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Freehold vs Leasehold Land: Everything You Need to Know Before Buying

Posted by Lineland on June 16, 2025
Market Insights
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When purchasing property, one critical decision is choosing between freehold and leasehold land. Each type has its pros and cons, affecting your rights, responsibilities, and future plans. Here’s a comprehensive guide to help you make the best choice.

AspectFreehold PropertyLeasehold Property
Ownership Duration
  • Full ownership in perpetuity.
  • No time limits or government control (except in specific legal situations such as land acquisition, etc.)
  • Ownership for a set period (e.g. 30, 60 or 99 years).
  • Return to the State upon expiry unless renewed.
Resale Value
  • Depends on locations
  • Strategic areas with steady capital appreciation typically yield a higher resale value
  • Depends on locations
  • Strategic areas increase in value but may drop as the lease period shortens, especially remains leasehold period of 30 years and below
Transaction Process
  • Typically easier and faster to sell with fewer restrictions
  • Standard Sale and Purchase Agreement (SPA) takes about 3+1 months
  • +1 month allows flexibility for unforeseen delays
  • Requires state consent for transactions
  • Can take 6 months to 1 year
  • Longer for second-hand properties in Selangor and KL
  • Generally 1-2 months if no other specific restrictions apply
Renewal/ Extension CostN/A
  • Require cost to renew
  • Can be costly – potentially as high as the current market value of the property
Financing
  • Generally more willing to provide loans without significant concerns
  • Banks are more likely to approve loans with long leasehold period remaining
  • Properties with leasehold period less than 30 years remaining shall face financing difficulties or reduce in loan margins
Common Aspects
  • Owners can subdivide or allocate the property (subject to town planning controls) and are responsible for repairs, maintenance, and renovations.
  • Under the Land Acquisition Act 1960, the State can reclaim freehold and leasehold land for public use (e.g., MRT projects) with compensation based on market value.

How to Calculate Premium for Leasehold Extension

Leasehold extension premiums vary based on property type, state, and lease conditions. Below are the formulas for Selangor and Kuala Lumpur:

Selangor Leasehold Extension Premium

  1. Agricultural Land:
    1/10 × 1/100 × Market Value of Land (RM/sf) x (Lease period – remaining years of lease) x Land Area
  2. Residential Land:
    1/4 x 1/100 x Market Value of Land (RM/sf) x (Lease period – remaining years of lease) x Land Area
  3. Commercial and Industrial Land:
    3/4 x 1/100 x Market Value of Land (RM/sf) x (Lease period – remaining years of lease) x Land Area

Kuala Lumpur Leasehold Extension Premium

  1. Residential Land:
    1/4 x 1/99 x Market Value of land (RM/sf) x (Lease period – remaining years of lease) x Land Area
  2. Commercial and Industrial Land:
    1/2 x 1/99 x Market Value of land (RM/sf) x (Lease period – remaining years of lease) x Land Area

Example: Residential Leasehold Extension (Selangor)

For private residential properties, the Selangor government offers two payment options:

Option 1: Full Premium Payment with a 30% Rebate

Example Scenario:

Land Area = 7000 sf

Land value = RM200 psf

Remaining Lease = 49 years

Extended to 99 years

—————————

Calculation:

1/4 x 1/100 x 200 x (99-49)x 7000 = RM175K

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After Rebate:

RM 175,000 x 0.7= RM122,500

Option 2: Fixed Premium of RM 1,000

  • Conditions:
    • The owner must reside on the property.
    • A registrar caveat will be placed on the property, restricting transfer to third parties.
    • If the owner decides to sell the property in the future, the full premium must be paid at the time of the sale.

Conclusion

Your choice between freehold and leasehold property in Malaysia depends on your long-term goals. Freehold offers permanent ownership and quicker transactions, while leasehold provides a set duration with potential renewal costs.
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