Most people know the difference between owning and renting a home, but there is a third category many aren’t aware of called a leasehold property. Now the question is what a leasehold property is and what are the consequences of buying a house on leasehold land? We explain

Leasehold states to a property tenure, where one party buys the right to occupy the property for a given period of time (30 to 99 years). The primary owner of the leasehold land is usually the government or local development authorities. They give the land to builders, to develop projects on a leasehold basis. Homebuyers buying a residential apartment, in a leasehold land will own it only for the leasehold period of time.

Projects built on leasehold plots
Most projects in large metro cities like Delhi-NCR and Mumbai are constructed on leasehold plots that are bought by the builder or developer. This procedure is followed, mainly due to the scarcity of land in and around these metro cities.

So if you are buying a property in a project that is built on leasehold land, you would remain its owner only for 99 years, or for any other lease period and the authority/government will remain the primary owner.

Once the construction of a project is finished, the developer will transfer the lease in the name of the society formed. It is developers/builders duty to build the project and hand it over to the residents’ welfare association (RWA). Until the RWA is formed, the developer maintains the project.

Risks for home buyers
The major disadvantage for a home buyer is the vagueness that arises after the lease period on the land ends and the renewal of the occupancy contract. The renewal of the occupancy usually comes up when the lease tenure on the land is for a shorter period (30-33 years), which is common mainly in Mumbai. Along with the contract renewal cost, buyers will also have to bear other costs, such as property tax, etc.

Another issue that projects built on plots with shorter lease periods are of not receiving funds for construction. So, chances are there that projects can get delayed or even non-completion of projects is also possible. In addition to it, renovation of such projects becomes challenging, since the approval of all the involved authorities is required, to carry out any renovation or construction work.

While applying for a home loan for a property built on leasehold land, the home loan tenure cannot be higher than the balance period of the lease. In cases, when the lease period for the land is less or is nearing completion, lenders would be reluctant to risk the possibility of the lease not being renewed and therefore, may not grant a home loan.

Advantage for home buyers
The benefit of buying a property in a project that is built on leasehold land is that it will be considerably cheaper than buying one that was built on a freehold plot.

In metro cities, developers usually pay the less FAR cost to lease a plot in a good location. This financial benefit trickles down to home buyers, as well.

Such leasehold plots, for residential projects, are commonly part of a larger development. This means that the surrounding areas usually have good infrastructure and connectivity.

What can home buyers of leasehold properties do?

• Register the property in your name.
• Get a transfer memorandum – a permission granted by the development authority to the owner (seller) of the property, permitting him/her to transfer the rights to the homebuyer
• Always buy or invest in a project built on land that has a long leasehold period.