Before investing in the housing market, it is crucial to understand the nature of the market, property types, and all the associated legal procedures. Since there are two types of property in Bangladesh – freehold and leasehold, it is essential to learn about them before making any purchasing decision. For freehold property, the rule is quite simple, you just need to check all the associated legal documents for their validity before making the transaction and the property is yours.
For leasehold properties, however, the scenario is entirely different. You must seek additional legal documents, including an allotment and possession letter. But there is a lot more to it than meets the eye. Having that said, we’ll go over what a leasehold house is and lay out the pros and cons of buying a leasehold property for you if you’re considering purchasing one.
What is a leasehold property?
In a leasehold property, you’ll sign a lease with the owner of the land – the freeholder, or for Bangladesh, it will be an authority- and you’ll live in your dwelling while residing on their land.
You may lease a piece of land for 30 to 99 years in Bangladesh.
Generally, all the properties under the supervision of the Capital Development Authority (RAJUK), Chittagong Development Authority or CDA, Ministry of Works or Ministry of Housing and Public Works, or National Housing Authority are leasehold properties.
Pros of a leasehold property
Affordability
The most obvious benefit of a leasehold property is its affordability. Since you are not buying it for life, the cost of purchasing a leasehold property for a certain period will be less expensive than a freehold property.
No land tax
Only the owner of a piece of land is entitled to pay the land tax. On the other hand, you as a lessee are not entitled to such thing.
No overhead cost
One of the biggest reasons many people show interest in buying a leasehold property is because of no overhead cost. Land rent and land maintenance are unavoidable expenses associated with owning a piece of land that the land owner must pay to make things in order. For a lessee, it’s not an issue.
Moreover, businesses who need the freedom to move their business at their convenience without caring about the land and all the things associated with it can do that easily if it’s a leasehold property.
Cons of a leasehold property
Permission for everything
One of the biggest disadvantages of a leasehold property is its lack of flexibility when making any changes, even if it’s a small one. You need permission for almost everything you want in the land.
Want to dig a pool? Put a wall around the building? Plant trees on the property?
All these are big projects, and you’ll need permission to do them from the authority for anything major along those lines.
Restrictions
Then there are restrictions. You might not be allowed to do or construct certain things in the property. That is to say, any kind of change regarding the land might be subject to prior permission or not allowed at all. That includes, not filling the ground with soil, constructing anything on it, or not being allowed to have pets.
No benefit from increased land value
If land increases in value, the value of your leasehold doesn’t increase, but the risk does. You might be liable to pay higher ground rent due to increased value. Also, leasehold properties are generally riskier to lenders, given the property sits on land owned by someone else. This means that certain leaseholds can be challenging to get mortgages on.
As you can see, there are pros and cons of buying a leasehold property. Still, as with every significant decision occasion, the decision is in your hands after you consider all the different factors.
The price for the leasehold property up front is generally likely to be lower than it would be for a freehold property, so if that is your primary, A-Number-One, above-all concern, a leasehold house might be the way to go for your piece of property.
