers, describing them as an “excellent, risk free alternative to renting.”

That may well be true, but buying one of Emaar or Nakheel’s properties freehold means ownership ‘in perpetuity.’ Why, therefore, would anyone want to buy something that has to be given back in the future, albeit at a much later date?

Simon Azzam, chief executive of Union Properties, gives plenty of reasons why he thinks he has an attractive proposition. First and foremost, he urges buyers to look at the overall quality of the development, and not be overly concerned at this stage about the form of ownership.

“One needs to compare not only leasehold and freehold, but ask what you are getting in terms of value for money,” he says. “We’re confident because the quality of the product that we’re offering is quite good. Therefore, the value for money of leasing will outweigh the freehold issue.”

On the subject of ownership, he makes the point that freehold ownership won’t be legal until a new property law comes into effect, whereas leasehold is.

“At the moment, the law doesn’t allow freehold. What you have is an agreement that once the [freehold ownership] law comes into effect, [the property] will be registered in your name. Whereas, today, we are offering a ninety year lease in your name,” explains Azzam.

Plus, there is always the possibility that Dubai’s leasehold laws may change to allow conversion to freehold or renewal of a lease. “Like everything else in the world, things can and do change,” says Azzam. “We cannot promise that one day it [a leasehold] will be converted [to freehold], but it is a possibility in the future that this option could become available.”

Azzam bases his arguments on the UK example, where 99 year leases are a very common form of residential property ownership. Leases can usually be renewed at the end of the ninety year period, or, in some circumstances, converted outright to freehold.
All of this begs the question of what Union Properties’ own attitude to freehold development is. “We are waiting to see when the law will come into effect, which I believe it will quite shortly,” Azzam says. “Based on that, we’re looking at various options that will allow us to offer freehold properties.”

Away from the issue of the development’s legal status, a key advantage of the Green Community, according to Azzam, is that it is ready for viewing now and will be ready for people to move in to by March 2004. “You can go and select it now. It’s not like we’re selling it to you off a drawing,” he says, a reference perhaps to freehold developments that are sold before they are even built.

All of these questions aside, Green Community certainly looks like a very desirable place to reside. The development, located off Sheikh Zayed Road towards Jebel Ali, is heavily landscaped, and is distinguished by cobbled streets and distinctive architecture. It uses energy efficient air conditioning to help residents save money. Union Properties reports that it received around 200 enquiries on September 19, the first day the properties went on sale.

Buyers can choose to purchase outright through a bank loan or mortgage, or avail of Union Properties’ own fixed payment scheme. This requires the buyer to put down a 20% deposit and then pay the balance over five years at a fixed rate of 7%, or over ten at a rate of 8%. At the end of the five or ten years, the owner receives the original leasehold agreement.

A quick calculation shows that a Dhs275,000 apartment would require a deposit of Dhs55,000, leaving Dhs220,000 outstanding on the initial price. At a fixed rate of 7% over five years, Dhs235,400 would be owed, a monthly repayment of Dhs3,923. At 8% over ten years, the figure owed would be Dhs237,600, a monthly repayment of Dhs1,980.

Buyers in the Green Community do not automatically receive the right to reside in Dubai, as they would when buying freehold. They can, however, keep the apartment once they leave Dubai and rent it out to tenants.

Whether expatriates will want to lease, when they can buy outright, remains to be seen. But whether they do or not, potential house buyers in Dubai now have another option to choose from.||**||

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