Real estate basics: What is a freehold property?


What exactly does ‘freehold’ mean and what are the implications of buying a freehold property? We explain

A freehold property is one, where the owner/society/residents’ welfare association owns the building and the land that it stands on outright, in perpetuity. A freehold land is generally bought through an auction or lottery. The completed project, thus, will include the cost of the land incorporated in the final cost of the units.

A freehold property, hence, is any real estate that is legally ‘free from hold’ of any entity other than the owner. The owner of such a property has the right to use it for any purpose, in accordance with the regulations of where it is located. The sale of a freehold property requires significantly lesser paperwork, as it is not necessary to request authorisation from the state. However, this also means that a freehold property is more expensive to purchase than a leasehold property.

 

Comparison between leasehold and freehold property

NatureLeaseholdFreehold
Tenure of ownershipLeases are for usually 99 years or more.There is no such fixed duration, unless limited by the town planning department.
Approvals required for ownership transferTransfer of leases require permission from the state or the governing authority.Owner can transfer the property without any limitation.
Rights of ownerLease is to be acquired from the landlord who has the freehold right on the property.Owner has the complete right over the land and the building that stands on it.

 

Advantages of freehold property vs leasehold property

LeaseholdFreehold
Relatively cheaper than freehold properties.Property owners do not have to pay annual ground rent.
Leasehold properties are a safer bet, since the land titles are clear and verified.Complete ownership rights of the property, with no restrictions to transfer it further.
The responsibility to maintain the building lies upon the developer, state or the responsible authority.You are in charge of maintaining the freehold property and do not have to depend on anyone else.
All apartments and flats are leasehold, because the land is owned by the builder. The lease is extendable if both parties agree.More stable, as compared to a leasehold property and more likely to increase in value in the long run.

 

Rights of the owners of freehold properties

There are no restrictions on the right of an owner of a freehold property to transfer it further and it can be inherited. There is no encumbrance to the absolute title of the property and it can be transferred, by registration of a sale deed. When you purchase a freehold property, you also own the land it was built on, along with the house itself. If the property is an apartment, the home owner becomes a shareholder in the property. You have the right to live in the house as long as you wish and you can also make changes to it.

While most houses in India are sold as freehold properties, apartments are also sometimes sold on lease. However, this is gradually changing, as buyers feel more confident in purchasing a property that is freehold.

 

freehold property

 

Home loan for a freehold property

Banks are generally more willing to extend a home loan for a freehold property, as compared to a leasehold property. This is because it is considered a safer investment, as the registration of a freehold property is done and it is also expected to increase in value. Banks are also willing to sanction a larger home loan amount for a freehold property with a high market value (where the loan-to-value ratio can be 80 per cent of the market value of the freehold property).

 

What is leasehold property?

A leasehold property is usually more affordable than a freehold property, because the ownership rights are for a limited period, after which the lease expires. Once the lease expires, the ownership of the property is given back to the original owner. Most of the time, the leases are for 99 years but can be extended up to 999 years. A buyer can also purchase the leasehold property by converting it to freehold property.

 

Difference between leasehold and freehold property

LeaseholdFreehold
Property belongs to the original owner and the ownership is transferred to the investor for a certain period of time.Property belongs to the owner.
The investor has to pay to extend the lease period.There is no such limit with respect to the ownership.
Property can be leased only when the state gives consent.Does not require any legal consent to transfer ownership.
Bank finance may not be possible, if the lease period is less than 30 years.Banks finance freehold properties.

 

Converting a leasehold property to freehold

A leasehold property can be converted to a freehold property through a clear sale deed, a general power of attorney and a no-objection certificate (if the land is under mortgage or rent). Additionally, you would also need to pay a conversion charge, to the relevant authorities. In Delhi, a property owner can get the status changed, using only the registered agreement to sell and the general power of attorney. In Maharashtra, the state government has set the rate for the conversion of leasehold property to freehold at 25% of the ready reckoner (RR) rate.

 

What is better, leasehold or freehold?

Usually, buyers prefer buying a freehold property as its prices increase more gradually as compared to leasehold properties. Moreover, it is easier to get a mortgage against a freehold property as compared to leased ones. If you invest in a leasehold property, the ownership will remain with the developer who bought the land to construct the project or the state authority who constructed the flats on its land.

(With inputs from Surbhi Gupta)

 

FAQs

What is a freehold property?

Freehold property is any real estate that is legally 'free from hold' of any entity other than the owner.

How to convert leasehold property to freehold?

A leasehold property can be converted to a freehold property through a proper documentation process, as mentioned in this article.

What is the difference between freehold and leasehold property?

The major difference between freehold and leasehold properties lies in the ownership status and control rules.

What are the advantages of freehold property?

You don’t have to pay rent on a freehold property, unlike a leasehold property.

What are the advantages of leasehold property?

It is much more affordable than a freehold property.

 

Was this article useful?
  • 😃 (9)
  • 😐 (1)
  • 😔 (0)

Comments

comments