Difference between Freehold and Leasehold Property in India

Let’s face it, homeownership is a challenging journey. There are dozens of factors to keep in mind, like budget, location, and property type. And right as you are juggling these already complicated aspects of, you stumble upon two words: “freehold” and “leasehold.”

While they may seem confusing at first, the terms freehold and leasehold tell you if you own a property and to what extent. Understanding them helps you decide what type of home ownership works best for you.

In this article, we’ll break down the key differences between freehold and leasehold property in India, so that you are equipped with the information to make the right choice for your homeownership.

What is Freehold Property?

Freehold property means that you have complete ownership of the land and property. A freehold property owner enjoys full control over his/her land and any buildings built upon it.

Freehold land agreements are not subject to any time duration. The owner enjoys easier access to home loans, simpler paperwork, and complete right to sell, transfer, or modify the property.

What is Leasehold Property?

Leasehold property is where a lessor or tenant rents the property from its owner for a pre-determined amount of time. The leaseholder can own the building but not the land it is built upon.

Leaseholders are bound by the terms of the lease agreement and do not enjoy complete control over the property.

In India, flats and apartments are considered leasehold properties, as while you may own your apartment, the land that the building stands on is a leasehold property. The lease duration on a leasehold property can extend anywhere from 30 years to 999 years.

Advantages of Freehold Property

Freehold property comes with several lucrative benefits. These benefits include:

1. Complete ownership of land: Freehold property owners enjoy full land ownership. They are bound only by the local land regulations but are free to sell, transfer or modify their property.
2. Long-term investment: The value of a freehold property increases with time, making it an excellent investment option.
3. No extra charges: Freehold property owners fully own their property and pay no extra fees like rent or service charges.
4. Easier access to housing finance: Lending institutions are often more willing to lend money for freehold properties than for leasehold properties.

Disadvantages of Freehold Property

However, freehold property has its disadvantages:

1. Higher purchase cost: Due to the ownership rights and other benefits, freehold property often has a much higher initial cost.
2. Maintenance responsibilities: The primary responsibility of property maintenance falls upon the freehold owner.
3. Long-term commitment: Freehold property is not suitable for those looking for short-term housing options.

Advantages of Leasehold Property

There are several benefits to purchasing leasehold property. These benefits include:

1. Lower purchase cost: Leasehold properties are often available at much lower costs than freehold properties.
2. Less maintenance responsibility: The leasehold property owner has only partial maintenance responsibilities at best and can rely upon the freehold owner for land maintenance.
3. Short-term commitment: Since it has a fixed lease duration, a leasehold property can be an excellent flexible option for people with short-term housing plans.

Disadvantages of Leasehold Property

The downsides of leasehold property are as follows:

1. Limited ownership: Leasehold property owners do not enjoy complete freedom in making structural changes to their property. They need to abide by the lease agreement terms.
2. Decrease in value over time: As the lease comes to an end, the value of the leasehold property decreases.
3. Challenges with housing finances: Leasehold property owners find it challenging to secure home loans. Financial institutions are less willing to lend to leasehold properties with less than 30 years of lease duration.

Key Differences Between Leasehold and Freehold Property

Understanding the difference between freehold and leasehold properties ensures that you make the right decision for yourself and your family. Here are some key distinctions you should know about:

Freehold vs Leasehold Property: Which is the correct choice for you?

While deciding on which type of ownership is right for you, keep the following points in mind:

1. Extent of ownership: If you wish to have complete ownership of the land and have no restrictions on modifications and transfers, you should go for a freehold property. However, if you feel that flexible, partial ownership suits your needs better, go for leasehold property.
2. Maintenance vs rent costs: Leasehold property owners regularly pay several charges to the landowners, like ground rent and sometimes partial maintenance charges. Conversely, freehold property owners are solely responsible for land maintenance and have to pay for it indefinitely.
3. Lease term: Freehold property ownership is not restricted by any time duration and is a long-term commitment. Leasehold property ownership is a less risky and more short-term commitment.
4. Purchase cost: The initial purchase cost is a common difference between freehold and leasehold properties. Due to the associated benefits, freehold properties usually have a higher purchase cost than leasehold properties. Review your budget to decide which option is best for you.
5. Access to loans: While freehold properties have higher purchase costs, their owners often have an easier time gaining home loans. Leasehold property owners with less than 30 years of lease duration face greater difficulty securing loans and often have to tackle higher down payments.

How to Convert Leasehold Property into a Freehold Property?

Here are the steps to converting your leasehold property into freehold property:

1. If it is a government property, submit an application to the appropriate government authority. If it is a private property, Draft a sales agreement between yourself and the freehold property owner.
2. Create a conveyance deed and register it at the local registrar’s office.
3. Gather all of the necessary documents, like the original lease agreement, a No Objection Certificate, local authority approval, etc.
4. Ensure that the property is officially transferred in your name in the local civic body’s records.

Final thoughts

Educating yourself on the differences between freehold and leasehold properties in India is crucial to ensuring that you make the best choice for yourself.

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