When you’re an adult, there are so many things that you’d want to cross out from your bucket list; get married, own a car, have children and of course, owning a property. Today, we’ll be focusing on owning a property.
Although owning a property of your own might be exciting, but it might be intimidating for those who have no experience or knowledge about the whole process. Here’s a tip from us: When you’re planning to buy a house, make sure you’re aware of the differences in the types of land. Choosing between a freehold and leasehold property is one of the most crucial parts of the whole process.
Do the differences matter? Yes, of course! With that, allow us to inform you of the differences between freehold and leasehold property in Malaysia.
What is a Freehold Property?
Freehold property is a property given entirely to the owner with an indefinite period. This property has no control from the government. It is clear when developers build bungalows, condominiums and private housings on the bought land.
Since the developers own the land, the ownership is transferred to the owner of the properties on the land. The ownership will be in the form of a Master Title. Also, it can only happen if it’s a landed property like a bungalow or a terraced house.
Whereas, for other properties like a condominium or other high-rise residential properties; the owner will only gain a stake in the development, while the developer continues to own the land. Hence, in this case, the developer will distribute the ownership in the form of a Strata Title.
Pros of Owning a Freehold Property:
When owning a freehold property, there is a fair amount of benefits to it. However, the most significant pro is that there aren’t many conditions and regulations when you wish to transfer the ownership. Besides that, the owner has the right to allocate and subdivide the land. Although, it is still subject to the controls of the town planning.
Cons of Owning a Freehold Property:
There’s always a downside to everything. Freehold properties might sound too good to be true so far, but there’s a drawback to it. When the government decides to have a development on the land (economic development, transportation, etc.); they have the authority to claim back the land from the owner. If there’s no development taking place, then the state cannot claim it.
What is a Leasehold Property?
Now you have a clear idea of what a freehold property is. Let’s move on to a leasehold property. A leasehold property is when land or property under the state’s government is leased to the public at a fixed amount of years. The leasehold tenures in Malaysia usually last within the range of 30, 60 or 99. Sometimes, it can even last up to 999 years!
Once the lease reaches its expiration, the owner will then have to give back its ownership to the state’s government. However, owners can also choose to extend or renew the lease with consent from the state’s government. The owner then has to pay a certain amount upon the approval of the extension.
It is the tenant’s job to care for the land properly. There are regulations and restrictions in the lease itself, so it’s crucial to follow them. If the state finds that the tenant is unfit, then they have the right to compromise the security of the tenure. Additionally, the state can also forfeit the tenant’s lease if the performance isn’t satisfactory.
Pros of Owning a Leasehold Property:
One of the most prominent pros of owning a leasehold property is the price. A leasehold property is cheaper compared to a freehold property. It might be beneficial for those who have a set budget in mind when buying a house. Besides that, leasehold properties are also equipped with features and facilities; and also designed to be more attractive for tenants.
Cons of Owning a Leasehold Property:
Considering how the owners do not have full control of their properties, you are only allowed to transfer the ownership with permission from the state’s government. The approval of the consent might take up to 6 months or one year. That could lead to a big problem when it comes to selling the properties in the future.
Another disadvantage of owning a leasehold property is that the value might decline after 30 years; as compared to its value in the early years. Hence, it might be a massive loss to the owners. Buying a second-hand leasehold property in Selangor and Kuala Lumpur can also be a problem. Since the process of transferring ownerships takes up a long time, you might need to wait for about one year for it.
Which Should I Go For?
Now that you are clear of the differences between a freehold and leasehold property, it’s time for you to decide. The decision merely lies on your own perspective. If you’re one who wants full control of ownership, then you should opt for a freehold property. However, if you’d like a cheaper option with more facilities available, then go for leasehold property instead! The choice is in your hands.
That concludes our article for the day. We hope this article helped in answering your question on the differences. We also wish you good luck in buying your new house!
If you’re still wondering how to make the best decision between owning a freehold or leasehold property, you can check out Rumah-i, a trusted property management company, for more information on the different types of properties here in Malaysia. You can also get in touch with us if you’re a property owner looking to rent out your place.