Freehold Title Vs Leasehold Title, Which Is Better?

Freehold Title Vs Leasehold Title, Which Is Better? 

Do you know the type of land titles in Malaysia affect the property value? The truth is that it does. In Malaysia, the land tenure of leasehold and freehold does affect a home buyer decision making in buying their home. There are other types of land titles too and we are going to share with you the types of land titles so you won’t be misrepresented by your agent. If your agent does misrepresented or lied to you, you can lodge report to Lembaga Penilai, Pentaksir, Ejen Harta Tanah dan Pengurus Harta (LPPEH) and they will take action on the agent. 

Freehold Title Vs Leasehold Title, Which Is Better?

Here is the details of freehold title vs leasehold title.

A) Freehold Title

Freehold land title is the most desired property for home owners because the ownership is like a form of Master title. Freehold owner has less and fewer stringent limitations if they want to transfer to somebody else. They have the rights to subdivide and allocate the land but it is subject to town planning controls. 

While many has the impression that the freehold title land is the ultimatum ownership for owners, even the government cannot acquire. Well, time to bust the myth, the government still has the rights to acquire the land for government developments whether it is a new highway, new public transportation system or other public projects. 

Owners are forced to sell their homes to government at the current market rate without further compensation regardless the owner is able to repurchase similar property in the same location. This process is known as ‘forced acquisition’. 

In most cases, freehold properties have stable growth provided all other aspects of the property in good condition. Owners will be compensated where there is possibility of redevelopment of old freehold properties. 

For condominium owner or other high-rise residential properties, the buyers own a stake in condo - it is also known as unit but developer still owns the land. Developers will distribute ownership which is called Strata Title. Click here to check for strata title in details. 

It is advisable for the potential buyers to look at the title of property to find out if the land has any restrictions before purchasing it. 

B) Leasehold Property

As stated by the title name, the leasehold’s tenures are usually 30, 60, 99 years. In some rare cases, there are tenure as long as 999 years. Some parts of Kuala Lumpur like Sungai Besi and Setapak’s land tenure are 50 years or lesser.

The land’s tenant has to care for the land as defined by land legislation and may be responsible for developing some property and maintaining it. The security of the tenure may be compromised if the state deems the tenant is unfit. Besides, the state can forfeit the lease for non-performance. 

You can renew your lease too and it is the last thing that you want to receive notice that your lease is expiring within few years and to renew it, you will need to pay a certain amount, like the case in PJ Old Town. But then again, it varies from state to state.

Experts observe that properties with a 99-year lease can climb to a similar rate with it’s freehold counterpart during the first 20 to 30 years. Some leasehold properties gain more in value than freehold ones during the earlier years. However, beyond 30 years, values of leasehold properties tend to stagnant and depreciate all the way to the end of the lease expiry. 

The number of years remaining for leasehold and financing comes hand in hand as most financial institutions tend to not lend to those wanting to purchase leasehold properties with less than 50 years remaining on the lease. Banks would prefer properties with at least 75 years on the lease. 

Not all leasehold is bad and if you intend to get a leasehold property, you will realise that these properties are usually offer more facilities or features from the developers, or even priced lower than a freehold property. Fret not, developers will compensate with more features as they understand the competitive market out there. 

Although freehold properties are most sought amongst all property buyers but these days there are limited freehold properties in the market. Land tenure should not be should not be your primary or sole deciding factor when choosing a property to purchase because you will still need to check your housing affordability. Some of the considerations include your monthly income, cash amount you have and the amount you can borrow. Once you have got these checked, only then you are able to shop for a property loan that offers the most competitive rate.