Leasehold and Freehold Properties

Someone asked me what is leasehold properties and whether it is worth it to purchase one. The answer can be both complicated and not, as freehold properties remains the hot favorites for homebuyers. Why would one want to purchase a leasehold property, and why are there still a lot of leasehold properties on the market? Are consumers on the losing end if they purchase a leasehold property?

I am not a legal expert on definitions of properties, but here is what I know.

There are generally 3 types of properties i.e:

  1. Properties under Master Title – These are properties that have yet to be assigned their titles, either leasehold or freehold properties. The Master Title has not been divided yet into individual titles, so it sometimes makes it difficult to sell the property to another party without the owner of the Master Title’s consent. But it is an advantage for leasehold properties; the lease won’t start until the titles are issued.
  2. Leasehold Properties – Basically, you are renting the land for you to build your house. As with any other leased items, at the end of the lease, you may be asked to return the land to the government, including anything considered part of the land, in this case anything immovable such as your house. Sounds like a bad investment, but it is not really, depending if you have the right strategy. A leasehold property usually carries a lease period of 99 years, and that is a long time. Why is it leasehold? Someone told me before that leasehold properties are selectively good quality land, which the state government wants to retain due to its high value. I am not sure if that is true, but it just means that someday, you may have to return it back. Your strategy? Sell the property to the next buyer and get your capital appreciation after 20 or 30 years. Besides, Banks won’t finance a leasehold property with a remaining lease of lesser than 25 years, so make sure your property is sold off with about 50 or 40 years lease remaining. You will be hard pressed to find a buyer if you do.
  3. Freehold Properties – Freehold properties are by far the better value, simply because your title means you can hold the property for as long as you want. Generations will be able to enjoy the property, and naturally the price of such property is higher than other types of properties (even if the property location is not the best). The high demand of such properties is also due to the fact that it is easier to sell or buy. Documentation is straightforward, and transfers are usually quicker. Overall, high in demand but at the same time, limited in supply.

At the end of the day, a house is a house is a house. Whatever condition or type of property, it is up to the owner to make the house into a home. We all need homes, and the use of the houses should be the main criteria for buying a house. Also, location is utmost importance to ensure the house value is protected. Whether it is leasehold or freehold, that is mostly relevant if you are looking at a house mainly as an investment opportunity, with an intention to dispose the house in the future.

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1 Comment (+add yours?)

  1. Leasehold Properties « Your Home Dashboard
    May 25, 2010 @ 04:40:54

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