The tenant has to care for the land as defined by the land legislation and may be responsible for developing some property and maintaining it. If the state deems the tenant unfit, the security of the tenure may be compromised. The state can forfeit the lease for non-performance.
1. It takes longer to sell
During the period of ownership, unlike most freehold titles, only the state or an equivalent can grant approval for a transfer of the lease. The sale for a leasehold property takes 3 + 1 months, which only starts after the state has given consent – this can take anywhere from six months to a year. This can make reselling your property a problem in the future.
If you are purchasing a second-hand leasehold property, the paperwork for transferring ownership can take about a year or longer in Selangor and Kuala Lumpur due to the number of consent requests. It is believed that leasehold property bought on the primary market, or from a developer, usually doesn’t consume that much time.
2. Value may be lower than freehold
When it comes to value, experts observe that properties with a 99-year lease go up at a similar rate with its freehold counterparts during the first 20 to 30 years. Some leasehold properties do gain more value than freehold ones during the early years. But beyond 30 years, the values of leasehold properties stagnate and depreciate until the expiry of the lease.
3. Financing may be more difficult to obtain
There’s also the problem of financing. Financial institutions tend to not lend to those wanting to acquire leasehold properties with less than 50 years remaining on the lease. Most banks veer towards lending for leasehold properties with at least 75 years left on the lease. Even if you do get approved for financing, your margin of financing (loan amount) will likely be lower than the maximum 90%. This means you will have to fork out more cash for your down payment.
4. Value is lower than freehold
Price-wise, leasehold property may or may not be cheaper than that of a freehold of similar specifications. 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% lower than a freehold one.
Finally, there’s renewing the lease. The last thing you want is to suddenly receive a notice that your lease is expiring within a few years and to renew it you have to pay an exorbitant amount, just like what happened to the folks in PJ Old Town.