ON
friday
NOV 1, 2013
byMeera Ammani
Three
years ago, Andrea Ooi, 49,
inherited her late father’s double storey
home in Section 2, Petaling Jaya. “I really
didn’t know anything about owning a
leasehold property. I was living in a
condominium in Ampang which servedme
conveniently as it was in close proximity to
my workplace andmy child’s school. I was
very comfortable there. But then, on the
other hand, the inherited house held
sentimental value and I knewmy father
wouldwant me to keep it in the family for
as long as I could.”
Caught in a dilemma onwhether or not
she should hold on to the house or let it go,
she reached out to friends for advice on
what she should do, but was left evenmore
confused. “Everyone had their own valid
reasons as to why I shouldmove into the
house andwhy I shouldn’t. The bulk of their
reasons as to why I should not, had to do
with the issue of the house being leasehold.
I didn’t know that owning a leasehold
property could be so complicated. I
suppose I was prettymuch in the dark as to
how these properties work,” she adds.
The laws state…
InMalaysia, land laws are governed by the
National Land Code 1965 (Act 56 of 1965). In
Section 40 of the National Land Code, 1965,
it mentions that all state land belongs to the
state authority. Leasehold land belongs to
the state and therefore, conceptually, when
you purchase a property tied to a
lease, you are only buying the
right to live there. You will not
own the land or any building/s on
it, and you are only allowed to
reside there for the stipulated
timeframe.
When the lease expires…
When a lease reaches its end, the land is
reverted back to the state authority,
including any construction on it. Therefore,
in order to continue residing on it, the
‘owner’ will need to either apply for a
renewal of the lease before its expiry, or in a
situationwhere the lease has already
expired, apply for a fresh alienation.
Consent from state authorities (Land
Office) may be required before any
extension or renewal of a lease can go
through. Although it is uncommon, the
state has the right to deny approval of
extensions and renewals.
In the case where the owner does
not renew the lease and lets it expire,
the landwill be reverted back to the
state government and be available to
any other personwho would like to
apply for ownership.
Its marketability…
Property valuers say that the value of a
leasehold property typically goes down
when the lease period is coming to an end.
The reason for this is because there may be
complications related to the lease renewal
and in obtaining a bank loan. This affects
the property’s marketability.
Most property consultant’s note that the
value of 99-year leasehold properties as
FIABCI–Malaysia
PropertyAward2013
Next
weekend, FIABCI
Malaysia will play host to the
prestigious Malaysia Property
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the real estate and property
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the industry’s crème de la crème will make
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this year’s award winning developers and their
exceptional property developments.
FIABCI, the International Real Estate
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1948. It has Chapters operating in over 60
countries. It comprises over 100 national real
estate related associations and encompasses
1.5 million real estate professionals, worldwide,
within its organisational community.
FIABCI Malaysia was established in 1975,
and since 1992 inaugurated the Malaysia
Property Awards. Receiving this esteemed
accolade admits winners in their respective
categories, to represent Malaysia at the FIABCI
ADVERTORIAL
Prix d’Excellence, presented annually at the
FIABCI World Congress.
The list of award winning categories
include Property Man; Property CEO;
Environmental (Rehabilitation/Conservation);
Heritage (Restoration/Conservation); Hotel;
Industrial; Master Plan; Office; Public Sector;
Purpose-Built Project/Specialised Project;
Residential (Highrise); Residential (Lowrise);
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While last year’s roll call honoured those in
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well as freeholds ones tend to go up at
around the same level for about the first 30
years. After this 30-year period, the value of
leasehold properties stagnate and eventually
depreciate until the lease expires. Freehold
properties on the other hand, go through a
more stable growth, provided all other
aspects of the property are in good
condition.
Sources from financial institutions
explain that most banks can confidently lend
on leasehold properties, provided they have
at least 75 years left on the lease.
Dollars and ‘sense’…
The price of leasehold propertymay or may
not be cheaper than that of freehold of
similar specifications. Typically speaking,
assuming that all other details are equal,
such as the built-up area of the building and
the land size, the price of a leasehold
property is often around 20 per cent lower
than one which is freehold. Amajor factor
that could affect the price of the property is
the location. There have been cases where a
leasehold plot at a well established area had
greater value than a freehold plot at a less
developed location, explains a reliable
property valuer source.
X
X
Please email your queries to us:
Leasehold
properties
in
Malaysia
Comparisonbetween freehold
and leaseholdproperties
Advantages anddisadvantages of freeholdand leaseholdproperties
>Unravelling the
complexworkings
of leasehold
property
Leasehold
Freehold
Land uses
X
X
Lease duration is usually 30,
60, 99 or 999 years.
X
X
Limited by purpose of lease
and land legislation.
X
X
Stocking levels, cultivation
etc. may be restricted by
lease conditions.
X
X
Limited by environmental
and town planning controls.
X
X
Limited by environmental
and town planning
controls.
Duty of care
X
X
High level of duty of care
defined in land legislation.
X
X
May be responsible
for developing and
maintaining improvements.
X
X
May be required to engage
in property planning.
X
X
Duty of care following
common law and as
required by some
Environmental Protection
Acts or its equivalent.
Transferability
X
X
Lease transfers require State
or its equivalent's approval.
X
X
Aggregation
X
X
and sub-division
X
X
Fewer limitations
on transfer.
X
X
Aggregation and unlimited
right to sub-divide and
aggregate subject to town
planning controls.
X
X
Sub-division
Retrieval/
resumption
X
X
Powers to acquire leasehold
interest or withhold land
when lease expires.
X
X
Some powers to acquire
land for public works.
Security of
tenure
X
X
Varies according to lease
type but forfeiture for
non-performance may
be possible.
X
X
Very high level of security.
PART 1
Information retrieved from National House Buyers Association (HBA)
For more information, visit
LEASEHOLD
FREEHOLD
ADVANTAGES
X
X
Smaller initial outlay.
X
X
Less financial exposure than a
freehold acquisition.
X
X
Rent and any service charge is a business
expense spread over the lease term.
X
X
You own the property outright
X
X
You can use the property as you wish,
subject only to any planning or other
legal restrictions
X
X
You have greater control over the
management of the property, e.g you
choose when to carry out works of repair
or decoration
X
X
Property may rise in value.
DISADVANTAGES
X
X
The lease will usually contain restrictions
as to the use of the premises, allowing
other parties to use the premises etc.
X
X
Unless there is a break option, you are
bound to comply with the lease
obligations for the duration of the term.
X
X
Even if you find another party to take
over the lease, you will probably be
required to stand as guarantor.
X
X
A property with poor, limited or no
financial history will find it difficult to
obtain commercial mortgages.
X
X
Cash flow will be affected by the payment
of any deposit.
X
X
Mortgage costs may increase in line with
any rise in bank base rates.
INSIGHTS
CUT AND KEEP
