Homebuyers generally consider location, price, amenities, safety, connectivity, accessibility and other legal formalities as important factors while buying a house/property. The type of a property whether it is freehold or leasehold is also one of the most significant components to be taken into consideration when you buy a house. Most of the homebuyers, especially the first-timers, get confused with these real estate terms and end up buying a home which might not be profitable. If you are a potential homebuyer, getting clear about these real estate jargons is vital.
Don’t stay ignorant any more dear buyers! Get to know the difference between a freehold and leasehold property here.
What is a Freehold Property?
As the name denotes, freehold means a property that is free from holdings of any entity and you are solely responsible for that. The land/property is under your complete ownership and control. You can do whatever you wish (renovate, sell or transfer) with that property within the locally prescribed rules and regulations. Also, there won’t be any legal issue in selling a freehold property as it doesn’t require any government or other legal consents and the paperwork is also less here. You can sell it easily to whomever you want without any interruption. Individual houses/villas are freehold properties in most cases.
The term ‘leasehold’ denotes any land/property that the developer holds is under lease for a certain period of time. The lease time period may vary from 30 to 99 years and the land belongs to a state which allows extending the lease if you wish to adhere to the local planning rules. Here, the buyer can’t be the owner of the property or the land where it stands.
Predominantly, apartments/flats come under this category as they are mostly built on the leased land/property. The land is owned by a residential developer or a builder, where the owners of the apartments are considered stakeholders. You may have an uncertain future buying a leasehold property because the value of the land depends on the period of a contract. Also, the state’s consent is required if you want to sell/transfer the property. You will also face some hurdles in availing a bank loan in this case as most banks hesitate to finance a property which has the lease period of fewer than 30 years. The developers usually buy the land under lease to control the cost and offer a better price to the buyers.
Do You Know?
Most of the residential projects in the National Capital Region (Delhi), Mumbai, Navi Mumbai, Gurgaon and Noida Extension are leasehold. Also, some states have the provision of converting a leasehold property into freehold provided you should have a clear sale deed, a NOC and the General Power of Attorney (GPA). However, it is required that you should pay a conversion charge to the authorities concerned.
In Delhi, there is an option to change the status of a leasehold property if you have the General Power of Attorney (GPA) and a registered agreement to sell. House tax assessment or a permanent electricity connection proof can also be used for the conversion of a property if it is an unsanctioned building.
To make you more clear, here is the basic comparison between a freehold & leasehold property.
|Outright ownership of a property and the land||You own only the property, not the land|
|Indefinite Ownership||Ownership is for the prescribed time period only. Must pay to extend the lease|
|State consent is not required in case of a transfer or sale||State consent is must to transfer ownership or sell the land|
|Expensive as you own the land completely||Cheap because the land cost to the developer is less|
|You are solely responsible for maintenance||Developer’s responsibility to maintain the project|
|No need to pay annual ground rent||Must pay the annual ground rent(the amount or rent to be paid to freeholder)|
|Individual Houses are generally sold freehold||Mostly, apartments/flats are leaseholds|
Which is better- A Freehold/Leasehold Property?
It is always better to buy a property with the freehold ownership type as it is more stable and will have an increase in value in the longer term. A complete ownership is guaranteed, unlike a leasehold property where you don’t own the land and it might also lose its value in the course of time. Either the state or developer owns it.
Considering this fact, you can make your big decision of buying your dream house/property either with the freehold ownership type or a leasehold type.