There are two categories of residential or commercial property: freehold properties and leasehold properties. Unlike leasehold property, which is typically leased for 99 years starting from the time the property is built, freehold property is self-explanatory—it is “free from hold” of any authority other than the owner for an endless period.
Leasing is one way to transfer ownership of a piece of property for a set amount of time. A lease is the transfer of a property’s interest for a predetermined amount of time without the transfer of the property’s ownership. Instead of transferring ownership rights, a lease transfers the right of possession.
The property’s lease has a 99-year term limit and is fixed. For illustration, suppose you purchased an apartment in 2015 and received ownership in 2022. Only in 2015 would the builder have obtained the lease from the state development or housing authority, therefore your lease would have commenced when the building of the property got underway. This also means that you will have to deduct 7 years when you take ownership of the property in 2022, making the actual length of your lease 92 years.
A state’s designated development authority sells the aforementioned properties to developers for a 99-year lease whenever it grants them the right to develop a specific area, piece of land, or construction project. And whether it is a residential or commercial property, when the builder or developer sells it to potential buyers, the latter will only possess it for 99 years. The original landowner will regain title after 99 years have passed.
Why are the agreements for 99 years?
Ensuring controlled development is the goal. Authorities can guarantee usage and development control over such assets by maintaining the property as a leasehold property. They reserve the right to revoke the lease or allotment in the event of a violation of these terms. Additionally, this aids in the maintenance of consumption and density standards.
What happens once the lease expires?
The authorities release freehold conversion plans and exempt land and properties from such controls once the goal of controlled development has been met. DDA occasionally releases freehold conversion plans to convert such buildings. The NOIDA Authority has not yet begun freehold conversion but may do so in the future.
Buyers of leasehold properties must pay the original landowner a ground rent if the lease term is extended past 99 years. After the first term expires, these leasehold properties may be renewed by paying specific fees.
Technically, by paying the authorities a fee, the lease term might be extended to 999 years.
However, another clause states that once a property has been occupied for 100 years, it immediately becomes a freehold asset.
Development Authorities are better able to manage development by keeping property leasehold. In the long run, properties shouldn’t be retained on leasehold because it lowers their worth in contrast to freehold property. “Once properties become freehold, Authorities cannot regulate any sale or transfer of the same.
Facts about the leasehold property
- Several governments provide land for the construction of apartment developments, but only on a leasehold basis.
- By paying a fee, the lease term can be increased to 999 years.
- A buyer must verify that the seller of a leasehold property has a transfer memorandum from the local development authority before making a purchase.
- Since leasehold parcels are less expensive than freehold ones, developers prefer to build apartments on them.
- When there are fewer than 30 years left on the lease, banks do not like to finance the purchase of leasehold property. As the end of the lease, the time draws near, and the value of such properties likewise decreases.
- The price, which is frequently less than those of properties constructed on freehold ground, is the main benefit of investing in a leasehold property.