When it comes to buying a house, somehow we need to decide whether to buy a Freehold or Leasehold house.
Freehold is better, they say.
It doesn’t matter, some say.
So which one is true?
But the truth is, there is no direct answer to this.
I want to say, FREEHOLD house is more superior choice but I can’t…
Because when we decide to buy a house, it is not because of one reason.
Not one ever buying a house because the house is a Freehold or Leasehold house. Typically, it is more to it.
People buy because they like the property’s location, the environment, the price, the house layout, near office or family house etc. It can be any or combination of the reasons.
So, we can’t say a Freehold house is better than a Leasehold house.
Sometimes, you will face a tough choice like this.
Property A is a freehold property and an old house. It is priced at RM500,000.
After a few years, it doesn’t appreciate so much as the property location has mature and rarely any new development around the neighbourhood.
Property B is a leasehold property, price at RM500,000.
A better location compares to Property A.
Property B has much room to appreciate in the future.
And Property B is new.
A lot of property transaction going on in the area.
Which one will you choose?
Well, personally, it will depend.
Are you going to owner-occupied the house, or are you an investor, or are you both?
If you decide to owner-occupied the house, you need to look at the comfortability of staying in the house.
How much money more will you need to spend on the property?
Are you going to stay here until retired or it is just a temporary place?
Is there a good selling value of the property if one day you decide to sell the house?
If you are an investor, you might want to check the capital appreciation and rental value.
How much rental amount can make you?
Can this cover your instalment?
How’s the capital appreciation?
How much money to renovate or furnish the house?
It a tough decision; it usually will come down to what you prefer and what you dislike to do.
Personally, I might go with Leasehold property if the lease still has 99 years balance. Even though I always prefer Freehold property.
I love a new house, and the old house will come with a lot of renovation and maintenance.
I prefer to stay around 10-15 years before moving to another new place again. So, I might not keep the Leasehold property for long. I might sell it again in the future.
The secondary market for the property seems to be active, and this is a good sign.
What is Freehold?
When a plot of land is disposed of by the authority to an individual indefinitely, it becomes freehold.
This is seen when developers purchase land to build freehold bungalows, private housing, and condominiums.
Should the owner wish to transfer ownership, there are much fewer and less stringent limitations than leasehold property owners.
The owner has unlimited rights to subdivide and allocate the land but is still subjected to town planning controls.
The owner also has some means to use the land for public works. The State cannot claim the land from the owner if no development takes place.
But there’s something you should know here:
Some freehold properties require state consent for transferring ownership or any transaction on the land.
In the past, there was a client house located in Kelana Jaya, Selangor. It was a “restricted” freehold semi-detached house.
Why some of the Freehold property falls under restricted condition?
One of the reasons may be because previously, the property is under a Leasehold property but converted to Freehold land. Hence, the restriction.
So, it is best for potential buyers to look at property title on the land before deciding to make a purchase.
What is Leasehold?
Leasehold land is when State land is released to an individual land for a definite number of years not exceeding 99 years.
Once the term expires, the land ownership reverts to the State authority.
To extend the Leasehold, the current owner must apply for a renewal before the expiry date.
If the application is approved, a premium is payable depending on the prevailing market value of the land.
A significant sum of money is usually expected – close to the original sum paid for, albeit with minor discounts.
In Malaysia, Leasehold tenures usually last 30, 60, 99 or in some cases, 999 years.
Compared to freehold lands, there are more restrictions to leasehold land as things like land cultivation may be barred efficiently by environmental and town planners.
Or any transactions on the property like changing of ownership or mortgage on the property will require state consent.
Also, sometimes the lease conditions will limit the type of activity performed on the land.
Additionally, older leasehold properties are also harder to sell because of the uncertainty in renewing the lease (which is under the complete discretion of the local authorities).
Apart from this, bank loans are harder to come by for leasehold properties with shorter tenures.
Even if you manage to get a loan, the margin of financing may be comparatively lower than freehold properties.
Leasehold property can have many disadvantages, so it is essential to understand the condition before deciding to buy it.
LEASEHOLD PROPERTY DISADVANTAGES
A. It takes longer to SELL & BUY
For a Leasehold property, you are required to apply state consent when selling or buying the property.
It could take a good one to three months to apply for the consent alone. And another 3+1 months to complete the whole transaction. In total, it can take up to six months or more to complete the entire transaction.
This applies to all Leasehold property with an individual or strata title.
The good thing is for a master title Leasehold property; you’re not required to apply for state consent.
So, to all master title leasehold property owner, your transaction should be complete within a 3+1 month.
Many years ago, the state consent took about six months to one year to obtain, and they receive many complaints about this. And I’m glad it has improved to 1-3 months now.
B. The property value may be lower than the freehold
When it comes to value, experts observe that properties with a 99-year lease go up at a similar rate with their freehold counterparts during the first 20 to 30 years.
Some leasehold properties do gain more value than freehold ones during the early years.
But beyond 30 years, the values of leasehold properties stagnate and depreciate until the expiry of the lease.
C. Financing may be more difficult to obtain
There’s also the problem of financing. Financial institutions tend to not lend to those wanting to acquire leasehold properties with less than 30 years remaining on the lease.
Most banks veer towards lending for leasehold properties with at least 30 years left on the lease.
Even if you get approved for financing, your margin of financing (loan amount) will likely be lower than the maximum 90%.
This means you will have to fork out more cash for your down payment.
However, land tenure should not be your primary or sole deciding factor when choosing a property to purchase.
With the price of houses becoming the single biggest concern, especially among first-time buyers, it’s a question of whether a piece of property is affordable, not if it’s Freehold or Leasehold.
We hope you enjoy these few tips about property transfer between an unmarried couple, and let us know if you have any questions!
You can reach us at +6012-6946746 (David).
I see you in my next post.
Before you go, check out this article. You might enjoy reading this.
5 FIRST-TIME HOME BUYER MISTAKES AND HOW TO AVOID THEM
LIKE, SHARE & FOLLOW US!
#malaysiahousingloan
Online Mortgage Consultant
Call or Whatsapp Us: 012-6946746 (Talk to David)
Hi, boleh sugestkan bank mana yg terbaik utk buat refinance rumah? Loan islamic
Hi Alin, kalau nak refinance rumah, kita di MHL kena explore tgk profile customer dulu sebelum boleh rekomen bank kepada customer. Sb ada profile customer yang tak sesuai dgn sesetengah bank. oleh itu, lebih baik kalau Alin cuba mendapat nasihat dari consultant kami dahulu. Alin boleh cuba untuk menelefon 012-6946746 atau pun boleh bg kami number telefon Alin. Dan jangan risau, consultation kami di MHL adalah FREE saje. thank you.