Which is a better option: Freehold or Leasehold?
Are you checking at property for sale in Malaysia as you plan to buy a property on your own? With so many properties for sale, such as landed properties, condominiums, duplex condo, apartment, and so on. Buying your first own property to be called home is another milestone achieved in your life. Whether it is for investment purpose or own stay, most people are still confused with the procedure of buying new house in Malaysia. Buying your own property may seem easy but when it comes to going through the procedures of buying a home, you then realize that you have missed out on many steps and wished you know the steps earlier so you could avoid the unnecessary troubles.
In addition, many people still cannot decide which type of property to choose: freehold or leasehold. Real estate agents often get asked the question of which types of property is better. This article will guide you through the differences between a freehold property and a leasehold property.
A freehold property is having the outright ownership of the property and land on which it stands. That also means the owner of the land has no time limit to the ownership period. Most developers build bungalows, condominiums and private housing on a freehold land.
Developer or owner of land will have to go through the transfer of land to potential buyer if the property is in the form of landed residential such as terrace house or bungalow. This type of ownership will then be in a Master Title form.
As for high rise residential properties or condominium, the buyer will then have a stake of the condominium, however, the land still belongs to the developer where the distribution of ownership will be done through Strata Title.
Having a freehold land comes with its benefits as well. First of all, the owners are able to transfer the land to interested buyer with lesser limitations. In addition, they are also allowed to subdivide the land and allocate their land according to their wills, however, subject to the town planning controls.
Typically, a freehold property will have a stable growth if the property is taken good care of and is in good condition. There might also be a chance of redevelopment for the old freehold properties. In this case, the owners will then be compensated.
However, the state is able to take back the freehold land it for public purposes, such as the MRT project or any economic development under the proposed Land Acquisition Act 1960. Under such circumstance, the owner of the freehold land will then be paid the for the property at a market value. Moreover, if there is none development process in the freehold land, the state is not allowed to claim the freehold land. That being said, there is no specific timetable that you need to adhere to.
Another thing to take note of is that restricted freehold parties will need a consent from the state if you wish to transfer ownership. This is because the properties are properties that have been converted from a leasehold title to a freehold title.
With a leasehold title, it means that you own the property and the land with a certain period of the lease agreement with the freeholder. Most leasehold properties in Malaysia have a leasehold period of 30 years, 60 years, 99 years, with some that have a longer period of 999 years.
As the name mentioned, property with a leasehold title will have to be responsible for the land and maintenance need to be done. If the land is not well taken of, the state will deem the tenant as unfit and the tenure might be compromised. The state could also forfeit your lease if the land is not in a good condition.
Do bear in mind that leasehold property have its cons that you should take into account before deciding to buy a leasehold property.
a. Longer time to sell
Buying a leasehold property from the developer or the primary market generally does not take a long time. But if you are buying a second hand property with a leasehold title, it might take a longer time, possible up to 1 year or more in Kuala Lumpur and Selangor due to the amount of consent requests.
Unlike properties with a freehold title, the ownership period for leasehold property can only gain grant approval for the transfer of lease by the state, or equivalent. In addition, it requires 3 + 1 months for the sale of leasehold property to take place, which will only begin after getting the consent from the state, usually between 6 months to 1 year. This will make the process of reselling of property an issue.
b. Lower value
It is known that leasehold property after 30 years, the value of the property will then depreciate or even stay stagnate all the way until the end of the lease. In addition, assuming both leasehold property and freehold property having the same specifications, the price for a property with leasehold title is usually approximately 20% lower than a property with freehold title.
c. Harder to secure a loan
Securing a bank loan for a leasehold property is usually much harder as compared to getting a loan for freehold property, especially leasehold property with lesser than 50 years lease period. Banks tend to favor leasehold property with at least 75 years lease. Moreover, the loan amount that you will be getting if you manage to secure a loan will usually be lower than than 90%. That being said, you will have to pay more for the down payment of the property.
Another thing to bear in mind is the renewal of lease. The nightmare for owners owning a leasehold property. You will have to pay a huge amount if you plan to renew your lease. The benefit of buying a leasehold property is that leasehold properties usually come with more facilities and are usually priced much cheaper than freehold properties.
In conclusion, whether to invest in a freehold property or leasehold property will still depend on your budget and how much you can afford. You should take these factors into consideration as well before deciding to buy, such as monthly income, purpose of buying (own stay or investment), cash available, and loan amount. Do your research and plan ahead to make the best decision out of it.