Freehold vs Leasehold: Quick guide for property buyers in Malaysia
iMoney
July 27, 2016 10:39 MYT
July 27, 2016 10:39 MYT
The decision to either buy a leasehold or freehold property does not solely depend on the price and cost.
We have been told countless times that buying a house is a lifetime commitment. Indeed it is one of the most important decisions we make besides marriage, having children and scratching all the other stuff on our bucket list.
But with so much information available, making sense of the property market can be intimidating, even downright confusing.
What gets us most of the time is whether to opt for a freehold or leasehold property.
Actually, does it even matter?
We find out what are the major differences between freehold and leasehold, and how it can affect your property buying decision.
What is freehold property?
When the state sets aside a plot of land and disposes it indefinitely to an individual, that land is designated freehold. 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.
Freehold land certainly does have its fair share of benefits. Owners face fewer and less stringent limitations should they want to transfer their land to someone else. They also have the right to subdivide and allocate the land, although it is still subject to town planning controls.
If there is no development taking place on a freehold land, the state cannot claim the land from the owner, meaning you are not required to stick to a specific timetable.
Generally, freehold properties go through stable growth provided all other aspects of the property are in good condition. There is also the possibility of redevelopment of old freehold properties where owners will be compensated.
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But there’s one thing to note here: there are freehold properties that need the consent of the state when transferring ownership. An example of “restricted” freehold properties are the semi-detached houses in Kelana Jaya. The reason for this is these properties were converted from leasehold to freehold.
Potential buyers are advised to look at the title of the property to find out if there are any restrictions on the land before deciding to make a purchase.
What is leasehold property?
As its name suggests, leasehold’s tenures 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.
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.
Finally, there’s renewing the lease.
The last thing you want is to suddenly receive a notice that your lease is expiring within a few years and to renew it you have to pay an exorbitant amount, just like what happened to the folks in PJ Old Town.
While it varies from state to state, we have provided below the calculations for renewing leasehold properties in Selangor.
However, it’s not all bad for leasehold. If you are getting a leasehold property, you may notice that these properties usually offer more facilities or features from the developers, or even priced lower than a freehold property.
As developers understand the competition in the property market, they tend to compensate with more features for a leasehold property.
Decisions, decisions, decisions
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.
While not all leasehold properties are inferior price-wise, it’s clear that fetching a freehold property now, especially in a convenient part of Kuala Lumpur or Selangor, might come with a hefty price tag.
For example, a check on PropertyGuru for new property launches in Kuala Lumpur, displayed results with prices anywhere from RM813,000 upwards for a condo.
Fancy a second-hand landed one? Listings on propwall.my revealed unfurnished single-storey houses with a built up of 1,600 sq ft in Taman Tun Dr. Ismail going for RM1,200,000.
You might argue that these are pricey due to their location, but accessibility is also something you’ll factor in when purchasing property.
A double-storey freehold unit with a build-up of 1,875 sq ft in Bandar Country Homes, Rawang, might fetch you RM475,000, but if you are working in downtown Kuala Lumpur, that’s about a 40-minute drive to the office through tolled roads without traffic. That means additional daily expenditure in fuel, toll and general maintenance of the car.
On the other hand, a leasehold property, despite the apparent drawbacks, might be located in a very convenient location. Take Damansara Perdana for example. When Metropolitan Square was launched, the starting price for a condo was RM199,204. The asking price is now RM590 per sq ft. That aside, there are amenities within walking distance such as The Curve shopping mall, Empire Damansara, and IKEA. Getting around Kuala Lumpur and Petaling Jaya is a breeze especially with a car as all the major highways such as the LDP and Penchala Link are nearby.
It is also worthy to note that freehold properties in coveted locations are limited. If you are in the situation where all other factors are equal between two properties of different land tenures, you should obviously choose the freehold unit.
However, the land tenure should not be your primary or sole deciding factor when choosing a property to purchase. Perhaps the best place to start when thinking of buying your first home, whether it’s freehold or leasehold, is to look at your housing affordability and also your objective. Some of these considerations include, your monthly income, cash amount you have available, and how much you can borrow.
Once you’ve got these checked, only then shop for a property loan that offers the most competitive rate.
You can use iMoney’s home loan calculator to compare the rates and apply online with no additional cost.
This article is contributed by iMoney.my, Malaysia's leading financial comparison website. To compare and apply for the best financial products, such as credit card, home loans and personal loans, visit www.iMoney.my