Ground rent might sound like a niche term, but if you are navigating Dubai's dynamic real estate market, it is one worth understanding. In this blog post, we will tell you about ground rent and help you better understand it in the context of Dubai.

What is Ground Rent?

Ground rent, legally speaking, is the recurring payment a leaseholder makes to the freeholder (or a higher-level leaseholder) according to the terms of their lease. This type of rent comes into existence when freehold land is leased out for a long period.

  • Purpose: Ground rent allows landowners to earn income from their land without giving up ownership permanently.
  • Payment Terms: Typically paid annually, it’s the leaseholder’s responsibility to settle this with the landowner.
  • Global Context: This practice is widespread in leasehold systems worldwide, but its specifics vary by region.

In Dubai, where the real estate market blends freehold and leasehold options, ground rent takes on a unique flavor. Let’s dive into how it works here.

Ground Rent in Dubai: The Local Landscape

Dubai’s property market is a tale of two ownership models: freehold and leasehold. Freehold gives you full ownership of both land and building. Leasehold, on the other hand, means that you are leasing the land for a set term (often up to 99 years), and this is where ground rent comes into play.

How it Applies

  • Leasehold Properties: Ground rent is a standard feature for leasehold properties in Dubai. If you own an apartment in a tower built on leased land, you might owe ground rent to the landowner. 
  • Calculation: It’s typically a percentage of the property’s value or the land’s value. The exact rate depends on the lease agreement, but it’s not uncommon for it to range between 1% and 5% annually.
  • Payment: Paid yearly, this cost is distinct from service charges or maintenance fees, which cover building upkeep rather than land use.

For example, imagine you own a leasehold villa valued at AED 2 million, with a ground rent rate of 2%. That’s AED 40,000 per year you’d pay to the landowner, on top of other property expenses.

Regulation and Oversight

The Dubai Land Department (DLD) is the backbone of real estate governance in the emirate, and it oversees leasehold agreements, including ground rent terms.

While there’s no one-size-fits-all rule for ground rent amounts, the DLD’s Rental Index, a tool for setting fair rental increases, sometimes influences adjustments. However, ground rent isn’t the same as apartment rent; it’s tied to the land lease itself.

Dubai’s real estate scene is never static, and ground rent is evolving with it. Here’s what’s happening in 2025, backed by the latest data and insights.

New Regulation: Capping Increases

In early 2025, Dubai rolled out a game-changing rule: ground rent increases are now capped at 5% per year. This applies to both residential and commercial leasehold properties.

  • Why it Matters: Before this, some leaseholders faced steep hikes, especially in high-demand areas like Dubai Marina or Downtown Dubai. The cap brings predictability, protecting leaseholders from financial shocks.
  • Impact: For a property with a ground rent of AED 50,000, the maximum annual increase is now AED 2,500.

Population Growth and Housing Demand

Dubai's population is projected to reach 4 million by 2026, fueled by an influx of international professionals, workers, and investors, representing a growth of more than 378,000 people since the beginning of 2021.

Earlier reports from 2022 indicated a longer-term expectation for the city's population to reach 5.8 million by 2040, following it reaching 3.5 million that year. This tug-of-war between supply, demand, and ownership models will shape ground rent’s role moving forward.

Why It Matters to You

Whether you are a leaseholder or an investor, ground rent is not just a line item. It is a piece of Dubai’s real estate puzzle. Here’s the takeaway:

  • For Leaseholders: Budget for annual ground rent and watch for that 5% cap. Review your lease agreement to understand your terms.
  • For Investors: Freehold might dodge ground rent, but leasehold could offer lower entry costs in premium areas. Weigh the trade-offs.
  • For Everyone: Dubai’s market is shifting—stay informed to stay ahead.

Is Ground Rent Monthly or Yearly?

Generally, ground rent is an annual payment made by leaseholders, though some leases may specify semi-annual (every six months) or quarterly (every three months) payments.

While monthly ground rent payments are less common, the exact payment frequency will always be detailed within the terms of your lease agreement.

Therefore, the lease itself is the definitive source for determining whether ground rent is paid monthly, quarterly, semi-annually, or annually.

Who Pays the Ground Rent?

Ground rent is typically paid annually by the leaseholder to the freeholder, although the lease agreement will specify how often these payments are required.

As the leaseholder, you will generally receive a formal request for payment from the freeholder, which will detail the amount due and the payment deadline.

What are Ground Rent and Service Charges?

Ground rent is a payment made by someone leasing a property to the landowner or building owner. It is essentially a fee for occupying the land or building itself, and it doesn't include any specific services like upkeep or repairs.

Service charges, conversely, are payments from tenants or leaseholders that cover the costs of maintaining and managing the shared areas of a building. These can include expenses for utilities, repairs, cleaning, and other services provided by the landlord or property manager.

How is Ground Rent Calculated?

The calculation of ground rent is not standardized and is entirely determined by the specifics outlined in the leasehold agreement between the freeholder (landowner) and the leaseholder (property owner). Let's see how it can be calculated:

  • Fixed Annual Amount: This is the most common method. The lease specifies a set monetary amount that the leaseholder must pay each year.
  • Percentage of Property Value: Less commonly, ground rent can be calculated as a percentage of the property's market value. For instance, the lease might stipulate an annual payment of 0.1% of the home's current market price.

With Periodic Rent Reviews: Many leases include clauses that allow for the ground rent to increase at specific intervals throughout the lease term. These rent reviews are predetermined in the agreement and might specify that the ground rent will double every 10 or 25 years, for example.

Final Words

As we explained, ground rent plays a vital role in Dubai's leasehold property market, acting as the link between owning the land and developing properties on it.

With important developments in 2025, including the DLD's active role and the new 5% limit on increases, alongside the increasing popularity of freehold, now is a crucial time to understand this aspect of Dubai real estate.

As the city expands and its ambitions grow, a solid understanding of ground rent will allow you to navigate its property market with assurance. Got questions about your property or investment? Reach out to us at Entralon.