Why Leases Are For 99 Years
Properties are of two kinds — freehold property and leasehold property. While the former refers to properties that are "free from hold" of any other entity except the owner for an indefinite period, the latter are properties usually leased for a period, commonly for 99 years from the time of construction. But, why the unusual figure, 99? Or, what happens or who owns the property at the end of the lease period? Or the applicable renewal conditions?
Propguide tells you more about why the leases are for 99 years.
The development authority of a particular area provides land development rights to developers and sells properties for a lease of 99 years. This means that anyone who purchases a residential or commercial property will own it only for a period of 99 years, after which the ownership is given back to the landowner. Buyers of leasehold properties are required to pay a ground rent to the landowner for this. Lease of such properties can be renewed after the completion of the term.
What happens upon expiry of said lease?
Usually, the government allows conversion of a leasehold property to freehold upon payment of conversion charges or guarantees the right to buy another lease upon expiry of the original lease.
Buying an older house
An investor eyeing an old property, say a 30-year old leasehold property, may find it difficult to further sell the property as it would not be easy for the prospective buyers to finance it. Such properties might not see significant appreciation as well. The key challenge faced by the buyer is the renewal of the occupancy contract once the lease is over. Besides renewal, older properties also require additional costs like property tax. Moreover, a buyer could face challenges of transferring the property title and registration papers, too. On the other hand, if the descendants of a leasehold property possess the property for 99 years, they will only need to pay for the lease renewal.
From a developer's point of view, projects that are planned on smaller leasehold periods, may not receive funds for construction which could lead to delay and non-completion.
Why 99 years?
The 99-year lease agreement includes rights and obligations for both the lessor and the lessee pertaining to the occupation of a property in exchange for a set amount as a rental. The terms and conditions mentioned in the agreement like nature of rights, lease period, duties of lessor and lessee, conditional clauses, termination clause, dispute resolution clause, etc. are crucial factors for the sustenance of any lease and any dispute in respect of the lease.
The objective of having timespan is to control the use as well as the transfer of land. This timespan was seen as a safe interval choice in earlier days given that it will cover the lifespan of the lessee. It was also regarded as a period enough to safeguard the ownership of the lessor.
Some facts about leasehold property
- Several authorities offer land to develop apartment projects, only on leasehold basis.
- It is possible to extend the lease period to 999 years by paying a price.
- On purchasing a property on leasehold, a buyer must confirm whether the seller has obtained a transfer memorandum from the local development authority.
- Developers prefer to build flats on leasehold lands since the cost of such parcels is lower when compared to freehold lands.
- Banks do not prefer financing the purchase of a leasehold property, especially when the remaining lease period is less than 30 years. The value of such properties also falls at the end of lease period approaches.
- The key advantage of investing in leasehold property is the price, which is often lesser than properties built on freehold land.