22/07/2024
Freehold vs Leasehold: Which is Better?
Freehold properties are generally more desirable as compared to their leasehold counterparts, as they have less stringent limitations on them and can command a higher price. However, buyers will notice that leasehold properties usually boast more facilities or features and may be priced lower than freehold ones.
Leasehold vs freehold; whether it's a condo or landed property, this is an important question to ask when buying a house in Malaysia.
Aside from marriage and having children, there are more important things than crossing out adventures from our bucket lists. One of these is buying a house.
In fact, this is a very important decision that some even describe it as a lifetime commitment.
But given the amount of information available, understanding the property market can be a very difficult task for an ordinary person, especially when bombarded with jargons such as freehold or leasehold.
Is it really that important to know the difference between freehold vs leasehold? Or more so, will it even matter if you choose to buy a leasehold property?
For better perspective, let’s take a closer look on the major differences of leasehold vs freehold properties and how our buying decision may be affected by them.
Advantages of Freehold Property in Malaysia
There's no certain timeline required or to be observed when developing a freehold land.
There are fewer and less stringent limitations on transferring their land.
For properties that have been converted from leasehold to freehold, the state’s consent is required when transferring ownership. These are then known as restricted freehold properties.
Owners have the right to subdivide and allocate the property, although still subject to town planning controls.
Common misunderstandings of Freehold property
Only environmental and town planning controllers can limit freehold developments; however, the state can still take back the property.
This is because, 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 like an MRT project or for economic development.
An example is when the federal government acquired the freehold land on which the Ampang Park Shopping Centre sits, in order to make way for the MRT project.
In acquisitions such as these, the government compensates the owner based on the market value of the property.
Advantages of Leasehold Property in Malaysia
A leasehold property would be priced slightly cheaper than a freehold one, thus making investments more value for money given the lower entry cost and higher rental yields.
Due to the nature of its tenure, developers tend to make their leasehold properties more attractive and equipped with facilities and features.
Common misunderstandings of Leasehold property
The ownership of leasehold properties may only be transferred with the approval of the state or an equivalent.
In fact, the sale of a leasehold property takes three-plus-one months to complete, starting from the time the state has given its consent – which could also take between six months to a year. This makes reselling the property a problem in the near future.
Purchasing a second-hand leasehold property could take about a year or longer in Kuala Lumpur and Selangor, as the paperwork needed for transferring ownership entails several consent requests.
Meanwhile, purchasing a leasehold property from a developer or on the primary market does not usually require that much time.
Experts noted that while leasehold properties may gain more value during the early years than their freehold counterparts, the value of leasehold properties start to depreciate beyond 30 years until the expiry of lease.
It is tougher to receive financing for leasehold properties as banks will usually stipulate a certain minimum number of years remaining on the lease before they are willing to accept the property as collateral for financing purposes. This results in the older the property gets, the lower the chances of being able to secure financing on the property.
