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Freehold or Leasehold?

Freehold & leasehold are two different legal ownership of a property. Freehold means the property that you have purchased is freely owned by the purchaser and leasehold is a contract based ownership of the property of either 30 years, 60 years or 99 years, in which the contract comes to an end, the purchaser and the land owner may renew the contract and resume to own the property, however what will happen if the land owner do not wish to renew the lease?
Fun Fact: Did you know that in East Malaysia, freehold properties are almost nonexistent?

The struggle that property buyers will face is to ask themselves if they would rather purchase a freehold or leasehold property. Some buyers are seeking to just invest and freehold or leasehold titles might not affect them too much, however when you are buying the property for personal use, such as to settle down and start a family or plan for retirement, you might want to reconsider the land title of the property.

What exactly is freehold property?
According to << National Land Code 1965>>Section 40 (Article 1965 Section 56) All state-owned land falls under the jurisdiction of the respective state government. Freehold title means that the country permanently transfers the property to the buyer, as such, the buyer is free to transfer or process the ownership of the freehold land as he wish and need not to apply for approval from relevant government agencies.

In addition, home buyers should also pay attention to whether the purchased property requires the state government’s approval to transfer ownership. Therefore,buyers need to be cautious whether the title deed has any restrictions before deciding whether to purchase the property.

What is leasehold property?
In general, the government will lease a certain number of years of the land to the public. In Malaysia, the lease could be as long as 99 years and as short as 30 years, some even up to 999 years! However once the lease has expired, the state government owns the right to take back the land including any building that is built on the said piece of land.

However under << Land Acquisition Act 1960 >> the state government has the authority to grant the land use rights no matter if it freehold or leasehold.
In general, forced land acquisition only occurs when the country needs to develop land and the landlord is given reasonable compensation.

Leasehold property and it’s disadvantages
Owning a leasehold property might not affect a short term buyer that is planning on selling the property after 5 – 10 years, however the price of the property will depreciate after 20 years – 30 years and as the date of the lease is near, the property can be of no value at all. To renew the lease, it takes quite a while as the documents needed for the renewal of the lease will have to go through different government departments.

One thing you need to know about freehold property.
In some cases, even if you own a freehold property, the government still deserves the right to take away the land that your property stands on legally, however the government will have to compensate with all the owners of the property, most importantly the developer of the land. The government need more freehold land in order to be able to build transportation or develop amenities for the country’s citizens. Such as MRT, LRT, Monorails, as it is a long term investment that can’t be moved once it is constructed.

In conclusion, owning a freehold property means you can hold on to the property forever, however the government still has the right to take it away from you. As for leasehold property, you have a risk of losing your property once the lease contract is over, if the developer did not renew the lease, you will be on the losing end.

No matter if the property is freehold or leasehold, other factors such as the location, the credibility of the developer and the value of the property should be the main consideration for home buyers.