Freehold vs. Leasehold

[Dia Soleado Invest]

I am just curious to hear what people's opinions are of investing in Leasehold properties. Obviously, the majority of people I would assume would opt for freehold, but if it were a case of a strong return in a high growth area or some other pros along with it, would you consider investing in a leasehold, and if so, what would be the minimum term you would consider?

[The Soup Dragon]

The equation changes with leasehold as there can be a question mark over whether or not the lease will in time be extended. For example, if you were to invest somewhere that the lease was unlikely to be renewed and the lease term were short then you need to think very carefully about whether the rental return surplus after expenses makes it a worthwhile investment. After all, your asset will likely depreciate in value as the end of the lease draws nearer. You need to make sure that rental surplus you draw over time will far exceed the amount invested.

I know banks in the UK have policies in place to prevent lending on leasehold properties where the remaining lease term is short, so if you plan to get a mortgage for the property you should check that lenders will lend on it before proceeding.

Where are you considering investing?

[Dia Soleado Invest]

Thanks for that Soup. I actually had the Banyan Curve development in Malaysia in mind. There has been a lot of press about it lately and they are offering a great rental return of 8% for 13 years, but it really seems as though the majority of people out there just can't get past the fact that it is leasehold. We've been marketing it for the last 6 moths or so, with a pretty mixed response and I was really just wondering if this was the general consensus or if this is just what we've been coming up against.

[The Soup Dragon]

I feel there is a bit of a stigma with leasehold in the eyes of those that own freehold. Some will use this to eliminate the property from their search straight away, others will take a closer look, but still have their reservations. Those that live and own in areas where leasehold is more common – like London – may not have the same reservations.