Why are leasehold properties disadvantaged compared to nearby freehold areas?

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Leasehold Properties Face Disadvantages Compared to Freehold Neighbours Due to Loan Restrictions and Bureaucratic Hurdles

Leasehold properties are at a significant disadvantage when compared to adjacent freehold areas, primarily because financial institutions often refuse loans for properties with remaining lease tenures of 25 years or less. This reluctance from banks directly impacts potential buyers, leading to a further decline in property values. Additionally, leasehold owners face bureaucratic complexities, such as the restriction of interest clause, which requires state authority permission for any sale, pledge, or lease, thereby adding administrative obstacles and potentially diminishing the property's market worth.
Loan Eligibility Issues for Shorter Lease Durations

Banks generally exhibit a strong aversion to providing loans for properties where the remaining lease period falls between 20 to 25 years, or even less. This policy significantly constrains the pool of eligible buyers, particularly those reliant on financing. The reduced loan eligibility means that potential purchasers, often younger individuals or those with moderate incomes, are deterred from investing, as their ability to secure financing is jeopardised. Consequently, this can lead to a stagnation or decrease in the market value of properties with such short remaining leases.
Proximity to Freehold Properties Exacerbates Disadvantage

The presence of neighbouring freehold properties, such as those in Gasing Indah, Petaling Gardens, and specific sections within Petaling Jaya like Sections 14, 16, 17, 18, 20, 21, and SS1 to SS5, further highlights the comparative disadvantage of leasehold titles. Freehold status inherently offers greater security and fewer restrictions, making these properties more attractive to buyers and lenders. The disparity in ownership rights and the absence of lease expiry concerns for freehold properties create a competitive imbalance, drawing interest and investment away from leasehold alternatives.
Bureaucratic Restrictions Impede Transactions and Value

Leasehold property owners frequently encounter the "restriction of interest" clause, a regulatory measure that mandates obtaining permission from the state authority before the property can be sold, pledged, or leased. This requirement introduces a layer of administrative complexity and can significantly prolong transaction timelines. The need for official consent adds an element of uncertainty and can deter potential buyers who prefer a more straightforward purchasing process, thus potentially suppressing the property's overall market value.

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Why are leasehold properties disadvantaged compared to nearby freehold areas?

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