When you’re in the market for a property, you’ll often come across the terms LEASEHOLD or FREEHOLD in property listings. But what exactly do these terms mean?
In general, freehold and leasehold refer to the type of ownership a property owner has. These terms only apply to properties that have individual or strata titles.
Before we delve deeper into the meanings of freehold and leasehold, let’s first discuss the process of land ownership in Malaysia and how these two types of ownership came about.
The Basics of Property Ownership in Malaysia
Property ownership in Malaysia is protected by the National Land Code. This means that when you have legal ownership of a property, others can’t simply take it away from you. Any transfer of property ownership must follow the National Land Code and the Land Acquisition Act.
Originally, all properties in Malaysia belonged to their respective state governments. For example, properties in the Kuala Kangsar district are owned by the Perak State Government. However, individuals or corporations in Malaysia can apply to own a portion of land from the state government through a separation process.
When an application is approved, the property ownership transfers from the state government to the new owner. The new owner will receive the land either for a specific period or without a time limit/in perpetuity.
Owners who receive property for a specific period will get a lease title or LEASEHOLD.
On the other hand, owners who receive property without a time limit/in perpetuity will get a permanent title or FREEHOLD.
However, the property isn’t free. For freehold properties, owners must pay land tax. For leasehold properties, owners must pay both land tax and leasehold premium.
Freehold Property
As mentioned earlier, freehold is a form of ownership without a time limit/in perpetuity. To check and confirm if your property is freehold, refer to your property title. Look at the first page. The title will contain phrases like “Grant in perpetuity…” or “The land described above is held in perpetuity…”.
What About the Process of Transferring Freehold Property Ownership?
The process of transferring ownership for freehold properties is quicker compared to leasehold (about 90 days). This is because freehold properties don’t require permission from the state government for the transfer process. Additionally, freehold properties with Bumiputera status can be sold to non-Bumiputera buyers.
However, some freehold properties may have restrictions that can interfere with the transfer process. My advice is to check your property title first before you intend to sell your property.
Leasehold Property
As mentioned earlier, leasehold is a form of ownership for a specific period. To check and confirm if your property is leasehold, refer to your property title. Look at the first page. Look at the first page. The title will contain phrases like “Lease for a period of 99 years ending on…”, which means the ownership of the property is valid for only 99 years.
Some properties have shorter ownership periods (30 years or 60 years) or longer ones (999 years). After the ownership period ends, you need to pay a premium to renew your property ownership period.
How Much Premium Do You Need to Pay for Properties in Kuala Lumpur Selangor?
Kuala Lumpur Properties
For properties in Kuala Lumpur, the premium to be paid is based on the following formula:
- 1/4 x 1/99 x (Lease period – remaining lease years) x Land Area (sqft) x Market Price of property in square feet (RM/sf)
For example, Aidil owns a condominium with an area of 1300 sqft with 30 years remaining on the lease. The current market price of his condominium in square feet is RM 400/sqft. The premium to be paid is:
- 1/4 x 1/99 x (99 years – 30 years) x 1300 sqft x RM 400/sqft = RM 90,606
Selangor Properties
For properties in Selangor, there are two options offered. The first option is to pay only RM 1000 to renew the leasehold property ownership for a period of 99 years. If you choose this first option, the state government will place a caveat that prevents you from selling the property to others.
The second option is to pay the premium as usual.
The premium to be paid is based on the following formula:
- 1/4 x 1/100 x (Lease period – remaining lease years) x Land Area (sqft) x Market Price of property in square feet (RM/sf)
For this second option, you can sell your leasehold property to others as usual.
What About the Process of Transferring Leasehold Property Ownership?
In terms of ownership transfer, each transaction requires approval from the state government authorities. Usually, the process of transferring ownership of leasehold property takes longer than freehold. Also, leasehold properties owned by Bumiputera cannot be transferred to non-Bumiputera buyers.
Like freehold properties, leasehold properties may also have restrictions that can interfere with the transfer process. Check your property title before you intend to sell your leasehold property.
Summary of Leasehold vs Freehold
- Leasehold properties typically take longer to transfer ownership compared to freehold.
- The process of transferring freehold property ownership is easier than leasehold as it doesn’t require state government permission.
- Banks are reluctant to provide financing for leasehold properties with less than 40 years remaining on the lease.
- Generally, leasehold properties are priced lower and are more affordable compared to freehold.
Freehold vs Leasehold: Which Should I Choose?
If you live in Kuala Lumpur or Selangor, I should remind you that the number of available freehold properties is very limited, especially in the city centre. Investing in leasehold property isn’t an issue to worry about. If you want to invest in leasehold property in Kuala Lumpur, ensure:
- The remaining lease period is over 40 years. If it’s under 40 years, make sure it can be renewed.
- It has access to roads and public transportation.
- It’s close to public amenities such as schools, hospitals, supermarkets, etc.
- The property is priced below market value.
- There’s high rental demand.
