What is Freehold Property?
Freehold property is when the state sets aside a plot of land and disposes it indefinitely to an individual. This is obvious when developers build freehold bungalows, private housing and condominiums.
As the developer owns the land, property built on it facilitates the transfer of land to the buyer provided it is a landed residential property such as a bungalow or a terraced house. This ownership will be in the form of Master Title.
As for a condominium or other high-rise residential properties, the buyer owns a stake in the condo by way of the unit but the developer still owns the land. In this case, the developer will distribute the ownership via Strata Title.
Should the owner wish to transfer ownership, there are much fewer and less stringent limitations as compared to leasehold property owners.
The owner has unlimited rights to subdivide and allocate the land but is still subjected to town planning controls.
The owner also has some means to use the land for public works. The State cannot claim the land from the owner if no development takes place.
What is Leasehold Property?
Leasehold property are usually 30, 60, 99, or in some same cases, 999 years.
There are some with 50 or fewer years such as PJ Old Town in Selangor, and some parts of Kuala Lumpur such as Sungai Besi and Setapak.
Once the term expires, the land ownership reverts to the State authority. In order to extend the leasehold, the current owner must apply for a renewal before the expiry date. If the application is approved, a premium is payable depending on the prevailing market value of the land. A significant sum of money is usually expected – one that is close to the original sum paid for albeit with minor discounts.
Such land comes with obvious restrictions where the dos and the don’ts are fleshed out in the lease.
The tenant has to care for the land as defined by the land legislation and may be responsible for developing some property and maintaining it. If the state deems the tenant unfit, the security of the tenure may be compromised. The state can forfeit the lease for non-performance.
Advantages & Disadvantages About Freehold & Leasehold Property
Advantages about Freehold Property
- Fewer and less stringent limitations on transferring their landto others; having the right to subdivide and allocate the property, albeit still subject to town planning controls.
- State cannot take the freehold land back from the ownereven when no development is taking place on it, therefore owners are not required to observe a certain timetable within which to develop the land.
- Go through stable growth especially when all other aspects are in good condition. Old freehold properties may also undergo redevelopment, with the owners duly compensated.
Disadvantages about Freehold Property
- Under the Land Acquisition Act 1960, the state has the power to take back a freehold land, provided that the property will be used for public purposes, such as an MRT project, or economic development.
Advantages about Leasehold Property
- Leasehold properties usually boast more facilities or features. Knowing the competition in the property market, developers tend to make their leasehold properties more attractive to buyers by integrating more features.
- May be priced lower than freehold ones.
Disadvantages about Leasehold Property
- Leasehold properties take longer to sell as may only be transferred with the approval of the state or an equivalent. In fact, the sale of a leasehold property takes 3+1 month to complete starting from the time the state has given its consent – which could also take between 6 months to a year. This makes reselling the property a problem in the near future.
- Value could be lower compared to freehold . The value of leasehold properties start to depreciate beyond 30 years until the expiry of lease.
- More difficult to obtain financing.Financial institutions tend not to grant loans to those looking to acquire properties with less than 50 years left on its lease, and favours those acquiring properties with at least 75 years remaining on the lease. Even if your loan gets approved, the margin of financing (loan amount) will most probably be lower than the maximum 90 percent. This means you need to raise more money for your down payment.
- Hassle of lease renewal. Owners of leasehold properties will also have to contend with lease renewal, in which they would need to pay an exorbitant amount in order to obtain a fresh new lease for their properties.
Leasehold Renewal Premium Calculation
Source from : The Edge Markets
Freehold vs Leasehold, Which One The Best Choice?
It depending on are you going to owner occupied the house, or it’s for investment?
People who are owner-occupied the house, they will look at the property in different angle compared to Investor.
Property environment, location, education center, conveniences, access to work or parents’ house are way more important than the appreciation of property. They don’t mind having smaller appreciation value if other factors are fulfilled.
While for an investor it will be solely on the appreciation value of the property.
At the end of the day, making a decision between a leasehold and freehold property does not solely depend on the price and cost. There is a list of factors at play, and the individual’s spending power tops that list.