Written by Charles Tan from kopiandproperty.com
Let’s say there are two properties which are extremely similar in most of the important factors that homebuyers look out for:
- Nearby one another (good location)
- Almost the exact same price point
- Same size (built-up space) and designs
- Plenty of amenities and infrastructure within easy reach
However, one is a freehold status property, and the other is a leasehold; which should you choose to buy? Is it whether the property is located in Selangor, Penang or Johor?
You see, people will usually tell you to buy "the one with a freehold title". However, that’s very seldom the case.
Most of the time, the leasehold property is priced lower compared to that of a similar freehold property. You may be wondering why this is so.
For this topic, we’ve got kopiandproperty founder and executive editor Charles Tan with us, to share why is it that a leasehold is usually cheaper, and whether it’s a good choice to consider purchasing one!
1) Banks prefer freehold
This is not entirely true.
When the tenure on a leasehold property still has a long way to go, say 50 years or higher for example, banks will still lend to you as usual.
Your application is just as likely to be approved as when you’re applying for a loan for a freehold property. Anything lesser than 50 years though, and the bank may have a few more considerations.
The reason is because the banks would want to manage their risks. There are also some people who say that the banks will only be stricter on approvals when the lease expiry is less than 40 years.
To be on the safe side though, it’s best to use ’50 years’ as a general rule of thumb.
2) Freehold is permanent
This is also not entirely true.
If the government has no need for the freehold land your property is sitting on, then yes, the ownership is forever.
If they somehow need the land for an expressway (or any other public projects) which will benefit the nation, then they’ll be using the Land Acquisition Act 1960 to buy your land for national reasons.
Yes, they’ll give you a reasonable compensation based on the official valuation of your freehold land. However, it goes to show that freehold does NOT equal untouchable!
Needless to say, the term ‘leasehold’ means that when the contract (lease) expires, it goes back to the state government, unless it’s renewed on time.
3) State government can choose to not let you renew
This is true.
However, if they did not allow you to renew the contract for your leasehold property, they usually will not be able to let everyone else within the same neighbourhood to renew as well.
So, they do not just lose the renewal premium, but they would also be forced to face a lot of upset owners!
This is why most of the time, the state government would allow for renewal of the lease. In fact, in some states like Selangor, you can even renew your lease in advance.
Meanwhile, the application for renewal of lease for strata-titled units are to be done by the Management Corporation (MC) or Joint Management Body (JMB).
4) Selling and buying freehold properties are faster
This is true.
When I bought a leasehold condo unit in Kelana Jaya, the transaction took more than 7-8 months to complete.
When I sold that particular property, it took another 7-8 months. This is mainly because of the state consent it needed. Meanwhile a freehold land transfer is easier and shorter.
PropertyGuru Tip
A ‘state consent’ here refers to an application (usually in writing) for permission from the relevant authority, to proceed with the sale of property.
Usually, a freehold property transaction can be completed within 90 days from the signing of the Sale and Purchase Agreement (SPA).
5) At the end of a 99-year lease, a leasehold high-rise is no longer safe for habitation
This is false.
Assuming that this statement is correct, does that mean that high-rise developments with a freehold status is safe for habitation after 99 years?
That couldn’t be further from the truth, as BOTH freehold and leasehold properties are required to obtain a piece of legal document known as the ‘Certificate Of Completion and Compliance’ (CCC), before developers are allowed to sell them off.
PropertyGuru Tip
The CCC is essentially a guarantee that the development has been made exactly to its original building plans, that it’s constructed in a safe and secure manner, as well as being fit for habitation.
By the way, even if you were to buy a landed property and it has been around for 15-20 years, it’s still best practice to ensure that all the piping and wiring are changed to ensure the safety of its inhabitants.
If you face a situation AFTER you have moved in, then the hassle and escalating costs will make you have sleepless nights. So, for this reason, it’s best that all types of properties undergo regular maintenance, not just leasehold.
6) Leasehold properties are cheaper
This is somewhat true.
With so many people preferring to buy freehold, this has helped to ensure that freehold properties will continue to carry a premium over the leasehold ones.
Thus, if you’re looking for something that’s of good value, secondary properties under a leasehold title may just fit the bill nicely.
There’s really no difference between staying in a freehold and leasehold. I can safely tell you that I have moved house no less than 6 times, and I feel the same in each home, no matter if it’s a freehold or a leasehold.
I have bought freehold property and have sold them for good capital appreciation. At the same time, I have also bought leasehold properties and have sold them for good capital appreciation too.
If the property is for your own stay, look at what you NEED for a home, as well as what you can afford, instead of whether it is a freehold or leasehold status.
Frankly, if you’d like to stay near your in-laws and keep everyone happy, but the whole area is under a leasehold status, do you then choose not to buy?
You’d still need to do the same due diligence (read: research as much as you can), no matter whether it’s a freehold or a leasehold. Happy understanding, and choosing one!
———-
Charles is the Founder of kopiandproperty.com. In 2019, he spoke in 52 real estate events across 9 states in Malaysia and Singapore.
His articles and views have appeared in national newspapers, magazines, property websites, podcasts, and national TV. Charles has also conducted sales training internationally, including Hong Kong, Singapore, Thailand, Indonesia, the Philippines, and Malaysia.
Follow his Facebook here: fb.com/kopiandproperty
Keep Track of New Launches
Visit our new launches page to find the new launch project of your dreams and submit an enquiry today.
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.