Leasehold properties in Malaysia (part 1)
Posted on 1 November 2013 - 12:30pm
THREE years ago, Andrea Ooi, 49, inherited her late father's double storey home in Section 2, Petaling Jaya. "I really didn't know anything about owning a leasehold property.
I was living in a condominium in Ampang which served me conveniently as it was in close proximity to my workplace and my child's school. I was very comfortable there. But then, on the other hand, the inherited house held sentimental value and I knew my father would want me to keep it in the family for as long as I could."
Caught in a dilemma on whether or not she should hold on to the house or let it go, she reached out to friends for advice on what she should do, but was left even more confused.
"Everyone had their own valid reasons as to why I should move into the house and why I shouldn't. The bulk of their reasons as to why I should not, had to do with the issue of the house being leasehold. I didn't know that owning a leasehold property could be so complicated. I suppose I was pretty much in the dark as to how these properties work," she adds.
THE LAWS STATE…
In Malaysia, land laws are governed by the National Land Code 1965 (Act 56 of 1965). In Section 40 of the National Land Code, 1965, it mentions that all state land belongs to the state authority. Leasehold land belongs to the state and therefore, conceptually, when you purchase a property tied to a lease, you are only buying the right to live there. You will not own the land or any building/s on it, and you are only allowed to reside there for the stipulated timeframe.
In Malaysia, land laws are governed by the National Land Code 1965 (Act 56 of 1965). In Section 40 of the National Land Code, 1965, it mentions that all state land belongs to the state authority. Leasehold land belongs to the state and therefore, conceptually, when you purchase a property tied to a lease, you are only buying the right to live there. You will not own the land or any building/s on it, and you are only allowed to reside there for the stipulated timeframe.
WHEN THE LEASE EXPIRES…
When a lease reaches its end, the land is reverted back to the state authority, including any construction on it. Therefore, in order to continue residing on it, the 'owner' will need to either apply for a renewal of the lease before its expiry, or in a situation where the lease has already expired, apply for a fresh alienation.
Consent from state authorities (Land Office) may be required before any extension or renewal of a lease can go through. Although it is uncommon, the state has the right to deny approval of extensions and renewals.
When a lease reaches its end, the land is reverted back to the state authority, including any construction on it. Therefore, in order to continue residing on it, the 'owner' will need to either apply for a renewal of the lease before its expiry, or in a situation where the lease has already expired, apply for a fresh alienation.
Consent from state authorities (Land Office) may be required before any extension or renewal of a lease can go through. Although it is uncommon, the state has the right to deny approval of extensions and renewals.
In the case where the owner does not renew the lease and lets it expire, the land will be reverted back to the state government and be available to any other person who would like to apply for ownership.
ITS MARKETABILITY…
Property valuers say that the value of a leasehold property typically goes down when the lease period is coming to an end. The reason for this is because there may be complications related to the lease renewal and in obtaining a bank loan. This affects the property's marketability.
Property valuers say that the value of a leasehold property typically goes down when the lease period is coming to an end. The reason for this is because there may be complications related to the lease renewal and in obtaining a bank loan. This affects the property's marketability.
Most property consultant's note that the value of 99-year leasehold properties as well as freeholds ones tend to go up at around the same level for about the first 30 years. After this 30-year period, the value of leasehold properties stagnate and eventually depreciate until the lease expires. Freehold properties on the other hand, go through a more stable growth, provided all other aspects of the property are in good condition.
Sources from financial institutions explain that most banks can confidently lend on leasehold properties, provided they have at least 75 years left on the lease.
DOLLARS AND 'SENSE'…
The price of leasehold property may or may not be cheaper than that of freehold of similar specifications. Typically speaking, 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 per cent lower than one which is freehold. A major factor that could affect the price of the property is the location. There have been cases where a leasehold plot at a well established area had greater value than a freehold plot at a less developed location, explains a reliable property valuer source.
The price of leasehold property may or may not be cheaper than that of freehold of similar specifications. Typically speaking, 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 per cent lower than one which is freehold. A major factor that could affect the price of the property is the location. There have been cases where a leasehold plot at a well established area had greater value than a freehold plot at a less developed location, explains a reliable property valuer source.
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