In India, freehold and leasehold properties represent distinct ownership models. Freehold properties grant complete ownership of the land and structures, providing owners with full control and autonomy. On the other hand, leasehold properties involve renting the property for a specific duration, resulting in limited ownership rights and reduced maintenance obligations.
A leasehold property is essentially a property that a lessee or tenant agrees to rent from a lessor for a predetermined period. It entails residing in a residence for a fixed timeframe without owning the land underneath. Ultimately, the leasehold property reverts back to the original owner. In India, a majority of the available flats and apartments are leasehold properties. Tenants are required to pay ground rent, service fees, and maintenance costs to the lessor and return the property at the end of the lease term.
Understanding Freehold Property
“A freehold property provides the owner with full ownership rights over both the building and the land it sits on, as recorded in the local municipal records,” said Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance.
Here is what this entails:
Advantages:
> Complete and perpetual ownership rights over both land and building without any time limitations
> Freedom to modify, renovate, or redevelop the property according to your needs (subject to local regulations)
> No recurring lease payments or ground rent obligations
> Full control over property maintenance decisions and choice of service providers
> Ability to transfer property freely to heirs without lessor approval
> Generally higher resale value compared to leasehold properties
> No risk of lease expiry or renewal negotiations.
Understanding Leasehold Property
A leasehold property entails ownership of the building for a specific period, while the land is owned by another party (lessor) for typically 30 to 99 years, Hardia added. This arrangement is commonly seen in apartment complexes and commercial properties.
Key Benefits
> Lower initial purchase cost compared to freehold properties, making it more accessible.
> Shared maintenance responsibilities through society/management committees.
> Professional property management handling daily operations and upkeep.
> Access to common amenities and facilities maintained by the management.
> Lower individual responsibility for structural repairs and maintenance.
> Structured framework for dispute resolution through society bylaws.
> Often located in prime areas where freehold properties might be scarce.
Choosing Between Freehold and Leasehold Properties
When deciding between freehold and leasehold properties, it is important to take into account the following factors:
Financial Capacity
Evaluate your ability to make a larger upfront investment for a freehold property.
Assess your comfort level with recurring payments associated with a leasehold property.
Consider your long-term financial goals and investment horizon.
Factor in maintenance and ownership costs.
Property Purpose
Determine if the property is intended for long-term family residence.
Consider if it is being purchased as an investment property.
Evaluate potential rental income opportunities.
Assess future resale prospects.
Location Analysis
Research property ownership patterns in preferred areas.
Compare amenities and infrastructure development in the surrounding area.
Study future development plans for the location.
Evaluate the accessibility and social infrastructure of the property’s location.
Which is more beneficial?
“Leasehold properties may appeal to those with short-term investment goals due to their lower upfront costs. However, freehold properties provide far greater long-term stability and security. With freehold ownership, buyers have complete control over both the land and property, without the restrictions of a lease or ongoing payments like ground rent. This autonomy makes it easier for the property to appreciate over time,” said Ashok Chhajer, CMD, Arihant Superstructures.
“In contrast, leasehold properties come with a fixed lease period and can involve additional fees for renewals or service charges, complicating ownership. While leasehold can suit short-term needs, freehold ownership offers more certainty and fewer legal and financial obligations. For buyers seeking a long-term asset that can grow in value, freehold is the more advantageous choice, offering both flexibility and peace of mind,” Chhajer said.
Which one to choose?
“Choosing between freehold and leasehold property depends on your long-term goals. Freehold properties provide complete ownership, allowing more control and freedom to make modifications, making them ideal for personal use or long-term investment. The freehold properties are more investor friendly as they are encroachment free and the State government rules and regulations are better. There is no need for any renewal documents to enjoy its ownership and the owner can rent it, sell it, or pass it for inheritance. Leasehold properties, on the other hand, often come with lower upfront costs, making them an attractive option for businesses looking to lease commercial spaces in prime locations,” said Ashish Bhutani, CEO, Bhutani Infra.
“Both options offer distinct benefits. Freehold ownership gives you the flexibility to modify, expand, or sell without restrictions, which is especially valuable for investors seeking asset appreciation over time. Leasehold properties, however, provide flexibility for businesses that may need to relocate or scale up operations without committing to the full ownership cost. Evaluating factors like purpose, cost, and long-term requirements is crucial in making the right decision. Ultimately, it comes down to what aligns best with one’s requirements, whether it’s the permanence of freehold or the cost efficiency of leasehold,” Bhutani added.