Property Investment 101: 3 REAL things about leasehold versus freehold from buyer POV

Property Investment 101: 3 REAL things about leasehold versus freehold from buyer POV

Buying for the next generation

Another friend just mentioned that he will not buy leasehold properties and will only choose freehold properties. I asked him why he thinks that way. He said, “I want to leave the FREEHOLD property to the next generation.”

Wow, that’s a powerful statement. I want to say I echo him on the “leaving the property to the next generation part.” However, it has to be a property which has appreciated and the next generation could either continue to gain from rental income or sell to get capital appreciation. Please be reminded that if we have just one (1) property when we retire, please keep that for ourselves yeah. We could even sell it when we retire and slowly spend the money.

Retire and please, live comfortably first before anything else.

Never be pitifully reliant on anyone (no matter who) who can simply promise to take care of us financially but is unable to even afford their own property. Let’s be realistic. Everyone needs money o continue living. After working for 35 to 40 years, it is best that we also take care of ourselves too and not just leaving everything to the next generation.

Give the next generation good values, good education, good encouragement but never just give them something which they do not need to work hard for or does not understand the value of the property beyond just the price they could sell it for. Coming back to the THREE real things about leasehold versus freehold

#1 Freehold is forever (not entirely true…)

This statement is not true because if there’s an important national infrastructure project that MUST pass through your property, it will pass through your property. The government will pay you compensation based on the market price and that property is no longer yours. Read the short statement below and get to know that it does not say freehold land is exempted. The full reference is here: people.utm.my.

— start —

Acquisition of land

3. (1) The State Authority may acquire any land which is needed:
   (a) for any public purpose (e.g. institutional and transportation);
   (b) by any person or corporation for any purpose which in the
   opinion of the State Authority is beneficial to the economic
   development of Malaysia or to the public generally or any class of
   the public; or
   (c) for the purpose of mining or for residential, agricultural,
   commercial, industrial or recreational purposes or any combination
   of such purposes.

— end —

Conclusion – it’s forever if there is no usage of the land required from the government for the benefit of the people.

#2 – Leasehold is temporary

It’s not temporary because leasehold is renewable.

Here’s one full and comprehensive article about how to renew leasehold properties in Malaysia. iproperty.com.my Else, read a concise version here: How much do we need to pay to extend a leasehold property?

Briefly, the leasehold property can also be forever if we do pay for the extension to the government. Can the government choose not to accept?

Imagine this. There’s a development of many thousands of homes on a piece of leasehold land. The 99-year lease is about to end. There are maybe 20,000 residents on this development. Do you think the government of the day prefers to take the money and renew the lease OR choose NOT to allow renewal of the leasehold and thus did not have the payment and at the same time must spend money to evict the people and also to face public backlash and probably lose many votes if there is an election during the same time?

Think logically yeah. If I am the government of the day, I will ask everyone to pay me $$$$ instead. I will then allow extension for another 99 years.

#3 The story of 99 years leasehold property

Just an assumption. Charles bought a 99 year leasehold property when he was 35 years old. His daughter was 5. When the daughter reached 35 years old, she is getting married and Charles who’s 65 years old at the time passed her the property. Of course the daughter welcomes the father to stay with them. The leasehold is now left with 69 years of the lease.

5 years later, the daughter gave birth to a son and 30 years later, the son is getting married. The property is now passed to him. At this time, the leasehold is left with 34 years. Charles would be 100 years old. His daughter is now 70. His grandson who’s getting married is 30. The grandson would now choose to renew the leasehold property or he could still pass the property to his daughter 30 years later with the leasehold expiring in a few years time.

By the time the leasehold actually expires, Charles is somewhere in heaven. Charles’s daughter is over 100 years old. Charles’s grandson is 70 years old. Charles’s great-granddaugher is now 30 years old and she can now renew the lease. I hope everyone gets the logic. If not, then it’s okay. Stick to freehold. 🙂

Freehold is rarely priced the same as leasehold

No need to ask Tom, Dick or Harry yeah. If there are two similar properties, next to one another, priced exactly the same with one being a freehold and another a leasehold, of course everyone would buy the freehold yeah. However, how many are asked to pay extra because it’s a freehold property… The biggest line in any marketing brochure is the fact that it’s a FREEHOLD property.

Guys ah, buy the property for many amazing reasons. Do not make freehold or leasehold as the top consideration yeah. Do search around for stratified properties to understand why some so called leasehold properties are also extremely popular yeah. Right location, right developer, growing townships, all these are things we need to look for. Else, even buying freehold will not save our investment when this property is in the wrong location, it’s by some cut corner developer (because they have to sell lower) and the township has just ONE freehold development and nothing else.

Cheers

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