Freehold vs Leasehold Property - Why Does it Matter?

Freehold vs Leasehold Property – Why Does it Matter?

Posted By

Take a look at the comparison table below compiled by Prolution. You would have a better understanding and insight on how the two differs from each other.

Almost every individual will reach a stage in his or her life where decision on property purchase has to be made. As a matter of fact, young adults emerging fresh into the society are contemplating to buy their own homes due to several factors like peer pressure, suggestions from gurus, seminars by property experts and the list could go on. But before you decide to purchase any property, you have to be clear on what type of property you are looking into and which will benefit you aligned with your objective.

We have here a topic of freehold and leasehold property where it would be wise to dive a little deeper to understand the overall concept and how you could make use of your knowledge to help you gain the upper hand when you are ready to make your move.

Take a look at the comparison table below compiled by Prolution. You would have a better understanding and insight on how the two differs from each other.

 So, having grasped the context of both freehold and leasehold seemed not enough to make a sound decision yet on which particular type suit your objective. Well then, let’s dive into the pros and cons of both types of property!

Advantages and Disadvantages of Freehold Property

Before we dive into the list of advantages below, keep in mind that some advantages may not benefit you completely but overall would prove to be useful in general one way or another.

• The best part of being a freehold property owner, you are the sole owner!

Nothing beats the feeling of having your own home, your own property! Basically, you can do anything you like with your asset like transferring it to your heirs, put it up for sale, rent it out to earn monthly rents, turn it into a beautiful lodging homes (though some paperwork are required). It’s all yours!

• You can do major or minor renovation on the property as you wish within the confines of the law and local authority. One of the most convenient “authority” and flexibility given to property owner of the freehold status. There’s literally nothing stopping you from building extra miscellaneous part to your house like an awning or making changes to any exterior designs according to your liking, how cool is that!

• No ground rent would be incurred.

Nobody is going to charge you for any rent. The house is literally yours and you could even rent it out yourself.

• Suitable for long term investment since it does not have expiry period.

The biggest advantage one could claim for owning a freehold title over their properties. You will have the opportunity to gain from the appreciation of the value of your property in the market. Depending on your investing objective, you could choose to either rent it out or put up for sale in the future. Not sure how to do that? Consult us to know how to invest profitably in property with zero installment!

What about the disadvantages? Though it’s true that the majority of people think that freehold will be a better option, there might be some downside you would like to consider as well.

• Complete responsibility of the maintenance of the building and land.

Since the property is yours, it is just making sense that you will need to take care of the property yourself, which might take your time, effort and money too.

• You are obligated to your local council and community.

Generally, you are required to be a responsible homeowner. In other words, be a good neighbour and do not cause nuisance to your living neighbourhood.

• Price of property is one hot potato to handle.

If you are not confident of owning one, it would be wise to stay away from handling one for now. Although taking up mortgage loans would be easier compared to leasehold mortgage loan application, it is no guarantee that you will have the capability to pay all your loans. Calculate your current financial status with us and find out whether you are suitable to invest in property market here.

Advantages and Disadvantages of Leasehold Property

Let’s take a look at what advantages leasehold property have in store for us, shall we?

• Home for people having short-term residential needs.

Not all people would stay in a place forever. So it is convenient for people who wish to stay temporarily at a place to get hold of a leasehold property with varying duration.

• Easier to enforce covenants in the case of leasehold

Generally, all covenants, irrespective of the fact that they are positive or negative, are enforceable against all future successors of title.

• Lower cost compared to freehold

Since the land and building are not directly owned by you, the cost of landing a deal for leasehold property naturally is lower as well.

Do not forget there are the downsides to leasehold property ownership too! Let’s break it down below:

• It takes longer to sell

Only the state or an equivalent can grant approval for a transfer of the lease during the ownership of the property. The sale for a leasehold property commonly takes 3 + 1 months and the process only starts after consent has been given by the state. It could prove to be troublesome in the future for you.

• Value of property may be lower than freehold

Shedding light on the value, experts observe that properties with a 99-year lease has its value appreciated at a similar rate with its freehold counterparts during the first 20 to 30 years. But beyond that, the value of leasehold properties stagnate and depreciation starts until expiry.

• Difficulty in financing

Financial institutions tend to shy away from giving out loans which will be used to acquire leasehold properties with less than 50 years remaining on the lease. The most optimal requirement for them to provide financing will be having at least 75 years left on the lease. Note that the margin of financing will most likely be lower than the maximum 90% too.

Are you ready to purchase the homes of your dreams? Schedule an appointment with us to understand which types of property ownership best suit your needs and start to invest in properties the smart way!

Leave a Reply