Worry not over leasehold property
Owning a leasehold property should not be a concern for first-time housebuyers if they intend to stay there.
Lawyer Chris Tan says chances are high that these buyers will ‘upgrade’ by moving into a bigger house in the next 10 years.
He said houseowners could just renew the lease by paying a certain amount of premium.
“Rather than worry about the leasehold status, housebuyers should instead be concerned over the ‘longevity’ of the building structure.
“Do you know that a building structure by Malaysian standards can only last for 60 years?
“If a building structure is of bad quality and meant to be taken down for reconstruction after 50 years, then what’s the difference between owning a leasehold and freehold property?
“The key here is, nothing is built to last forever. All housebuyers will still have to pool in the resources to rebuild the place if it has to be demolished.
“Don’t let it hamper your decision making,” said Tan, who is the founder and managing partner of Chur Associates during his talk ‘My First Home Seminar’ at G Hotel.
Tan was touching on the topic ‘Back to Basic: Watch What You Sign, Housebuyers’.
While acknowledging that purchasing a freehold property was still the wise move, Tan said there were other aspects which should be looked into. Among them was the lifelong payment for the service charges.
He added that most people were still hopeful that their properties could be passed on from one generation to another.
“The world is evolving rapidly. The amenities and facilities of a building might not be suitable in 20 years to come.
“For example, buildings built 20 years ago won’t have fibre-optics for Internet connection. Some even do not come with air-conditioning.
“But today, we can’t live without it.
“So, you can just forget about leaving behind a ‘legacy’ (houses) for your children. Your house probably won’t be up-to-date for them when they grow up.
“They will find their own home,” he said.
Tan added that one must be aware over the documents they signed after purchasing a house.
“Buying a home is a lifelong commitment. Never take it lightly.
“You will be signing a lot of documents. It is very important to know what you get yourself into.
“Try to get your lawyer to explain to you on clauses which you do not understand,” he said.
Another speaker Timothy Law, in his topic ‘Better Late than Never in Owning Your First Property’, said first time homebuyers could always source for information online in securing their ideal homes.
“With just a click on the mouse, one can easily find their dream homes via online.
“Once you know about your choice, you must act fast.
“Otherwise, it will remain just one of the items on your unfulfilled wish lists.
“Once you get your research done, the next step is, you must leverage on the experts around you to close the deal.
“Networking is the key here.
“You can always seek advice from lawyers, property agents and bankers,” he said.
GM Training Academy chief executive officer and founder Michael Yeoh said first-time housebuyers would have difficulties securing a 100% loan from banks although such a package existed.
He lamented that Bank Negara had failed to look into the plight of the lower income group in getting affordable homes.
According to Yeoh, those buying houses priced between RM100,000 and RM400,000 could actually secure 100% loan financing from the banks.
He said the banks would finance 90% of the loan, while Cagamas Holdings Sdn Bhd, the national mortgage corporation, would finance the remaining 10%.
“But to my knowledge, it is almost impossible to secure the loans.
“We are happy with the policy introduced by Bank Negara but the problem is, the mechanism to safeguard it, is not there,” he said in his talk ‘Financing for First Home Buyers’.
Source: StarProperty.my
Why lawyer Chris Tan only emphazed on the building aging but not touch on the land value? The building may depreciate but the freehold land will appreciate in value (and maybe faster)! While buyers will get nothing left with lease hold land. Is it not been reported or he missed this?
He already said the land value is not a major factor because by the time the lease is about to expire, it is time for the building to be demolished. And a premium can be paid to renew the lease, it’s not the end of the world problem. I think leasehold project by right should be cheaper than freehold project, and this lower price is used to offset the future premium for lease period extension. Normally, the condo committee will start filing for lease extension way before the lease expiry date.
Any example, which condo in penang has its lease extended or converted to freehold?
D-plaza, lease to freehold.
