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Freehold VS Leasehold Malaysia: Which Is Better?

Freehold VS Leasehold In Malaysia

Leasehold VS freehold condo or landed property is an important question to ask when buying a house in Malaysia. Aside from marriage and having children, there are more important things than crossing out adventures from our bucket lists. One of these is buying a house.

In fact, this is a very important decision that some even describes it as a lifetime commitment.

But given the amount of information available, understanding the property market can be a very difficult task for an ordinary person, especially when bombarded with jargons such as freehold or leasehold.

Is it really that important to know the difference between freehold and leasehold? Or more so, will it even matter if you choose to buy a leasehold property?

For better perspective, let’s take a closer look on the major differences of freehold and leasehold properties and how our buying decision may be affected by them.

What Is A Freehold Property?

Freehold property belongs entirely to the owner with no control from the government. This is evident when property developers build freehold bungalows, private homes and condominiums on a piece of land.

Since the developers own the land, its ownership – which is in the form of a Master Title – will be transferred to the buyer of the property built on it, provided it is a landed home such as a terraced house or a bungalow.

In the case of a condominium or other high-rise residential properties, the buyer of a condominium unit will merely gain a stake in the residential development, but the developer retains ownership of the land. The ownership in this scenario will be distributed by the developer in the form of a Strata Title.

  

Advantages Of Freehold Property

Indeed, a freehold property owner enjoys various benefits such as fewer and less stringent limitations on transferring their land to others; having the right to subdivide and allocate the property, albeit still subject to town planning controls.  

   

Moreover, the state cannot take the freehold land back from the owner even when no development is taking place on it. This means that freehold land owners are not required to observe a certain timetable within which to develop the land.  

   

Freehold properties generally go through stable growth especially when all other aspects are in good condition. Old freehold properties may also undergo redevelopment, with the owners duly compensated.  

   

But prospective buyers will have to take note that there are certain freehold properties that need the state’s consent when transferring ownership. This could be because these properties have been converted from leasehold to freehold. The semi-detached homes in Kelana Jaya is an example of restricted freehold properties.  

   

With this, buyers should look into the title of the property first to determine if there are restrictions on the land before committing to a purchase.  

   


 

Disadvantages Of Freehold Properties

Buyers of freehold properties should, however, understand that while only environmental and town planning controllers can limit freehold developments; the state can still take back their property.  

   

Under the Land Acquisition Act 1960, the state has the power to take back a freehold land, provided that the property will be used for public purposes like an MRT project or for economic development.  

   

A good example is when the federal government acquired the land on which the Ampang Park Shopping Centre sits to make way for the MRT project. In acquisitions such as these, the government compensates the owner based on the market value of the property.  

   

What Is A Leasehold Property?

A leasehold property is owned by the government and can only belong to its owner for 30, 60, 99 or 999 years. Some have 50 or fewer years like those in Section 11 of Petaling Jaya, and some parts of Kuala Lumpur like Sungai Besi and Setapak.

This type of land has various restrictions with the dos and don’ts spelled out in the lease. The tenant, for instance, will have to care for the land as provided under the land legislation and could be held responsible for developing and maintaining some property. The security of tenure may also be compromised once the state finds the tenant unfit. The lease may be forfeited by the state for non-performance.

 

Advantages Of Leasehold Properties

   

Leasehold properties have their own advantages. For instance, buyers will notice that leasehold properties usually boast more facilities or features and may be priced lower than freehold ones. Knowing the competition in the property market, developers tend to make their leasehold properties more attractive to buyers by integrating more features.  

   


 

Disadvantages Of Leasehold Properties

Prospective buyers of leasehold properties should however take note of the following points before deciding to purchase:  
   
1. Leasehold properties take longer to sell  

Unlike freehold properties, the ownership of leasehold properties may only be transferred with the approval of the state or an equivalent. In fact, the sale of a leasehold property takes three-plus-one month to complete starting from the time the state has given its consent – which could also take between six months to a year. This makes reselling the property a problem in the near future.  

   

Purchasing a second-hand leasehold property could take about a year or longer in Kuala Lumpur and Selangor as the paperwork needed for transferring ownership entails several consent requests. Meanwhile, purchasing a leasehold property from a developer or on the primary market does not usually require that much time.  

   
2. Value could be lower compared to freehold  

Experts noted that while leasehold properties may gain more value during the early years than their freehold counterparts, the value of leasehold properties start to depreciate beyond 30 years until the expiry of lease.  

   
3. More difficult to obtain financing  

Financial institutions tend not to grant loans to those looking to acquire properties with less than 50 years left on its lease, and favours those acquiring properties with at least 75 years remaining on the lease. Even if your loan gets approved, the margin of financing (loan amount) will most probably be lower than the maximum 90 percent. This means you need to raise more money for your down payment.  

   
4. Hassle of lease renewal  

Owners of leasehold properties will also have to contend with lease renewal, in which they would need to pay an exorbitant amount in order to obtain a fresh new lease for their properties. Such was the case with the residents in PJ Old Town.

Owners of leasehold properties will also have to contend with lease renewal, in which they would need to pay an exorbitant amount in order to obtain a fresh new lease for their properties. Such was the case with the residents in PJ Old Town.

Making The Big Decision

After all that is said, deciding between a freehold and leasehold property does not merely depend on the property’s price but also on various factors with the buyer’s spending power topping the list.

Although not all leasehold properties are cheaper, purchasing a freehold property, particularly in a convenient part of Selangor or Kuala Lumpur, may entail a much bigger amount of money.

A look at PropertyGuru on new property launches in Kuala Lumpur showed that prices may start from RM813,000 for a condominium alone.

While these properties may seem pricey due to their location, accessibility is something that a buyer should look into when acquiring a property.

A double-storey freehold property in Bandar Country Homes may be priced at RM475,000, but if your travel to work daily to downtown Kuala Lumpur, you incur additional expenditure in toll, fuel and general maintenance of the car.

Meanwhile, a leasehold property may be found at a very convenient location. In Damansara Perdana, for instance, a condo at Metropolitan Square was priced at RM199,204 when the development was launched. The asking price now stands at RM590 per sq ft. Besides that, the development is near various amenities such as The Curve shopping mall, IKEA and Empire Damansara.

Travelling around Petaling Jaya and Kuala Lumpur is no problem, especially by car as the development is near major highways like the LDP and Penchala Link.

Buyers should bear in mind that the number of freehold properties in prime locations are limited. Hence, when all other factors are equal between freehold and leasehold properties, you should obviously go for the former.

However, the property’s land tenure should not be your sole deciding factor when acquiring a property.

When planning to buy your first home, the best thing to consider first is your objective and housing affordability. Some of your considerations may include your monthly income, available cash at hand, and how much money you can borrow.

Once all these have been checked, you can then shop for the best property loan that offers the best competitive rate.