Freehold or leasehold: Which property to buy?

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Free hold and lease hold property  are very important words in real estate. These are directly related to the property ownership rights. These two terms apply to all kinds of properties. Whether it is a plot, a building, a registered flat, a group housing society flat or an independent floor. There are a good number of lease hold properties along with free-hold in big cities. Let’s find out what are lease and free hold properties! Which property should you buy?

Freehold property means that you have the ownership rights of the property forever. The ownership rights will be transferred to your legal heirs after you. It means that the rights to use, construct and sell the property will remain with your family for generations. Most of the properties in India are freehold.

For example, a builder buys land directly from a farmer and sells it to a buyer after building a flat or a house on it. In this case, the ownership rights that the builder had will be completely transfered to the buyer. The sale and purchase of freehold property happens through sale deed, conveyance deed or registry.

Leasehold Leasehold property means a property where you have the ownership rights for a fixed time period. The owner of leasehold property is usually the state or any of its agencies. For example, in Noida, the authority buys land from farmers and then leases it to builders or home buyers for a fixed time. The lease period can be for 30, 90, 99 or 999 years.  The lease period for residential property is usually 99 years.

After this period expires, either the ownership rights of the property will go back to the government or the lease will be extended. The lease can be extended up to 999 years. The deal of leasehold property happens through lease deed. Most of the apartments or flats are on lease.

Pros and cons Now let’s talk about the pros and cons of free and leasehold property.

The buyer of a freehold property gets the full ownership transferred to him. You can live in such a property, sell it easily, rent it out. The owner of a leasehold property is usually the government. You can use this property, rent it out. You can sell it till the lease period expires. The property will go back to the government after the lease expires. You need to get a NoC from the authority and pay a transfer charge to transfer rights or sell a leasehold property. You also need permission for any making any changes in the structure.

You can easily get a loan by mortgaging freehold property. Whereas in case of leasehold property, banks usually do not give loans if the lease period is of less than 30 years. As the lease nears its end, banks will hesitate to give loans or charge more interest.

You have to pay property tax to the government in case of freehold property. This is used for maintenance of commonly used things like roads, footpaths, parks etc. You have to pay ground rent or lease rent for leasehold property. It will be more than property tax. The rates will vary from city to city.

Price difference Freehold properties are more expensive than leasehold properties.

The government can also give land on lease to private builders. The builder gets land at a cheaper rate and sells flats or independent houses at  low price. However, the disadvantage of this is that the lease renewal charges can be very high. Because it is difficult to say how much the lease renewal charge will be after 99 years.

Free hold property also wins in terms of price appreciation or return. The price of free hold property increases at a decent speed too.

The property appreciation in case of lease hold property can be good in the beginning. But as the time of lease expiry comes closer, the prices of property will start to decrease.

So before buying property, first go to the concerned authority and find out whether the property is leasehold or free hold.