Abu Dhabi, UAEFriday 23 August 2019

Abu Dhabi owners unsure how new freehold property law affects existing homes

Analysts say it is unclear if the new regulations will affect current leaseholders

Abu Dhabi owner Jennifer Castro is waiting for clarification on whether her leasehold apartment will receive freehold status. Khushnum Bhandari for The National
Abu Dhabi owner Jennifer Castro is waiting for clarification on whether her leasehold apartment will receive freehold status. Khushnum Bhandari for The National

Property agents and owners in Abu Dhabi are questioning how the emirate’s new freehold law will affect existing real estate leaseholders.

While foreign investors can now buy freehold property for the first time in over 15 designated investment zones in the emirate, including Raha Beach, Reem Island, Saadiyat Island and Yas Island, it is unclear what will happen to existing homeowners.

“The big question is whether this will apply retrospectively to existing owners,” said Ben Crompton, managing partner of Crompton Partners Estate Agents in Abu Dhabi, which set up in 2012. “If I have a 99-year lease, will that then be converted into freehold or if I sell it, will the buyer get freehold? That’s the questions we do not know the answer to.”

Abu Dhabi’s government made changes to real estate laws last week allowing foreigners to own freehold property in designated zones to increase foreign direct investment and boost the economy. Previously, ownership was restricted to UAE and GCC nationals with foreigners only allowed to own real estate on a 99-year leasehold basis.

Now residential units in special designated investments zones, such as private resort Nurai Island and eco-friendly Masdar City, will be registered under Abu Dhabi’s freehold law, with property ownership deeds issued to investors.

However, owners said they were unsure whether the Government decision also applies to existing homeowners.

Questions about the status of leasehold properties sent to the Abu Dhabi Department of Urban Planning & Municipalities were not immediately answered.

Abu Dhabi resident Jennifer Castro, a Philippines-born Australian, bought an off-plan one-bedroom apartment on Reem Island for Dh1.1 million with her husband in 2007, with handover taking place in 2012.

As the sole owner, following her husband’s death three years ago, the administrator lets the property out and wants to understand if it will be now be converted to freehold status and whether there will be any costs involved in the process.

Ms Castro owns a property on Al Reem Island - one of the designated zones where foreigners can now buy freehold property. Christopher Pike / The National
Ms Castro owns a property on Al Reem Island - one of the designated zones where foreigners can now buy freehold property. Christopher Pike / The National

“We are waiting for clarification from the developer,” she said. “I would prefer to have freehold because coming from Australia that is what I am more used to. If the leasehold is converted to freehold, that means we don’t just have the property for 99 years and of course you want your beneficiaries to have full ownership of it.”

Under a leasehold agreement, an owner takes the title of a leasehold property for a fixed term but does not own the land on which the property is built, while freehold ownership offers an investor a direct title of ownership of the property, and the land on which it is built.

Lynnette Abad, director of research and data at UAE portal Property Finder, said it is too early to make assumptions about how the new law will be applied in Abu Dhabi.

"The full details have not yet been disclosed, therefore, no one knows what the final outcome will be,” she said. “The devil is in the details.”

Kamraan Khan, residential associate at Cavendish Maxwell in Abu Dhabi, said the new freehold law is a landmark move for Abu Dhabi but "it remains to be seen whether these measures will be retrospective, and how it will impact current owners - particularly those in specific developments, and in terms of fees payable".

"We also do not expect it to be an overnight cure for the currently challenging market. However, it should undoubtedly have a positive impact on the medium-term outlook, providing greater clarity and certainty, and making Abu Dhabi a more attractive investment destination,” he added.

Mr Crompton said the issue should be resolved soon. “The Government clearly has an idea behind this change to the law and they usually roll out the regulations pretty quickly after the law. I think they will convert everything to freehold. It would be very unfair on people that own now if they were penalised because they bought early,” he said.

Ms Castro said she and her former husband were not concerned by their property’s leasehold status when they first bought. “My husband though ‘hmm, it’s 99 years but who knows if you will still be alive in 99 years'. We did not feel restricted in any way.

"But if they are going to introduce a law they should cover old and new because it would make it quite complicated otherwise and would devalue my property,” she said. “We were one of the first buyers who had faith in Abu Dhabi’s development back in 2007 so that should be taken into account.”

The property law changes were enacted after a study examined the needs of the real estate sector, including meetings with investors, developers and others, the Abu Dhabi Executive Council said last week.

Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces said at the time that modernisation of the real estate law “reflects the government vision to support and develop the business environment in Abu Dhabi, along with the development of investor services and procedures”.

Updated: April 22, 2019 10:43 PM

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