@yoyo
when the lease expired, the building already too old for stay and need to be demolished. On what ground the owners can ask for lease extension (especially high rise buildings)? The land is not yours, and money is needed to demolish the building.
for high rise, both lease/ free hold need to be demolished when become inhabitable; even not reaching 99 yrs. and owners for these 2 type of condos will not have the capability to demolish and rebuild. only way is developer/government purchase the whole blocks from owners and rebuild. price for free hold will be higher if compare to lease hold; but for high rises (strata title/share by many owners); not sure if the difference will be very significant.
@Nana
typical condo is 3 hectare land for ~500 units, even if land price 60years later is only RM500psf (conservative value), then the 3 hectare land itself worth RM 150 millions! Lease hold properties nothing left as the land is not yours, and the building is inhabitable. Government has no reason to renew the lease for you or your son.
@Gaga
You think when the land is freehold, then the land is yours? No, you still don’t have the power to hold on to the land when the building is inhabitant. Gov/developer will offer block purchase from owners to redevelop the land. Same with leasehold, normally Gov will extend the lease quite early during the lease period, meaning by the time the building is inhabitant, there is still years before the lease expired. In this case, Gov/Developer has to block purchase (in this case, maybe compensation is more accurate term). Now, how much different between block purchase price and compensation? we don’t know. Because, there is none property in malaysia that has experienced this, I guess.
@Gaga
“Government has no reason to renew the lease for you or your son.”
You sound like Gov want to take advantage from owners. It does not work that way. To Gov, as long as the land is not planned for new development, there is no reason for them not to renew the lease. On the other hand, when there is new development identified for that land, it doesn’t matter whether it is leasehold or freehold, they have the power to take back and offer compensation. That’s how things work.
Freehold – the land is legally belongs to all the owners and each have a share if there is offer to purchase the land.
lease hold – when the building become inhabitable after 60 years, you still need to pay yearly assessment fee until lease expired. When lease expired, you don’t have any legal right over the land. Of course you can beg for the mercy to extend the lease, but what is the point where you don’t have the financial power to demolish the old building and rebuild? And with fact that you don’t/can’t stay there anymore as it is an unsafe building.
Freehold – Owner does not need to pay yearly assessment fee?
wah lan eh….still arguing about freehold-leasehold ah? Hmmm….must be those speculators who cannot flip their freehold-leasehold apartments in Bayan Baru. Well, oversupply lah bro, keep arguing also useless already lah! Aiyo!!
Don’t misled others. Annual assessment fee applies to both free hold and lease hold property.
@investor
You must be novice investor. Your explanation touch surface only. Who don’t know?
Let me tell you what normally will happen.
1. Gov or Developer sees there is a potential in redevelopment of that land.
2. He will starts to nego with owner to surrender their house or lease.
3. Nego takes place.
4. If everyone agrees with compensation package, owner go to land office to surrender their lease.
5. Then if it is developer who want to take the land, they will reapply the land for a new 99 lease period.
6. The land will be then redeveloped.
End story.
Now what is the compensation rate will be? Any different between free or lease hold? I don’t know. But I am sure both equation will have “current market land value” factor in.
@yoyo
talk like a pro but you are just empty tank. End up you just said don’t know on the difference in value of the free hold Vs lease hold land. The cost for 99years lease from government + the additional hassle for the lease hold transaction easily add up to >100millions for a typical 3 hectare land (for a condo project). this is a realistic number based on TODAY’s housing price of RM500psf, where typically RM300psf is for the land cost (for Pg island). Those >100millions will be paid the owners if it is a freehold land (and not yet account for the premium for the freehold land compare to 99 years lease). Please learn up, dude.
@investor
You throws out numbers but I don’t know what you trying to say.
Is your number refer to lease renewal premium or compensation given to owner if their land is taken back for redevelopment?
What I am not sure is the difference in term of compensation for a free hold and lease hold. Because I believe there is no standard formula. I am sure there is basic formula for it where it includes current market land value, but the final number varies case by case (depend on the nego between owner and the developer).
For lease renewal premium, everyone can google for the formula. It is not a secret. Taking the 3 hectars (322917 sq ft), RM 300psf land price, assume lease remains 50 years, and there are 300 owners for the condo.
