Lease hold vs Freehold properties

When we talk about investment of our savings there are many options open to us. We have as options, equities, Mutual funds, Debentures, Bonds or financial institutions like banks and real estate. Amongst all these options investment in Real estate is considered to be the safest and most prudential investment because of the returns it fetches.  The safety factor is greater as the risk of the investment just crashing or being a total loss is very minimal where as the rewards can be very substantial.

Before the appearance of the pandemic real estate was the fastest growing segment of the Indian economy. The net value of the sector was calculated at 180 billion dollars and it was predicted that the value of the real estate segment in India in the next ten years will be around 1 trillion dollars. This is considered a phenomenal growth and it was also predicted that the share of India’s Real estate market to the GDP of India will be around 17 to 18 percent by the end of the next decade. The reason for this growth is he growth of incomes of the upper middle class segment of the population due to the coming of the Multi National Corporates and the hefty increase in salaries.

The primary step in understanding an Investment in Property of real estate is to understand the type of property it is. Whether it’s a leasehold or Freehold property.  What is the difference between the leasehold and freehold?  A lease hold is a property in which the holder or true owner of the property  has signed over  a long term lease  in favour of the lessee or the tenant. In the case of government owned property it is the President of India who is acting through the Land and Development Authority of India in granting a long term or permanent lease to the Lessee. The lease hold properties are not freely transferable and the prior permission of the Land and Development Authority is required to transfer the lease to another.

Freehold properties are those properties in which the owner has transferred the full rights to the purchaser by means of a sale deed with total rights to resell or transfer the rights to the property to another purchaser without let and hold. The only condition is that each time the properties rights are transferred the purchaser has to pay stamp duty to the relevant authority for the transfer rights of the property. The records of the ownership can be ascertained from the registrars office of the competent authority. A freehold property is always a better investment as its rights can be sold or mortgaged freely by the current title holder without any interference or hinderance from the previous title holders.

Investors are mostly scared of the authenticity of the title while entering into a transaction. The title in this case means the ownership of the property and there are two terms which are often used with this regards. One is the “ good Title” and the second is the “marketable title”. What is the difference in these two terms. The good title is one that is free from any defects and chances of any legal issues. The marketable title is one which is free from any reasonable doubts in the ownership which will not make the buyer liable for any legal action in the future after the purchase of the property.

In India it is always better to purchase property after the verification of the title of the property and for this purpose the best title is the good title. The Good Title is always a Marketable title but not all marketable titles need be good titles.

 There are a few things each buyer should check before buying a property viz:

• To check the chain of title deeds with receipts
• To get the NOC if property is in a joint name
• To be sure that there are no provisions which hinder you from further transferring the property.
• To check the power of attorney if the seller is not personally present
• To check occupation certficates

To ensure there are no legal proceedings pending against the title.