Real estate query: Rental or freehold property – What is the difference and which is more advantageous?

In India, freehold and leasehold properties represent distinct ownership models. Freehold properties grant complete ownership of the land and structures, providing owners with complete control and autonomy. On the other hand, leasehold properties involve renting the property for a fixed period of time, resulting in limited ownership rights and reduced maintenance obligations.

A leasehold property is essentially a property that a tenant or lessee agrees to rent from a lessor for a predetermined period. This involves residing in a residence for a specific period of time without owning the land underneath. Ultimately, the leasehold property reverts to the original owner. In India, the majority of available apartments and flats are leasehold properties. Tenants are required to pay ground rent, service charges and maintenance charges to the lessor and return the property at the end of the lease term.

Understanding Freehold Property

“A freehold property gives the owner full ownership rights over the building and the land it sits on, as recorded in the local municipal records,” said Animesh Hardia, senior vice president of the quantitative research at 1 Finance.

Here’s what that entails:

Benefits :
> Complete and perpetual property rights over the land and the building without any time limitation

> Freedom to modify, renovate or redevelop the property according to your needs (subject to local regulations)

> No recurring rents or ground rent obligations

> Total control over property maintenance decisions and choice of service providers

> Possibility of freely transferring ownership to heirs without the consent of the lessor

> Resale value generally higher than rented properties

> No risk of lease expiry or renewal negotiations.

Understanding Rental Property

A leasehold property involves 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 than freehold properties, making it more affordable.

> Maintenance responsibilities shared through company/management committees.

> Professional property management managing daily operations and maintenance.

> Access to common amenities and facilities maintained by management.

> Reduce individual liability for repairs and maintenance of structures.

> Structured framework for the resolution of disputes through the company’s statutes.

> Often located in prime areas where freehold properties may be rare.

Choosing between freehold and rental properties

When choosing between a freehold or leasehold property, it is important to consider the following factors:

Financial capacity
Assess your ability to make a larger initial investment for a freehold property.
Gauge your comfort level with the recurring payments associated with a leasehold property.
Consider your long-term financial goals and investment time horizon.
Consider maintenance and ownership costs.
Purpose of property
Determine whether the property is intended for long-term family residence.
Determine if it is being purchased as an investment property.
Evaluate potential rental income opportunities.
Evaluate future resale prospects.
Location Analysis
Look for land ownership patterns in preferred areas.
Compare amenities and infrastructure development in nearby areas.
Study future site development plans.
Assess the accessibility and social infrastructure of the property location.

What is most beneficial?

“Leasehold properties can appeal to those with short-term investment goals due to their lower upfront costs. However, freehold properties offer much greater long-term stability and security. With freehold ownership property, buyers have full control over the land and property, without the restrictions of a lease or ongoing payments like ground rent. This autonomy makes it easier to appreciate the property over time,” said Ashok. Chhajer, CMD, Arihant Superstructures.

“In contrast, leasehold properties come with a fixed lease term and may involve additional fees for renewals or service fees, making ownership more complicated. While leasing can meet short-term needs, freehold ownership offers more certainty and fewer legal and financial obligations For buyers looking for a long-term asset that can grow in value, freehold ownership is the most advantageous choice, offering both flexibility and peace of mind. of spirit,” Chhajer said.

Which one to choose?

“Choosing between a freehold or rental property depends on your long-term goals. Freehold properties offer complete ownership, allowing more control and freedom to make changes, making them ideal for personal use or long-term investment. Freehold properties are more investor friendly as they are free from encroachment and the rules and regulations of the state government are better. No renewal document is necessary to benefit from it and the owner can rent it, sell it or pass it on as an inheritance. Leased properties, on the other hand, often come with lower upfront costs, making them an attractive option for businesses looking to lease commercial space in prime locations,” said Ashish Bhutani, CEO, Bhutani Infra.

“Both options offer distinct advantages. Freehold ownership gives you the flexibility to modify, expand or sell without restrictions, which is particularly valuable for investors seeking appreciation of their assets over time. Rental properties, however, provide flexibility to businesses that may need to relocate or increase operations without committing to the total cost of ownership. Evaluating factors such as long-term purpose, cost and requirements. is crucial to making the right decision Ultimately, this. depends on what best suits your needs, whether it’s the permanence of freehold or the profitability of leasing,” Bhutani added.