Real Estate Basics: What Is A Freehold Property?

Freehold Property

Freehold property in real estate is a property where the owner/society/residents’ welfare association owns the building/land that stands in perpetuity. These are bought through an auction or lottery, and a completed project includes the cost of the land in the final cost of the units.

It is any real estate that is legally ‘free from hold’ other than its owner who has the right to use the property for any purpose, in accordance with the regulations of the location. The sale of a freehold requires comparatively lesser paperwork as it does not necessarily request authorization from the state, which means it’s also a little more expensive to purchase as compared to the leasehold property.

Freehold Property: Meaning And Exchange

As mentioned above, freehold land refers to a property title by which the landowner owns the property for perpetuity or ‘free from hold.’ In simpler words, the freehold land title ownership has no limit on time for the beneficiaries and landowner. 

On the other hand, under the Land Acquisition Law, the government of the state does acquire all rights on all types of private land for the purpose of industrialization, infrastructure facilities of development, and/or urbanization of the private land, after compensating the landowners affected suitably.

Leasehold VS Freehold Property: What's The Comparison?

NATURE LEASEHOLD FREEHOLD
Tenue of ownership Usually 99 years old or more No flexible duration unless limited by town planning development
Approval for an ownership transfer Transfer of leases will require permission from the state or governing authority Transfer of leases without any limitation
Rights of the owner Leasing required from the landlord who has the freehold of the property The owner has the complete right over the land

Leasehold VS Freehold Property: Difference

Leasehold VS Freehold Property
LEASEHOLD FREEHOLD
The property belongs to the original owner and can be transferred to the investor for a certain period of time The property is of the owner
Investor needs to pay in order to extend the lease No limit with respect to the ownership
The property can be leased if given consent by the state Needs no legal consent to transfer ownership
Finances by the bank might not be possible if the lease is less than 30 years Bank financial the freehold properties

Leasehold VS Freehold Property: Advantages

LEASEHOLD FREEHOLD
Related cheaper as compared to the freehold property The property owners don’t have to pay the pay annual ground net
Safer since the land titles are clear and verified Complete ownership without the restriction of transfer
The responsibility lies upon the developer, states, or responsible authority One is in charge of maintaining the freehold property and does not depend on anyone
They are leasehold as the land is owned by the builder. It is extendable if the parties agree More stable and likely to increase the value in the long run

Freehold Property: Ownership Rights

Real Estate Basics: What Is A Freehold Property? 1

A freehold property has no restrictions on the ownership of freehold property, which means it can be inherited. With the absence of encumbrance to the absolute title of the property that transfer can take place by registration of a sale deed.

In order words, when a borrower owns a freehold property they also own the land the property was built on plus the house itself. In the case of an apartment, the owner then becomes a shareholder in the property and you have the right to live in the house as long as you wish for and you can also make changes to it.

In India where most houses are sold as freehold properties, the apartments are sold on lease. Although this is gradually changing since most buyers are confident with purchasing a freehold property.

Freehold Properties And Home loans

As per observation, most banks are willing to extend a home loan for a freehold property, as to for the leasehold property. This is as a freehold is considered to be a safer investment, the registration is complete and also expects to increase in value. As a result of which the banks are willing to sanction huge home loans for a freehold property with a high market value, up to 80 percent of the market value.  

Freehold Property: Pros And Cons

Here are the pros and cons of a freehold property:

Pros:

  • They are easy to sell since ownership lies with the actual owner of the property
  • Bank loans and refinancing are easier
  • There is more capital appreciation as compared to the leasehold property

Cons:

  • They are costlier than the leasehold land
  • The owner would need to pay a comparatively more down payment in order to block a unit

Is It Hard To Sell A Leasehold Land In Real Estate?

No, it isn’t! Selling or transferring a leasehold property is not difficult, however, you might acquire permission from the concerned authority. Adding on, like a mortgage or loan may not be easily available, the buyers with no financial assistance might opt to avoid such properties altogether, also where the leases are short, it’s harder to transfer/sell.

Freehold Property And The Conversion Tax-Deductible Charges: ITAT

Freehold Property And The Conversion Tax-Deductible Charges

As per the recent judgment, the Income Tax Appellate Tribunal (ITAT) in Allahabad Bench has allowed tax deduction on the share of freehold conversion charges, stamp duty, etc. for conversion into freehold.

As per the assessee, freehold conversion charges constituted improvement of the property for a better title claiming the same as deductions towards cost improvement of the property and computing long-term capital gains tax. For which, the court ruled the assessee the right to claim the deduction on account for the improvement in the property and on being converted from leasehold Nazul land to freehold property.

The court also agreed to make the property freehold for perfect ownership rights/title in favor of the existing lessees, who’ve been in the position to transfer/sell the property.

To Conclude- Latest News On The Freehold Property. What's New?

Both the Delhi State Industrial and Infrastructure Development Corporation (DSIIDC) have decided to grant ownership of the property (freehold) of factories and plots under the relocation scheme at Bawana Industrial Area. These allottees, especially those who completed five years from the date of allotment with completed construction and have started their factory, are all eligible for this scheme.

Freehold rights allow the owners to take loans directly from banks as compared to them earlier being forced to get loans from the money lenders.

FAQs: Real Estate Basics: What Is A Freehold Property?

1. What is a freehold property?

Freehold property is any real estate property that is 'free from hold' other than the owner.

2. How can one convert a leasehold property to a freehold property?

This conversion can happen through a proper documentation process. For more details, refer to the article above.

3. What is the difference between freehold and leasehold property?

One of the major differences between a freehold property and a leasehold property lies in the ownership status and control rules.

4. What are the advantages of freehold property?

The best advantage of a freehold property is that one doesn't need to have rent, unlike a leasehold property.
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