What’s the Difference Between Freehold and Leasehold?

Have you been scratching your head trying to figure out the difference between freehold properties and leasehold properties? It was the same for me too. So here I’ve simplified the jargon so that you, too, can learn the basics of freehold and leasehold properties to make the home-buying process easier for you!

The Basics

The fundamental difference is the type of ownership. Ownership belongs to the home buyer with a freehold property and can easily be transferred to another individual. On the other hand, ownership belongs to the state with a leasehold property and so homeowners will need to deal with lease renewal when the time comes. Below is a comparison.

When it comes to freehold property:

– You own the land
– You own it forever (although the state government has the right to forcibly acquire freehold properties for state projects)
– You can transfer ownership

When it comes to leasehold property:

– State government owns the land
– You own it for a fixed period of time (either 30, 60 or 99 years) after which ownership returns to the state
– You can transfer ownership as long as you first obtain approval from the state
– You can renew your lease when it expires; you will need approval from the state and pay a premium

Think You’re Ready to Buy? Consider These Factors.

Price (if the only difference is freehold or leasehold)

Freehold is expensive while leasehold is relatively cheaper (usually by 20%).

Availability

The amount of freehold properties are very limited as compared to leasehold.

Location

Freeholds are likely to be found in an undesired location while some of the best leasehold properties are in the best locations.

Mortgage

It’s harder to obtain a mortgage or housing loan for a leasehold property whereas a freehold property gets one with relative ease.

Transaction

Buying or selling a freehold property is a straightforward process that takes 4 months to process. Leasehold properties commonly need to acquire approval from state government which could take more than 6 months to process.

What Happens After You Buy?

Make sure to keep these in mind.

Leasehold:

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– Maintenance on the home is extremely important; you need to maintain and make improvements as regulated by the state.
– There’s less flexibility to customize the property.
– The value of the property appreciates at a similar rate as a freehold property for the first 20 years but usually stops (or may even start to depreciate) when expiration date approaches.
– Newer leasehold properties will receive a lot of interest from potential homebuyers if/when you want to sell the property. Older properties will get less interest because the expiration date for the lease is not disclosed to the public and so homebuyers may not want to deal with the renewal process.

Freehold:

– If you don’t mind having a messy home, maintenance is not required.
– When it comes to customizing the property you can go wild and show off your personality!
– The value of the property will continually appreciate.
– As long as you maintain the property and make whatever necessary improvements, potential homebuyers will be interested to purchase

If you want more flexibility in renovating to fulfill your personal needs and to increase your home’s value, you may want to stick to a freehold property. On the other hand, if you can find out the expiration date of the lease, you can maneuver your way through to get the most bang for your buck.

Now that you understand the basics, you may be wondering which is better. There are advantages and disadvantages to both freeholds and leasehold properties and it all comes down to what you want out of your property. There’s less hassle with freehold properties when it comes to making transactions and loans while leasehold properties are a better choice if you prefer a cheaper option with more options for locations.

If you dream of having a home under your family name for generations to come with the freedom to do whatever you want, you may want to go with a freehold property. If, however, your children plan on starting their own families elsewhere and you want more options at a cheaper price, it may be best to go with a leasehold property.

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The bottom line? The type of ownership should be the least of your worries. Focus instead on the type of amenities and features that are offered. When you’ve decided on what you want, check out NuProp.my for a huge list of newly launched freehold and leasehold properties.

 

 

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