Property inquiry: leased or freehold property: what is the difference and which is more profitable?

In India, freehold and leasehold properties are different models of ownership. Freehold real estate provides full ownership of the land and buildings, giving owners complete control and autonomy. On the other hand, a real estate lease involves renting a property for a specified period of time, which results in limited ownership rights and reduced maintenance obligations.

A leasehold property is essentially a property that the lessee or occupier agrees to rent from the lessor for a predetermined period. This involves living in a house for a specified period of time without owning the land underneath it. Ultimately, the leased property is returned to the original owner. In India, most of the available apartments and apartments are for rent. Tenants are required to pay ground rent, service charges and maintenance costs to the landlord and return the property at the end of the lease term.

Understanding property without title

“Freehold real estate provides the owner with full ownership rights to both the building and the land on which it sits, as recorded in local municipal records,” said Animesh Hardia, senior vice president of quantitative research at 1 Finance.

Here’s what it entails:

Advantages:
> Full and perpetual ownership of land and building without any time restrictions.

> Freedom to modify, renovate or redevelop the property to suit your needs (subject to local laws)

> No regular lease payments or land lease obligations.

> Full control over property maintenance decisions and selection of service providers

> The ability to freely transfer property to heirs without the approval of the lessor.

>Typically higher resale value compared to rental properties.

> There is no risk of lease expiration or renewal negotiations.

Understanding Leasehold Properties

A rental property involves ownership of the building for a specified period, while the land is owned by another party (the landlord) usually for a period of 30 to 99 years, Hardia added. This arrangement is commonly found in residential complexes and commercial properties.

Key Benefits

> Lower initial purchase cost compared to freehold properties, making them more affordable.

> Sharing of maintenance responsibilities through community/management committees.

> Professional property management performing daily operations and maintenance.

> Access to general amenities and facilities maintained by management.

> Reduced individual responsibility for repairs and maintenance of structures.

> A structured system for resolving disputes through the company’s charter.

> Often located in prime areas where freehold properties may be in short supply.

Choosing between freehold and leasehold properties

When choosing between freehold and leasehold ownership, it is important to consider the following factors:

Financial opportunities
Assess your ability to make a larger initial investment in a freehold property.
Evaluate your comfort level with recurring payments associated with your rental property.
Think about your long-term financial goals and investment horizon.
Consider maintenance and ownership costs.
Purpose of the property
Determine whether the property is intended for long-term family living.
Consider whether it is being purchased as an investment property.
Assess potential rental income opportunities.
Assess future resale prospects.
Location Analysis
Research property ownership patterns in your preferred areas.
Compare amenities and infrastructure developments in the surrounding area.
Explore plans for future development of this location.
Assess the accessibility and social infrastructure of the property’s location.

Which is more profitable?

“Rental owner properties may appeal to those with short-term investment goals due to lower upfront costs. However, freehold properties provide much greater long-term stability and security. restrictions on leases or ongoing payments such as ground rent. This autonomy makes it easier to value properties over time,” said Ashok Chhajer, CMD, Arihant Superstructures.

“In contrast, leasehold properties have a fixed lease term and may come with additional renewal fees or service charges, making ownership more complex. While renting can satisfy short-term needs, owning a property offers more security and fewer legal and financial obligations. For buyers looking to be a long-term asset that can appreciate in value, freehold is a better choice, offering both flexibility and peace of mind,” Chhajer said.

Which one to choose?

“The choice between freehold and rental property depends on your long-term goals. A freehold property provides full ownership, greater control and freedom to make changes, making it ideal for personal use or long-term investment. Freehold properties are more investor friendly as they are free from encroachments and the rules and regulations of the state government are better. To use it, there is no need for any renewal documents, and the owner can rent it out, sell it or pass it on by inheritance. On the other hand, leased properties often require lower upfront costs, making them an attractive option for businesses looking to rent commercial space in prime locations,” said Ashish Bhutani, CEO, Bhutani Infra.

“Both options offer clear advantages. Ownership gives you the ability to change, expand or sell without restrictions, which is especially valuable for investors looking to increase the value of assets over time. However, leased properties provide flexibility for businesses that may need to relocate or scale operations without incurring the full cost of ownership. Evaluating factors such as purpose, cost and long-term requirements is critical to making the right decision. Ultimately it comes down to what best suits your needs, be it consistency. ownership or economic viability of leasing,” Bhutani added.