What are drawbacks of purchasing leasehold property?

• Follow

Buying property can sometimes be a challenging task, especially when you are not familiar with the intricacies of the real estate sector. When purchasing a property, especially a house, there are several things to keep in mind. One of these considerations is the type of property ownership, which includes freehold and leasehold properties.

In freehold property, the ownership rights always remain with you, the buyer. After you, these rights are transferred to your legal heirs. Until the property is sold, you and your family retain the rights to use it, construction, and sale of the property. This includes both the land and the structure built on it. Most properties in the country are freehold.

Leasehold property, on the other hand, involves ownership rights being granted to the buyer for a fixed period, typically by the government or an agency representing it. For example, in places like Noida, the government acquires land from farmers, leases it to builders, who then construct and sell flats to buyers. Once the lease period expires, ownership rights revert to the government.

Lease periods for such properties can be long, ranging from 30 to 99 years. After the expiry, the government may choose to extend the lease or convert it to freehold. Some parts of the country, including Noida and Greater Noida, have leasehold properties. In Delhi, both leasehold and freehold properties exist, with the Delhi Development Authority (DDA) converting properties from leasehold to freehold at times.

There are advantages and disadvantages to both freehold and leasehold properties. With freehold properties, the owner has full ownership rights, allowing modifications or sale without complications. In contrast, leasehold property owners only have rights for the lease period. They may require NOC from authorities for modifications or selling, along with the payment of transfer charges.

In some cases, interest rates for home loans may be lower for freehold properties compared to leasehold properties. Banks often consider freehold properties as a less risky investment because the buyer has complete ownership rights. Additionally, obtaining higher loan amounts may be possible for freehold properties.

The leasehold properties are cheaper compared to freehold properties. because you don’t buy the property forever but only for a certain period. The disadvantage of a leasehold property is that when renewing the lease… or if permission is granted to convert it to freehold… determining the charges can be difficult.

In terms of property appreciation, freehold properties are also better when it comes to the increase in value. The value of freehold property tends to increase well. In the case of leasehold properties, property appreciation can be good initially… but as the time for the lease expiration approaches… the property prices may start to decrease. The resale value of freehold property is also better.

If you want to buy a home that stays with your family for generations… then you should buy a freehold property, even if it is a bit more expensive.

Before you decide on which property to buy, consider your budget, property’s location, and other fundamental aspects such as public transport facilities.