Freehold vs. Leasehold Property

Freehold vs. Leasehold Property

Buying a real estate property is a complicated process that doesn’t conclude with making the payment and putting your name on the deed. That’s because there are several other things that you need to take into consideration to ensure that you make the right choice, such as location, type of property, etc. And when it comes to choosing the ‘right type of property’, it is not just about picking between residential and commercial.

Yes, you heard it right! There are different types of property, depending on the type of rights the buyers will be provided with. In India, there are two common types: freehold and leasehold property. While making a real estate purchase, it is important to understand what these two types of properties are.

Here’s a detailed explanation of leasehold property and freehold property and how they are different from each other: -

What is a Freehold Property?

A freehold property, as the name implies, is a piece of land or house that is solely owned by an individual. In this type of ownership, an individual has complete rights over the property, which means not only the building but also the land it has been built on.

A freehold property also means that the owner has complete freedom to start any kind of construction without seeking any kind of permission. Apart from this, this property can be sold to anyone at the owner's discretion. The property rights can be transferred by using sales deed registration, as there are no legal restrictions.

What is a Leasehold Property?

The meaning of leasehold property is that ownership of that land or building is based on a fixed-term lease. In this type of ownership, an individual is allowed to use the property for a specified period of time, as mentioned in the lease agreement. However, the land is still owned by someone else, and the owner reserves all rights related to the sale of that particular property.

In simple words, if you pick a leasehold property, you will have permission to reside there for a predetermined period. This property will eventually revert to the original owner, and you will not have any rights to the land once the contract comes to an end. These properties come with several additional charges, such as ground rent, maintenance costs, etc. Nowadays, almost every apartment or flat is a leasehold property, where you get ownership for a set period ranging anywhere from 30 to 99 years.

Freehold vs. Leasehold

To understand the difference between freehold and leasehold property, here is a detailed comparison on the basis of several aspects:

Ownership and Control: This is one of the biggest differences between these two types of properties. When you buy a freehold property, you get complete ownership of the property without any conditions. In leasehold properties, on the other hand, you get the property rights only for a set period of time. Once that lease period is over, the original owner will regain control over the property.

Security: Leasehold ownership always comes with a great amount of unpredictability. Since the landlord reserves all the rights related to the sale or transfer of the property, you cannot make any such decisions. In addition to that, the uncertainty related to the lease renewal is always there. However, freehold ownership is devoid of any such issues, as you will always be the sole owner of the entire property.

Cost: The initial cost of a freehold property is always higher as compared to leasehold properties. For example, if you try to find plots for sale in Mudichur, you will have to pay a higher amount than a leasehold property purchase. Similarly, plots in Thirumazhisai or any other location are always expensive as compared to an apartment or flat (a leasehold property). But, contrary to popular belief, they also prove to be a cost-efficient option in the long run. The reason behind this is that a leasehold property involves a number of additional costs, such as ground rent, maintenance charges, etc., that you need to pay on a monthly or yearly basis.

Loans: When it comes to availing a loan against the property, freehold ones are always the best option. As compared to a leased property, they give you easier access to mortgage loans. The simple reason behind that is that freehold property owners have complete freedom regarding their property rights, which is not the case with leasehold properties.

Can leasehold property be converted into freehold property?

This is one of the most common questions asked by real estate buyers and investors. Yes, a few Indian states, like Delhi, offer that option. Since freehold properties come with exclusive ownership rights to the purchased property and its land, they have always been a preferable choice. Although converting a leasehold property to a freehold property comes with an additional expense, it is always a good idea to do that.

Now that you have a clear understanding of these two types of properties, you can easily make an informed decision while making a real estate purchase. However, the best choice for you will always depend on your personal preferences and available finances.