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What is Leasehold Property?

Jan 02, 2023
What is Leasehold Property?

Purchasing properties is a widespread business in today’s world. Be it for your usage, or to rent it out to someone else, leaseholding property is a commonly implemented system to own a certain piece of property for a tenure of time. Many business owners in India take up home loans to buy leasehold property for their application.

Through this article, we will clarify everything about leasehold property in India.

What Is Leasehold Property?

Leasehold property means a property that is being given for use to another individual for a stipulated period. The individual leasing the property is called the lessee, while the person who owns the property is the lessor. To develop real estate projects, many builders lease the land.

A person can obtain leasehold properties in one of two methods:

  • Buyers can purchase a property built on leasehold land.
  • Buyers can purchase the leasehold property itself.

In either case, the buyers only own the property for the duration of the leasehold.

Difference Between Freehold and Leasehold Property

Criteria Leasehold property Freehold property
Definition The leasehold property meaning is a home/flat owned by way of lease rights. The leaseholder does not have any ownership rights on the land. Freehold property refers to a home, standalone building, property, or land owned by an individual.
Ownership Ownership of the property after the expiry of the lease deed depends upon the renewal of the lease. Ownership remains with the owner having freehold rights on the property.
Lease period The lease period can go up to 30-99 years. Not applicable.
Annual rent The leaseholder may be required to pay certain rent towards land, even if he/she does not own the land. The owner does not need to pay rent as he/she owns the land and house.
Maintenance responsibility The leaseholder is responsible for maintaining the society’s common infrastructure. The owner needs to maintain the property or related common infrastructure.
Flexibility The flat owner may not be able to carry out major work on the society premises. The owner is free to do any major or minor renovation work.
Transfer rights The transfer of property is relatively difficult, and the transfer of leasehold rights is done through attorney power. The owner has full legal rights to either transfer or sell the property.
Cost of ownership Leasehold properties are relatively more affordable for businesspeople. Freehold properties are relatively costly due to significantly higher land prices.
Suitability Leasehold properties are good for potential house owners with budget restrictions. If budget is not a constraint, freehold ownership is most desirable.

How to Convert Leasehold Property To Freehold?

The first step in converting a leasehold property into a freehold property is to speak with the lessor and ask them if they would be willing to sell the property. Then you must draft a clear sale deed and obtain a certificate of no objection. To change the status of the property and land, you also will be required to pay the government a specified conversion fee.

Leasehold Property Advantages

  • Purchasing a property on a leasehold project is less expensive than buying the entire property to yourself.
  • The price of land is high in metro areas which increases the cost of projects and thereby reduces their accessibility for customers. As a result, developers turn to leasehold properties.

Leasehold Property Disadvantages

  • Leasehold property cannot be sublet.
  • The property owner must receive the lease rent, which could raise the leaseholder's costs.
  • Leasehold property buyers frequently face several limitations.
  • Purchasers of a leasehold property are only permitted to keep the property for the term of the lease.
  • For any alterations to the leasehold property, the leaseholder might require the freeholder's approval.

What Home Buyers of Leasehold Properties Can Do

If a property is on leasehold, prospective buyers should inquire about the period of the lease before investing. The owners of leasehold properties must decide what plans are there after the lease ends. Leasehold property buyers should make sure to:

  • Register the property in their name.
  • Get hold of the transfer memo. The owner or seller of the property is given official permission by the development authority to transfer their ownership rights to the buyer.
  • Know the length of the mortgage as it should not be greater than the term of the lease.

Is Leasehold Property Safe to Buy?

In India, it is secure and legitimate to be the owner of a building constructed on leasehold land. Investing in the same is risk-free and fast, and the purchaser of a leasehold property gets to keep the property till the lease expires.

Conclusion

Land prices are skyrocketing in India. Therefore, developers choose to lease the land for developing their projects to make real estate developments more accessible for homebuyers.  Homebuyers always opt for low-cost mortgages, regardless of whether the project is developed on leasehold or freehold ground. The most affordable loans in India are home loans. It not only makes buying a house easier, but it also offers tax advantages.

It's time for prospective purchasers to move forward with their choice if they want to acquire a leasehold property using the Fullerton Grihashakti home loan facility. You can take up to INR 5 crores* as home loan principal amounts at interest rates starting from only 9.50%* to 10.50%*. Repay the loan at your convenience through our customized EMI system. You can calculate your monthly repayment obligation through our online home loan EMI calculator.

*Terms and Conditions apply. Loans are disbursed at the discretion of Fullerton Grihashakti.

Fullerton India Home Finance Company Ltd
CIN number: U65922TN2010PLC076972
IRDAI COR No: CA0492

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