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Projects on Leasehold land: Should you Buy?

A Leasehold Property of 100 -200 years lease does not necessarily have the Disadvantages usually associated with “Leaseholds”. Even then many buyers prefer “Freehold” because the term “Leasehold” itself creates ambiguity, simply because, many other elements which otherwise is quite evident with a term like “Freehold”, remains unknown.

200 years is as long a time as one may imagine. When 200 years Leasehold Property is as transferable, as saleable, as mortgage-able, as a freehold property, then factors like  “property usage”, “purpose of acquisition”, “price” etc play a more defining part. The Internet is full of articles on advantages and disadvantages on the above, which at best is a generalised view and not in the context of Planned Large Residential Developments in Indian Cities as part of Govt initiative.

Hence Home buyer should consider the following:

Fragmented Land Ownership

Modern Lifestyle Facilities & Amenities can only be provided in large residential developments to make it economically feasible. This requires Large Land parcels which are not available through private land owners. Further Private Land is very Fragmented in cities like Mumbai, Kolkata etc. Urban land ceiling act is one of the reasons of such fragmentation and aggregation of land from multiple private owners to make a large development is near impossible.

Government hence becomes the primary source for Large Land parcels for such a planned residential development. In Kolkata, we see that most of the large residential projects like Udita, Sukhobristi, Uniworld City, Rosedale, Urbana etc have been constructed on land provided by Government / Government bodies.

Government Policy

It is a Policy of most State Governments/ City Development Authorities to provide land only on Lease Hold basis (99 years to 999 years).  This provides Government greater control over land use and the timeframe within which the construction was promised to be completed while giving practically all the benefits of a Freehold land to the developer.

The driving reason behind this policy was that in past when they provided the land on Freehold basis for specific purpose to private sector, Govt did not have any leverage to penalise the private sector in the event of default, ie if the construction did not commence or purpose for which the land was provided in the first place, was not fulfilled.

Clean Land Title

Clear, clean and undisputed title of land and land use is another reason why most of the large developments come up on land provided by Govt. Usually, land auctioned by Government fetches the Govt higher than prevailing market price in the immediate neighbourhood.

No Difference in Valuation

While the terms Freehold may sound it is no different in value terms from 99 / 199 years leasehold, because the flats built on such a land is equally transferable & mortgage-able (unless specified otherwise in the leasehold agreement). The fact that financial institutions provide Home Finance on equal terms (No difference in the interest rate or period of finance).

Once the Project is complete and “Flats Owner Associate” is created, the lease is transferred to FOA, and individual flat owners gets undivided ownership/leasehold interest just as it is in a Freehold land.

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