The difference between a freehold and leasehold property is the ownership of the land. For freehold title, the land/property owner will have the perpetual ownership on the land for succession. On the other hand, for leasehold title, the land/property owner will be granted the ownership of the land usually for 30, 60 or 99 years in accordance to the state government’s terms. Once the term expires, the land ownership will revert to the state authority.
Despite the freehold ownership, the Land Acquisition Act 1960 empowers the state government to acquire the usage of the land notwithstanding that it is the freehold land. Generally, the mandatory acquisition of land only took place in the event the land (regardless of freehold or leasehold) is needed for the national development purposes, such as acquisition of the land for the MRT Project, and it can only be done with reasonable compensation to the owner.
Sub-sale purchase
For the sub-sale purchase of a freehold property, the transaction would typically take about 3+1 months to complete as per the standard time-frame as stated in a Sale and Purchase Agreement (SPA). For certain freehold land, although the land is classified as freehold, the sale and purchase of the land would still require the consent from the state authorities. In this case, the SPA will only come into effect affect receiving the consent from the state authorities.
For the sub-sale purchase of a leasehold property, the 3+1 months will only start after the consent of the state authorities has been obtained, which usually took a few months time to process depends on the state authority. Hence, it is almost impossible for the buyer to move into the the leasehold property within 4 month’s time. This means that buyers should not plan to move into their leasehold properties in four months’ time. For certain states such as Selangor and Kuala Lumpur, the paperwork to transfer the leasehold ownership may take a longer time as the state offices are overloaded with consent requests and it takes time to process. A leasehold property bought on the primary market from a property developer usually doesn’t take such a long time.
Market value over time
In general, the values of the freehold and leasehold property will go up at a similar rate in the first 20 to 30 years. For example, a new 3-storey linked leasehold house at Paragon Heights Bukit Jalil was priced at around RM500,000 in 2007. In 2017, the asking price has been over RM1,000,000. Similarly, a new 3-storey linked freehold house at Mutiara Bukit Jalil was priced at around RM700,000 in 2009 and the price has gone up to about RM1,350,000 in 2017.
Sometimes owing to strategic location factor and market demand, the leasehold properties gain more value than freehold properties during the initial years. However, freehold properties would have the advantage in terms of steady value appreciation over time compared to the leasehold properties in the long run as the value of the leasehold properties tends to depreciate over the years when the lease tenure is coming to an end due to the concern on extension or renewal of the lease from the state authority. In addition, financial institutions are generally more reluctant to approve loan application for leasehold properties with the lease tenure less than 60 years and to have the loan application approved, a stricter terms (e.g. interest) may be imposed. Even if the buyer managed to get the loan approved for the leasehold property with 60 years tenure remaining, he/she will have to consider the fact that if the future buyer, said in 10 or 20 years later, will be able to secure the required loan for the purchase.
Extension or renewal of the lease
Upon the expiry of the leasing tenure, the ownership of a leasehold property will be reverted back to the state government. Hence, the property owner will have to make an application to the relevant state authorities for extension or renewal of the lease before its expiry of which subject to their approval. Once the approval is granted, the owner will be required to pay a certain amount of premium for the extended tenure.
Freehold or leasehold
The concerns on a leasehold property only arises if the owner intends to sale the property in future or if the property is near to the end of its tenure. Typically, a leasehold property would be more affordable. If If it is only interested in rental income over time, the tenure of the property (whether it is freehold or leasehold) may not be of significance.
