Crucial Differences Between Freehold & Leasehold Property
Freehold Property :
To understand it better, read the term by splitting into two i.e. free-hold. This means that the estate you are buying is free from the hold of any entity, besides the owner. So, the owner enjoys complete ownership and can use the land for any purpose (sell, renovate or transfer), keeping the local regulations in mind. Moreover, if one plans to sell such a property, it won't require any legal or government consent, and, hence, has less paperwork attached. Understandably, freehold assets are more expensive when compared to leasehold assets.
As the name suggests, here the ownership of the land on which the property is built is leased for a certain amount of time to the developer. Generally, the lease period varies from 30 to 99 years.
If you are buying an apartment in a housing complex, it might be possible that the land on which it's built is leased. The future of such properties after the lease period is over is a bit uncertain, and somehow depends upon the amount paid by the society to renew the contract. Also, it's a task for the buyer to avail of loan from banks to buy a leasehold property. You would be surprised to know that majority of the housing options in Delhi, Mumbai (especially Navi Mumbai), Noida Extension and Gurgaon are leasehold properties.
Comparison between Leasehold and Freehold property:
Land belongs to the state, leased to owner for a certain number of years
Land belongs to the owner
At the end of the lease period, owners must pay to extend the lease
Ownership is indefinite
Requires state consent (obtained at the land office) to transfer ownership
Does not require state consent to transfer ownership (except in certain specially earmarked properties)
Most banks will not finance a property if the lease period is less than 30 years
Banks finance freehold properties easily
Converting a leasehold into a freehold property
You can easily convert your lease-hold property into freehold if you have the GPA (General Power Of Attorney), a clear sale deed and an NOC (in case the land is under mortgage or rent). In addition to this, you need to pay a conversion charge to the authorities. In Delhi, you can get the status changed using registered agreement to sell and GPA only. You can also get the property converted on the basis of house tax assessment or proof of permanent electricity connection in case of non-sanctioned building plan.
For a developer, the most important concern while starting off with a project is to control the costs. To do so, they buy lease-hold land. As previously stated, such land is comparatively in-expensive.
If you have a choice, it is obviously better to go for freehold properties as they offer a better clarity on its future prospects.
- People running businesses or staying in rented or leased properties for decades in Lutyen's Delhi can now buy them in 11 of the 27 posh markets falling under the New Delhi Municipal Council's (NDMC) ambit.
- Starting April 2017, purchasers would have to dole out more for converting theirleasehold properties into freehold in the prime locations of the capital which have been leased out by the land and development office under the urban development ministry. Even those property owners who converted their leasehold properties to freehold between 2000 and 2017 would have to pay the revised rent, specific to the year when the deed was approved.
- Owners of around 50,000 leasehold residential properties of different sizes in Chandigarh can soon become sole owners of the houses. The rates have been finalised, too.