2008年1月16日星期三

Freehold versus leasehold

Attraction of property's tenure can take a back seat to location

By Maria Khong



Property purchasers like freehold ownership. But if the location is right, the freehold or leasehold tenure could take a back seat, except where the outstanding lease is too short for comfort.

A professional recently bought a leasehold condominium in Petaling Jaya, her decision influenced substantially by the prime location and that the property still has a lease of 96 years. But if asked to choose between a freehold unit in Rawang and a similar property with a 50-year lease in PJ, she would go for the former.

Preference for freehold property over leasehold is a foregone conclusion, developers, property consultants and real estate agents will testify. The attraction does not just lie with the no-limit right to use the property but it is also more 'bankable' than leasehold properties nearing the expiry of the lease.

Financial institutions' interest in a property declines correspondingly with the term of the unexpired lease. By the same token, the value of the property drops.

Reasons like the need for consent from the authorities to transfer ownership of leasehold properties and the possibility of expired lease replaced with a shorter renewed lease period offer little comfort for prospective buyers. Some puchasers have complained of horror experiences in obtaining consent for transfer of leasehold properties.

For these reasons, apple for apple, a freehold property will fetch more in the market. But by how much?

United Malayan Land (UM Land) Bhd general manager (marketing) Lau Boon Ann puts the price difference at 10 to 15 per cent for a 99-year leasehold property, about 20 per cent for a 60-year lease and 30 per cent for a 30-year lease.

Even with a 10 to 15 per cent difference between two similar properties within a locality, Lau is inclined to believe that people will go for a freehold unit. Things could be different if there is a bigger price difference.

The preference for freehold property is not unique to the Klang Valley.

Henry Butcher, Lim and Long (M) Sdn Bhd's Teoh Poh Huat finds that broadly in Penang, when similar properties are being compared, there is a greater reluctance for the market to respond favourably to leasehold properties.

The Penang-based consultant also points to the terms of unexpired lease and restrictions-in-interest that affect the value of properties. 'Consequently, a difference of 20 per cent to 30 per cent is not uncommon when similar properties save for its tenure are being compared,' he adds.

Apparently, three methods are used to discount the value for leasehold properties:

  • A comparison of similar properties, particularly those with similar land tenure (actual evidences) after making allowances for factors like location;
  • The mathematical method using the rate of return based on years' purchase; and
  • From experience and knowledge of transactions in the market.

Raine & Horne International Zaki + Partners Sdn Bhd's Bock Chek Hai offers a different perspective. Unless the remaining tenure period is very short, metropolitans are more concerned about location, price and size, he says.

He tells City & Country this is reflected in the values of freehold and leasehold properties in different locations. In the Klang Valley, it may vary from 10 to 15 per cent but 20 to 25 per cent in smaller towns is common, says Bock.

During the first seven months last year, 1-storey terraced freehold houses in Taman Desawan with lot sizes of 1,300 sq ft to 1,400 sq ft were priced between RM125,000 and RM150,000. Leasehold 1-storey terraced houses of similar dimensions at Taman Sri Andalas, with at least 90 years' unexpired term, were priced between RM130,000 and RM145,000. Both Taman Desawan and Taman Sri Andalas are located along the second milestone at Jalan Klang-Banting.
During the same period, 2-storey terraced houses in Taman Desawan were priced from RM175,000 to RM195,000 while leasehold houses of the same type and dimension in Taman Sri Andalas were going for between RM170,000 and RM180,000. From the study, Bock notes that there is not much difference in prices of these 1- and 2-storey dwelling houses held under freehold and leasehold titles. Location, he stresses, is still the most important factor that influences the price of properties.

Echoing similar sentiments is another local property consultant who sees the decision to buy resting mainly on location, accessibility and infrastructure. In the case of the 5-storey walk-up apartments in Wangsa Maju and Setiawangsa, the former being leasehold and the latter freehold, he says, both apartments are commanding average rentals of RM450 to RM500 a month because of their location.

Two-storey 40ft by 80ft semi-detached homes in Bandar Sunway were tagged at RM535,000 in 1994, says the consultant, but during the same period, completed 2-storey terraced houses with almost-similar dimensions in the neighbouring Subang Jaya were transacted at about RM475,000, although the former is leasehold property and the latter freehold.
'If the location is right, the price will be greater, regardless of whether it is a freehold or a leasehold property,' he says. 'And as long as the price and location are right, 'leasehold' will not be the main agenda. 'Freehold' is like an incentive.'

Reference: The Edge Communication

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