Buyer Guide: What to Buy? Leasehold vs. Freehold

A couple of terms that perplex most home buyers are “freehold” and “leasehold”. So, what do they mean? Are there any legalities associated with them which a home buyer should be aware of? What is the basic difference between the two? And, most importantly, is one better than the other?

The main difference between freehold and leasehold properties pertains to land ownership and control. As an owner, you can mostly do what you wish with your home, provided you keep within the local planning rules. In the case of a leasehold property, the ownership is given by the government for a tenure of 99 years. It is possible to extend the leasehold to 999 years if the owner, which is the State in most of the cases, wishes to extend the lease and you have to pay a price for the lease extension.

 Freehold Property
If you have purchased a freehold property, you own the land it is built on and also the house. In the case of apartments, the owner of the house becomes a shareholder in the property. You can live there for as long as you desire. You will have the right to make alterations in the house or redo some parts of the house. You might have to take permission from authorities if you bring about structural changes, (especially in case of old buildings). In India, most houses are sold as freehold property but apartments are mostly on a lease.
However, this too is changing as many apartments are getting sold as freehold. 

Leasehold Property
In case you have purchased a leasehold property, you have the right to reside there for a stipulated period of time. Here, the buyer is not the owner of the property or the land it is situated upon. In case of a leasehold property, you will have to pay ground rent to the owner or the leaseholder. Once the set period in the lease expires, the ownership of the property is given back to the landowner. Majority of the leases are roughly given for a period of 99 years. For those opting for leasehold properties, it is important to know the tenure of the lease as it will influence the value of the property. It is possible to extend the leasehold to 999 years.

What kind of properties cannot be freehold?
 
Flats or apartments can never be freehold because they are dwellings constructed on the same land owned by the builder/developer, where each apartment owner is a shareholder.

 Can leasehold property be converted into freehold property?
 
Yes, some states like Delhi allow you to convert a leasehold property into freehold. And if there is such an opportunity, you should definitely opt for it. Every state has a different set of rules for such conversions.

What type of properties are preferred by buyers?
 
Buyers usually prefer investing in freehold property due to the stability and chances of capital growth associated with it. Additionally, a freehold title gives buyers complete ownership of the property bought as against a leasehold title in which the land belongs either to the State Authority or the developer, who has purchased the land to construct the project.
 

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