Leasehold or freehold property?

From my interactions with potential buyers of new properties, many of them will immediately get turned off once they are told it is a leasehold property. They are only interested in a freehold property.

Let’s look at why leasehold properties are perceived as not as good as freehold:

1. They are a bit difficult to sell once it goes past the 30 years tenure (normal leasehold tenure is 99 years). This will affect the value of the property when the remaining tenure runs down. If the remaining leasehold tenure is short, say 50 years remaining, it may be difficult for potential buyers to get financing from banks – potential purchasers will have to buy with cash, thus making it very difficult to sell.

Note: If you are an investor buying a new leasehold property, this issue will be irrelevant as you will normally not hold on to the property for a long time.

2. Leasehold land belong to the state authority (unlike freehold property) where the land is leased out to the public for a number of years (99 years). If a leasehold land owner wishes to renew the tenure, he must apply to the state authority for renewal by paying a premium, which can be a bit expensive, depending on the market value of the land.

Here is an article on how to extend a leasehold property and how the premium is calculated:
http://www.starproperty.my/index.php/articles/property-news/how-to-extend-the-lease-for-leasehold-properties/

3. There may be delay in obtaining the necessary approvals from the state authorities when it comes to transfer of ownership. This is especially so when a Malay owner wants to transfer ownership to a non-Malay, which can be difficult.

Barring the above issues, whether a property is a leasehold or freehold does not really matter if the property is located in a good location (near MRT stations, schools, universities, commercial areas etc.), good accessibility and amenities etc. These are the factors that really determine the demand and thus the value of a property – a leasehold property in a good location can appreciate more in value than a freehold property which is not.

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