May 30, 2024 2:53 pm

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Nikka Sulton

Properties are classified as either freehold or leasehold. Freehold properties are owned outright by the owner for an indefinite period, free from control by any other entity. Leasehold properties, on the other hand, are typically leased for a specific period, usually 99 years from the date of construction. But why is the lease period usually 99 years? What happens to the property at the end of the lease? Who owns it then, and what are the renewal conditions?

The development authority grants land development rights to developers and leases properties for 99 years. This means buyers of residential or commercial properties will own them for 99 years, after which ownership reverts to the landowner. Leasehold property owners must pay ground rent to the landowner. The lease can be renewed once the 99-year term is completed.


What happens upon expiry of said lease?

Typically, the government allows for the conversion of a leasehold property to freehold status upon payment of the necessary conversion charges. This process provides the leaseholder with full ownership rights, eliminating the need to renew the lease. Additionally, if the leaseholder chooses not to convert, the government often guarantees the right to purchase another lease once the original one expires, ensuring continued possession of the property. This flexibility offers leaseholders a way to secure long-term stability and investment in their property.


Buying an older house

An investor considering an older property, such as a 30-year-old leasehold property, may encounter difficulties when trying to sell it. Prospective buyers often find it challenging to secure financing for such properties, and they may not see significant appreciation. One major challenge for the buyer is the renewal of the occupancy contract once the lease expires. Additionally, older properties come with extra costs, like property tax, and complications in transferring the property title and registration papers. If the descendants of a leasehold property hold it for the full 99 years, they will only need to pay for the lease renewal.

From a developer’s perspective, projects planned on shorter leasehold periods might struggle to secure construction funding. This can result in delays and potentially non-completion of the projects. The uncertainty around lease renewals and additional costs can make these investments less attractive to both buyers and developers.


Why 99 years?  

The 99-year lease agreement outlines the rights and obligations of both the lessor and the lessee regarding property occupation in exchange for a set rental amount. The agreement’s terms and conditions, including the nature of rights, lease period, duties of both parties, conditional clauses, termination clause, and dispute resolution clause, are crucial for maintaining the lease and resolving any disputes.

The purpose of having a set timespan is to regulate the use and transfer of land. Historically, this duration was considered a safe choice as it generally covered the lessee’s lifespan while also protecting the lessor’s ownership rights.


Some facts about leasehold property

  • Several authorities offer land to develop apartment projects only on a leasehold basis. These arrangements allow developers to construct residential buildings on land they do not own outright. Instead, they lease the land for a specified period, typically 99 years, after which the land ownership reverts to the original owner unless the lease is renewed.
  • It is possible to extend the lease period to 999 years by paying a price. This option provides a more secure long-term investment for buyers, reducing the uncertainty associated with the expiration of a shorter lease. By extending the lease, owners can enjoy the benefits of the property for generations without worrying about the lease expiring.
  • On purchasing a property on leasehold, a buyer must confirm whether the seller has obtained a transfer memorandum from the local development authority. This document is crucial as it verifies that the seller has the right to transfer the leasehold interest to the buyer. Without this memorandum, the buyer could face legal complications or challenges in securing the property.
  • Developers prefer to build flats on leasehold lands since the cost of such parcels is lower when compared to freehold lands. Leasehold lands offer a more affordable option for developers, allowing them to invest in larger or more ambitious projects. This cost-saving can sometimes be passed on to buyers, making the properties more attractive.
  • Banks do not prefer financing the purchase of a leasehold property, especially when the remaining lease period is less than 30 years. The value of such properties also falls as the end of the lease period approaches. As the lease term diminishes, the property becomes less attractive to lenders and buyers due to the impending need for renewal or the risk of reverting to the landowner.
  • The key advantage of investing in leasehold property is the price, which is often lesser than properties built on freehold land. Leasehold properties can be a more accessible option for buyers looking to enter the property market without the higher costs associated with freehold properties. This price difference can make leasehold properties an appealing choice for investors seeking affordable real estate opportunities.


Things To Understand About Leasehold Property

  1. Some authorities only permit the construction of apartments for sale on a leasehold basis.
  2. The lease period can be extended to 999 years by making the required payment.
  3. When purchasing a leasehold property, a buyer must confirm that the seller has obtained the transfer memorandum from the local development authority.
  4. Developers prefer leasehold land parcels because they are cheaper compared to freehold lands.
  5. Banks usually do not finance the purchase of a leasehold property if the remaining lease period is less than 30 years, which lowers the value of such properties as the lease period ends.
  6. The main advantage of investing in leasehold property is the price, which is often lower than that of properties built on freehold land.




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