Premium = 1/4 x 1/100 x market land price x (years of lease u want to extend) x land size
= 0.0025 x 300 x 49yrs x 322917
= ~12 million
Each owner has to fork out = 40k
Is current lease hold property priced 40k lower than its free hold counterpart?
1. State gov encourage owner to apply renewal ways before expiry date. This will ease bank provides financial aids.
2. When the lease has not expired, you still own the land (just like freehold owner)
Don’t be so old thinking where -> free hold the land is mine, lease hold I lose everything.
yoyo, you make me viomit bloods, very stupid comments like some ministers.
The land in island and mainland has the same value, as eventually the earth is going to end.
Frankly, not sure who is stupid. this is open discussion and at least yoyo’s opinion aligns with Lawyer. i think u should vomit blood every time when u look at mirror.
for me, straight forward. for landed; prefer freehold. For condo; location and neighborhood over free/lease hold.
let me enlighten you guys.
The state government has already stated that they are trying to convert all leasehold residential properties to freehold status. LGE did mention it recently (a few months back). They tried applying it but was rejected by the National Land Council ( Federal). LGE also did mention that leasehold properties once reach 99 years will be able to renew their lease for another 99 years for sure. Just need to pay the differences calculated based on the property market value at the time.
So, no one is losing any land and leasehold properties might be in for a windfall if it gets converted to freehold.
At the end of the day, it is all about location, location and location.
OK, my apologies…
Easy.. if can afford just get freehold. If budget constraint just get leasehold and upgrade later when have bigger budget.
Leasehold only constraints is the value of the house will depreciate faster after 10 years. Freehold value will depreciate but not as fast as leasehold.
And another issue will be once leasehold reached 60 years, very hard to sell as no banks want to loan you $$. Freehold have no issue to apply loan.
Anywhere no houses / buildings are build to last forever. En-block for freehold will be higher payout to owner and leasehold lesser payout.
Again Property Talk Comment page is always entertaining … Freehold will still be higher in demand and value given in all factors are the same. Why? Simple as people would prefer the status and convenience.
Yes, it’s not that expensive as the formula and cost of extension of lease shown above. Even “conversion” from leasehold to freehold is technically affordable if your breakdown the cost to per-house-owner. But the point is, in every development there’s bound to be at least 1 stubborn troublemaker. Let’s say one guy refuses to pay the extra premium for the conversion with just the argument “I want in Leasehold”. In the court, you can’t force this guy to pay the premium. So now, if the residents want to extend their leasehold or convert to freehold, they have to collectively pay for this guy’s share of the premium. Now this is where it get’s interesting. Other residents will not be happy to pay for someone else especially when it’s a share benefit. Let’s say another fellow decides to say “no”. Now the remaining collective will have to share out the premium for two guys. Then some smart alecs will think “if I say no as well, the other residents will have to pay for my share”. Then you’ll have more people that don’t want to pay for the premium anymore as they figure if they don’t pay, others will pay for them. So, it will not work unless the premium is paid from the Service Charge / Sinking Fund Account whereby JMV or MB will have say to use it if majority vote agrees. Then again, to have millions in the Service Charge / Sinking Fund account is impossible.
It will also not work for other reasons, as property age, owners will likely to rent out their units. Rents collected will not make any difference if it’s Leasehold or Freehold. No sane landlord would fork out substantial amount of money to extend lease or convert title.
Also, banks won’t finance for extension and conversion. RM40,000 may not sound alot to “investors” or “rich” people but that aside, RM40,000 could be years of savings for alot of Penangites.
So back to the basics, is Freehold better than Leasehold? My answer is it depends. I still won’t buy a Freehold property that is overpriced or at a “dead” location. I will buy a Leasehold property if it holds great potential for rental yields or is located at strategic location. If I buy for own stay. as long as I’m happy with the layout, the location and the price and of course if I can afford it, I’ll buy it Leasehold or Freehold.
@Elmo
I don’t think Marina Bay condos has depreciated at all based on your more than 10 Years formula for leasehold properties. It is always about location. No condos has reached the 99 years yet and you will long dead before it happens in your life time. So why worry about all that.
