Is there a big difference to buy a leasehold and freehold property?
The obvious answer is always, Yes!
Most times, when a Property Agent or Developer trying to sell a leasehold house to a customer, they will say, ” nolah… not much difference. Leasehold and freehold same also.No need to worry, you will not live up to 99 years.” I guess he is correct on one thing, and I may not live up to 99 years, but I do want my children to have hassle and stress-free from worrying to pay the extension of the lease.
Extension of lease only happen to leasehold property and is an extension that the owner apply for their leasehold land. So, it’s regardless of a landed house ( double-storey, single-storey or bungalow) or non-landed house ( apartment or condo), you’ll need to apply for the extension.
It is advisable for the owner to ask for the extension of the lease before the expiry of the property. If the owner does not renew the lease and the lease expires, the land shall revert to the state government. The land is then available to any other persons who wishes to apply for ownership. ( how scary huh?)
And do you know, some banks are not giving financing to a leasehold property if the balance years less than 40? What are you going to do about that? You can’t refinance and if you sell, your purchaser may not able to get financing. So, you’re stuck financially.
You know, leasehold property is good for investment. Because it might be cheaper than a freehold property. But, if you’re to hold a leasehold property for a long time, there is a cost in the future.
Ever wonder how to calculate the premium for leasehold property?
In Selangor, the premium for lease extension for residential property is like this:
F: (1/4) x (1/100) x (Market Value of land) x (lease period – years remaining on the lease) x (land area). *Leases are usually renewed for a 99-year period.
As an example, let’s say you have a bungalow land with a land size of 7,000 sq ft in Petaling Jaya with about 45 years remaining on the lease. The premium that you would have to pay shall be as follows:
(1/4) x (1/100) x (220) x (99 – 45) x (7,000) = RM 207,900. After deducting the 30% rebate, it comes to RM 145,530 and this is what you would have to pay.
The above example is based on the assumption that the government has valued at the land at RM 220 per sq ft.
And do you know that Leasehold property with individual title or strata title issued will have a longer period to complete the transaction of refinancing and if you buy a house, it will take longer than freehold property? Leasehold property requires to apply for state consent, and state consent alone will take around 1-3 months. So, to complete a leasehold property transaction usually will be more than six months.
It’s always good to know what you are buying, and regardless of purchase a leasehold or freehold property, you need to understand the risk and cost that might occur in buying that property.
Here is an article about leasehold property (quite good), if you want to know more, click here.
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