Does freehold property always have a higher value than a leasehold property? Can a non-bumi property buyer buy a bumi-lot property? What about Malay reserved land? If these are the questions you have been wondering about, this article could clear your doubts.
A freehold property can be defined as any estate which is “free from hold” of any entity besides the owner. This means that a freehold tenure property belongs entirely to the buyer forever with no control from the government. The owner of a freehold property is also free to pass on the property to anyone else without needing an approval from any authority.
A leasehold property means that you own the property, but the land upon which the property is built is owned by the government. In Malaysia, the owner of a leasehold property can occupy the property and land for a certain period of time ranging from 30 years up to 999 years. However, 99 years is the most common leasehold term. It is worth noting that the lease term of a leasehold property is allowed for renewal a fee. The approval, however, is subject to the local land office approval.
A bumi-lot property is open for sale or lease only to the Bumiputera, which is inclusive of Malays, Sabahans, Sarawakians and non-Malay Muslims in Malaysia. While according to the law and regulation, a bumi-lot property can only resell the property to a Bumiputera, the owner of such property could apply to convert the property land status to non-bumi with a compelling reason, such as no demand for such property after advertise for a certain period of time.
Unlike Bumi-lot, Malay reserved property is strictly for Malays only and cannot be legally “released” to non-Malay for what-so-ever reasons. The other restrictions of Malay reserved land such as the owner also not allowed to rent out properties built on a Malay reserved land to non-Malays; all businesses that operate on the land must be owned by Malays; publicly traded companies must comprise of only Malay stakeholders.
Let’s put Bumi-lot and Malay reserved property aside and focus on freehold and leasehold property, which are the most common land titles in Malaysia, is that true that freehold property has higher value and potential than a leasehold? Or is it just a myth conjured from assumptions or optimistic ideals?
In fact, a property value and its value appreciation potential are determined by more than just the land title, it is made up by many other factors such as the location, the project’s design concept and facility package, the local housing demand and supply, as well as the community, just to name a few.
For example, a freehold property in a less desirable address with poor accessibility commonly worth lesser than a leasehold property in the city center and within a walking distance to a public transportation station.
Pros and cons of freehold and leasehold property
|Freedom to use and transfer of the property
|Usually are more expensive than a leasehold property
|A value-added element and usually have better capital appreciations in long-term
|Lower rental yields as cost of purchase is usually higher
|Market demand is more stable than a leasehold property
|Cost of purchase is usually cheaper
|Value drops as the tenure years decreasing
|Better buying package, facility and freebies to attract buyer
|Additional cost to renew the tenure
|Difficult to resell for those are nearing the end of their tenure
|No benefits from increase in land value
[Image source: Background photo created by evening_tao]
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