In the real estate sector we often come across terms such as Freehold and Leasehold properties. But many people still have no idea what they are. Both these types of properties have their pros and cons and hence, before making an investment, the buyer should have a clear idea about them.
In case of a leasehold property, the buyer has the right to live in the property for a fixed period of time and is only the owner of the building but not the land on which the property is built. The buyer pays a ground rent to the owner or the landlord. Once the period stipulated in the lease expires, the ownership of the property is given back to the land owner. While buying a leased property, it is important to research about the time period for which the land is on lease, as it affects the value of the property.
A freehold property is where the buyer owns the house as well as the land on which it is built. In case of apartments, the owner of the house is a share holder in the property. The buyer can live in the house for however long he desires and can sell, transfer, make alterations or redo portions of the house. Because of these features most people prefer buying freehold property.
Freehold or Leasehold property?
It is not easy to transfer leasehold properties unlike freehold properties. Leasehold property transactions are done through Power of Attorney (POA). A major setback is that if the seller dies, the POA ceases to exist. To avoid such a situation, one should always execute a General POA as well as a special, irreversible POA so that the property can be transferred when there is a need. It is very important to draft the POA carefully to include the type of transaction and features of the contract.
It is the responsibility of the leaseholder to apply for a renewal of the lease before it expires or apply for a fresh one if the lease has expired. Upon expiry of the lease the land is reverted back to its original owner. There is also a chance of additional liabilities on the renewal of the lease in future.
So if the budget permits, it’s advisable to invest in freehold property rather than a leasehold one.