Pros and Cons of a leasehold property

 Here are some pros and cons of purchasing a leasehold property:

Pros:

1. Cheaper house prices!

Assuming two properties are exactly identical where one is freehold and the other is leasehold, then the price of the leasehold property would be lower simply because the market prefers freehold properties.

“I would say it would vary anywhere between 10% and 20% if both are brand-new properties with full lease. As the lease gets shorter, the gap widens up,” 

2. Higher rental yields

Assuming that a leasehold property is cheaper than a freehold one, the lower entry cost could mean higher rental yields although one also has to take into consideration other factors such as maintenance cost and the location.

Cons:

1. Property loses value as lease shortens

One disadvantage of owning a leasehold property is that its value starts to depreciate as it gets closer to the expiry of the lease.

2. Tougher financing options

In fact, banks will usually stipulate a certain minimum number of years remaining on the lease before they are willing to accept the property as collateral for financing purposes, meaning that as the property gets older the likelihood of being able to secure financing on the property diminishes.

3. Transfer needs state consent

The other often cited disadvantage is that the transfer of leasehold properties requires state consent. In other words: bureaucracy.