Most Malaysians, if asked, would say that they prefer a freehold home over a leasehold home. However, beyond the extent of ownership, not many are aware of what these two land tenure terms mean and the implications that come with owning either one of these properties.

Let us explore both land tenure types, as well as all the pros and cons associated with it.

FREEHOLD

Owning a freehold home simply means that the buyer has full ownership of the land the house is built on for an indefinite period of time. In other words, you basically own the land and property until the end of time.

However, it should be noted that for stratified or high-rise homes, the owner only owns a portion of the development – while the remaining of the land area or common properties are vested with the Joint Management Body or Management Corporation. The Owner will be a member of the Joint Management Body or Management Corporation and would have a say in deciding the fate of the common properties jointly together with all other fellow owners in an Annual General Meeting. The Owner will also be eligible to be elected as a committee in the Joint Management Body or Management Corporation that manage the common properties.

Beyond that, the other pros of owning a freehold home are…

Easier (& Faster!) Transfer of Ownership

Some properties are subject to certain restrictions imposed by the state authority in which the sale and transfer will require prior consent to be obtained from the state authority. The process to apply and obtain the state consent may sometime take months and the entire transaction may take nearly 6 months or more to complete.

Most freehold properties do not have such restriction and mostly such restriction can be found in leasehold properties. But there are leasehold properties that do not have such restriction.

If there are no such restriction, the transfer of ownership is easier and more straightforward, due to fewer limitations, regulations and conditions imposed by the state. Thus, you are free to transfer to whoever you wish. The length of time taken for ownership transfer is also shorter – it usually takes just about 3 to 4 months to complete.

Appreciation of Value

The value of a freehold home rarely diminishes over time. In most cases, its value will appreciate over a long period, particularly if your home is situated in a strategic location. This means that you will likely enjoy a good resale price (and profit!) should you decide to sell off your freehold home in the future.

Easier to Secure Financing with a Higher Margin

Banks are more willing to offer financing to buyers of freehold properties than leasehold properties. Most bank will be more reluctant to provide financing for leasehold property with remaining less tenure.

With all the benefits that come with owning a freehold home, could there be any cons to it at all? The answer is YES – although not many.

More Expensive

If you were to compare freehold and leasehold properties with similar features and offerings, you would find that freehold homes have a higher price tag. This is due to high demand and low supplies caused by the growing scarcity of land in prime areas.

Lower Rental Yield

Looking at a freehold home as an investment opportunity? You might want to take into consideration that due to its higher entry point, the rental yield for freehold properties is lower.

The Government Can STILL Claim the Land

Yes, that is right. The state can still claim back freehold land for public development purposes. However, in the event that this ever happens to you, rest assured – you will still be compensated based on the current market value.

LEASEHOLD

For leasehold homes, the owner will only get to lease the land for either up to 30, 60, 99 or 999 years (in East Malaysia). After the land tenure period ends, ownership of the land will go back to the State if no attempts are made to extend the lease period.

When the leasehold properties tenure expired, the owner will need to apply to the state authority to renew the lease tenure and there will be a requirement to payment certain fee and premium for the renewal that can be costly.

With land getting more scarce today, the likelihood of being able to get an affordably priced freehold home in a prime city location is low, making leasehold the more accessible option for most.

However, is a leasehold home really inferior to a freehold home? We beg to differ – there are in fact some benefits you stand to enjoy when you own a leasehold home! Read more below to see the pros:

The Cheaper Option

It is worth noting that leasehold property can be up to 20% cheaper than similar freehold properties in the market! It is definitely the ideal choice if you desire the best of convenience and location without burning a hole in your budget.

Plus, brand new leasehold developments usually come with a long lease period of 99 years, which is not too bad.

More Value For Your Money

Such homes usually come equipped with more attractive features, facilities and other extra goodies – so you get more bang for your buck, in this case.

Higher Rental Yield

Given its lower pricing in the market, and the range of facilities and features offered, you will enjoy a higher rental yield should you choose to invest in a leasehold home.

Of course, owning a leasehold home does have its downsides:

Transfer of Ownership Takes Longer

It usually takes about 3-6 months to wait for the State’s consent and approval (if there are such restriction) to sell – and this does not include the transfer process, which will take another 3+1 months. Hence if the property is subject to uch restriction, the entire process will take more than 6 months and sometime nearly a year to complete. This may prove to be a problem if you are in a hurry to sell your property for quick funds.

It should be said that this only applies to the sub-sale market. Buying a brand new property from a developer is simpler as the developer will be responsible to apply and obtain the consent.

More Difficult to Secure Financing

This might be a problem for those who are eyeing a sub-sale property. For homes with less than 50 years on the lease, it is more difficult to obtain financing from banks, and if you do, the margin of financing (loan amount) is lower too.

Value Will Depreciate Over Time

During its initial years, the value of a leasehold property can equal or be even more than a freehold property. However, after 20 to 30 years, its value will stagnate and gradually depreciate as the lease gets shorter. A lease extension, however, can work to increase the value!

Heavy Renewal of Lease Costs

To extend the lease period, the owner will have to pay a significant sum as fee and premium depending on the property value – roughly in the range of 5-digit figures. This should ideally be done before it reaches the 30-year mark. Even then, renewal of lease is NOT guaranteed.

Also, renewing the lease after expiry will make it even more difficult to apply for an extension – this will incur large costs.

SO, DOES IT REALLY MATTER? WHICH OF THESE IS THE BETTER OPTION FOR ME?

Ultimately, the answer is highly subjective – it really depends on your purpose and needs. There are many factors you will need to take into consideration when making your decision, and land tenure is only but a small puzzle in the big picture.

You would want to take into account your budget, convenience, accessibility via highways and public transport, location and your overall living comfort, among other things.

Plus, preferences can differ from person to person. One may find a freehold home’s appreciating value and security of ownership more appealing, while another may rather compromise and pay less for a better location and convenience.

On the search for the perfect home for you? Whether freehold or leasehold, discover homes of all types and sizes in any location all over Malaysia here on Guyub – a platform that also offers you location insights that will help you decide on whether the neighbourhood is ideal for your investment or own-stay needs! Click here to start.

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.