Freehold or leasehold or not, most importantly it is within your budget and affordability and you will be able to have a roof over your head for your family as well.
Avoid subsale units with lease hold. More difficult to get bank loan and need approval from state government, which take much longer time for the overall transaction.
Don’t ever buy leasehold. Don’t put your money into sea. Frankly speaking, those who buy leasehold is an idioot.
dear leasehold owners, if you do not want to be an idiot, pls sell off all your leasehold properties as soon as possible. after that, you will convert yourself to be a genius! Genius or idiot? you choose!
what a short sighted stupid comments, buy leasehold properties= put money into sea= idiot.
hey goreng, u own property or talk big here? u got money to goreng or not..really tulan this kinda ppl.
For us property investors, freehold or leasehold doesn’t matter as long as return is good. If your are an idiot, freehold also no use…
@investor
So you’re saying if the return is not good, both freehold & leasehold are also idiot?
leasehold idiot – an idiot for 99 years
freehold idiot – an idiot forever?
@kutu
leasehold idiot – depreciation yearly until zero at 99 years expiration
freehold idiot – still have the land in hand, cheap sale also get back some $$$ lah.
I said if you are an idiot, it will be hopeless for you.
Depreciates yearly until zero. Hmm….don’t scare me leh.
Has been some time did not check my Putra Place investment already. How much the price has dropped? Anyone want to buy? 100k want bo? I don’t want to be called leasehold idiot.
so as conclusion, want to flip & goreng – buy lease hold, because you not going to stay there forever. For long term own stay buy freehold so that the land is appreciating even though the building structure is depreciating after many years.
Things is getting more confuse. Thought investor don’t like lease hold?
@Gigi
my marina bay also lease hold ler, i pay 300k+ for it. now also dunno drop till how much already.
just wondering those genius investment portfolio, so idiot like us can learn from them.
Nothing is permanent — Buddha
Today leasehold, tomorrow freehold.
Today freehold, tomorrow leasehold.
Today 300k, tomorrow 1 million.
Today 1 million, tomorrow zero.
Today up up up, tomorrow down down down
Today down down down, tomorrow people jump down.
Indeed a very powerful statement.
@Lesley
investors now sapu anything that can make money.
Still a lot of investor around to take up property in Penang?
The price starts to go down?
Went down a lot already. You don’t know meh? faster enter market now. Very affordable now.
Faster faster, summer place, the spring, marina bay, one world, one sky, summerton, the breeza all on big sales now!!!
forget to include gold coast, putra place, putra marine….
leasehold year is getting lesser n lesser
or u may consider sapu all free hold flat….coz the land will definitely appreciate in future,
dun buy leasehold condo & be an idoit
Oh no …I should sell my leasehold summerplace condo now…I really regret buying leasehold…I bought ~ rm300k sea view…I am willing to let go same price as I bought….after sell I will go buy freehold property at kulim or nibong tebal….sure my children will thank me later.
Wah so many property expert lawyers here…no need to attend the star property talk la next time..just come here and get free and ‘‘valuable advice‘‘. Or better still the experts here should give another talk about leasehold freehold at next property fair…no need to invite ousider expert speakers.. I will surely attend to see what you really know.
Wow so many sarcastic people here…
Of course there is a difference between leasehold and freehold. The people who says that there are no material difference are either confused or have interests in talking up leasehold property. But like ‘lol’ says, the ultimate final decision should be down to location!
No matter freehold or leasehold, as long as can make good margin then it is good hold.
You can buy a freehold property in GOOD location. Why choose leasehold? Of course leasehold property has better rental to price ratio, as price is cheaper but can get same rental as freehold property. So don’t be misled by some self-interest comments here.
99 years later; land value increased by how many times? who will be the government? no one knows.
If LEASE=FREE, then we can also conclude BLACK=WHITE.
Maybe one day, the government just turn off the light, and leasehold become freehold.
“buy a freehold property in GOOD location”.
,
Genius. Thank for giving us the best kept secret of property investment. No brainer Rich Man