Property Investment 101: Only buy freehold, some say. This is what I say.

Property Investment 101: Only buy freehold, some say. This is what I say.

First thing is this: Unattractive but freehold is a buy while attractive but leasehold is a no-buy?

Please do ask some of your real estate agent friends to give you a few names of properties which are freehold but the appreciation has been slow or it has not even appreciated much over the years. If they could not tell you, I think they better do more homework.

Then, ask them about some leasehold properties which has increased in prices and people love to stay there. I bet they could also immediately tell you a few. If they could not, as usual, better do more homework because they should have general knowledge about the market if this is indeed their career.

Truth is, we must not make decision to buy or not to buy simply because of freehold vs leasehold yeah. A trap is still a trap even if it looks very nice while a great catch remains a great catch even if you need to pay money in order to keep the catch in the future. I love both freehold and leasehold as long as both of them meets my expectations when it comes to property investments. Period.

What if there’s two identical properties and one is freehold while the other is a leasehold?

If anyone were to ask me this question; a choice of two identical properties with an identical price tag, I will also choose freehold. However, this is seldom the case. If there are, then there would not be this question in the first place yeah.

An attractive property may just be on a leasehold land while a not so awesome property may just be on a freehold land. So, which on to choose then? Maybe we run through 3 Q&As as below then, shall we? Decision is definitely all yours to make. For me, my choice is clear. It’s all about the property, not the ‘how long can I hold’ part. Haha.

Capital appreciation probability?  

Freehold is better than leasehold! (People say lah) Truth is, I have yet to find a conclusive report showing this. However, I have owned both freehold and leasehold properties and I have found no actual difference when it comes to price increase. It depends on just the property’s attractiveness and never whether it’s freehold or leasehold. By the way, all the price movement charts and graphs also does not provide one line for freehold and one line for leasehold. 🙂

Renewal will ‘kill’ you. (Too expensive) 

Now, people wants to say that but with the leasehold expiring soon, it’s price sure start to go down. Well, ONLY if one refuses to renew the lease. Now, they will tell you it will cost you millions! Fortunately for all of us, we have this Article in iproperty.com and this is now the calculation for the renewal of your leasehold works. It does not cost you millions… for the usual properties in the market.

Government can take back your land! 

Imagine a few thousand units of properties within a leasehold area and it’s about to expire soon. The government has NO use for the land. Do we think the government will forcefully take it back by NOT allowing the people to renew the lease? Seriously, the government will prefer to take the money plus the votes of all these owners who paid to renew the lease lah.

Now imagine an important transportation masterplan that MUST cut through a freehold land of a few thousand units of homes but it will benefit the whole city of 10 million people for a long time to come. Do we believe the government will decide NOT to use the Land Acquisition Act (LAA) 1960 (click here to read more if you want on LAA 1960) and pay the owners’ market rate compensation and instead continue to allow the 10 million people in the city to suffer from unimaginable traffic jam? Sorry yeah, even freehold land has no FOREVER.

Tenants surely prefer to stay in a freehold property lah

After renting out to many, many tenants over the years, not a single one of them asked me if the unit they are renting is freehold or leasehold. If freehold, they are willing to pay higher and if leasehold, they will only be willing to pay a lower rental. A tenant feels exactly the same whether they stay in a leasehold or a freehold property. They will pay you the same rental too. They also do not search for rental properties by looking at whether it is a leasehold or a freehold.

Staying Focused if the key. Think of WHY

Stay focused. WHY do we want to buy that property. If the due diligence has been done and everything’s good, please go ahead even if it’s on a leasehold land. You should never be too concerned on the land status. I know, for some countries, the leasehold land may just be more serious because of land scarcity issue. In Malaysia, this should not be the deal-breaker. As the marketing ad says, “diamond is forever.” Very true for its elements but it’s value as a secondary diamond ring will not be increasing year after year. Meanwhile for leasehold, keep renewing the lease and it may just be forever… Happy buying!

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