Leasehold v/s freehold: Which is the smarter choice
What's the story
In India, understanding the difference between leasehold and freehold properties is crucial for anyone interested in real estate investment. This knowledge not only affects your rights as an owner but also significantly influences your decision-making process when buying property. This article explores the key features of both property types, providing you with the essential information needed to make an informed decision.
Ownership
Know your ownership rights
Freehold property implies absolute ownership, encompassing both the structure and the land it stands on. Freeholders can freely sell, lease, or bequeath their property without needing approval from a third party. Conversely, leasehold property is rented from the freeholder, usually the government, for a fixed term—generally 30 to 99 years. Leaseholders possess fewer rights and require consent from the freeholder to sell or transfer the property.
Long-term value
Consider long-term implications
Investing in a freehold property generally ensures stronger long-term value retention and appreciation. Since you own the land perpetually, there's no concern of a dwindling lease term depreciating your property's worth. On the other hand, while leasehold properties may be cheaper upfront, they can get tricky as the lease approaches expiration, potentially impacting resale value and return on investment.
Transferability
Understand transfer process complexity
Selling is usually easier with freehold properties as there are fewer limitations and no need for third-party approval. Conversely, for leasehold properties, transferring ownership rights can be more challenging, often necessitating permission from the landlord or governing authority. This can add time and expenses to the transaction, making it a significant factor for prospective buyers.
Financing
Evaluate financing options
Banks are more reluctant to extend loans for leasehold properties compared to freehold properties. While freehold properties provide permanent ownership and therefore have no issues in getting loans, Leasehold properties, on the other hand, have a harder time getting financed due to their limited ownership period. Understanding this difference is crucial for making smart real estate investments in India, and ensuring your choices support your financial goals.