FREE HOLD vs LEASE HOLD
means you can enjoy ownership in perpetuity (for ever).Owner has the complete and absolute ownership of the land, and all buildings that stand on the land. Freehold is thus more preferable and fetches a higher price.When you sell freehold land with a house, there are no state consents required when the sale is made. For these reasons, freehold properties ( in the case of a flat, a property with a share of the freehold) are usually more desirable than leasehold.
Advantage of owning a freehold property is the potential of a windfall from a collective sale. If the value of the freehold land increases while the value of the ageing building declines, it could reach a stage where the redevelopment value of the property is worth more than the utility value of the existing building. As a result, the property owners may find a collective sale of their property to a developer to be highly profitable.
Some developers looking to acquire residential land for development may also prefer freehold land to ageing 99-year leasehold property because freehold land would not require the payment of a hefty premium for extending the lease. For all these reasons, freehold residential properties are generally priced higher than 99-year leaseholds. The price range of freehold non-landed properties is also wider than that of comparable leasehold properties. Depending on the location, freehold property prices may increase. The majority of high-end residential properties are freehold.
For investors, one disadvantage of freehold property is the lower rental yield, a function of the higher cost of the property. While freehold properties have a higher likelihood of a collective sale than their leasehold counterparts, that can prove to be a double-edged sword. The property boom of 2005 to 2008 whipped up a collective sale frenzy. But some property owners who sold for a windfall found they could not get a replacement home in the same location from their proceeds. As the collective sale boom was powered by surging property prices, by the time en-bloc property sellers received their proceeds, the prices of comparable replacement homes would have moved out of reach.
Now, we look at the price performance of freehold and leasehold properties. Although freehold properties are usually priced higher than their leasehold counterparts, their rate of appreciation does not always outperform.
Though houses can be leasehold, this type of ownership applies more usually to flats. Under a leasehold agreement, you own your property only for the period stated in the lease. Lease hold ownership of a flat fundamentally means a long tenancy - the right to own, occupy and use a flat for a long period known as the 'term' of the lease.
Leaseholders may not be totally free to do what they wish to in or with the leasehold property. The lease itself has its own conditions, to protect the rights of all those with an interest in the building.
When a flat is sold, the seller passes all the right and resposibility of the lease to the purchaser, including all future services charges that have not been identified.In some cases, leaseholders have the right to extend their lease or even buy the freehold.
Because leasehold is, in effect, a form of tenancy, an annual fee (known as ground rent) is payable to the landlord (that is, the freeholder or his managing agent). Ground rent may be a nominal sum. A maintenance (or service) charge is also levied, to cover things like managing the building, external redecoration and repairs, gardening, window cleaning, buildings (though not contents) insurance, and so on. Such charges may rise annually without limit, but they are required by law to be reasonable.
The leaseholder usually owns everything within the walls, including the floorboards and plaster, while the freeholder owns the structure, the land on which it is built, and the common parts (which include communal entrance halls, staircases and so forth). The freeholder may be an individual, a company, a local authority, a housing association or a residents’ management committee, under which leaseholders join forces to buy the freehold of their building.
Advantage of lease hold is that it assigns clear responsibilities for upkeep and repairs, protecting individual leaseholders in the event of, say, a leak from a flat above. On the downside, it can be more difficult to obtain a mortgage on a leasehold property; much will depend on the length of time the lease will have left to run after the end of the mortgage term.
|
