by
Mr. Ramesh Nair, Jones Lang LaSalle
India..
A leasehold property
defines the status of the land on which the property is built.
Leasehold land on
which construction takes place is ordinarily on long-term lease of 99 years
onward.
Specific to
residential property on leasehold land, one may use the example of the MMRDA's
Wadala development plan, wherein the land is given on long-term lease to
various developers who can sell the units constructed on an outright basis.
The developer
ordinarily pays a substantial value for the long-term lease to the lessor up
front.
On completion of the
project, the lease is transferred in the name of the society formed. The future
of such properties post the lease term is uncertain to the extent of the amount
that the lessor demands for renewal, which will need to be paid by the society.
Clarity on this is
expected after the legal authorities reach a decision on the Nariman Point
buildings, wherein renewal is imminent.
A concrete formula is
expected with respect to calculating the incremental value required to be paid
by the societies for renewal.
Pros..
a Relatively cheaper
prices, as the land cost to the developer is invariably less than that of
buying land outright in a similar location.
In other words, a
good location at lower cost.
a Usually, this
arrangement is part of larger, well-planned developments which give provide the
comfort of certainty of sound location
attributes and properly planned infrastructure to support the development
a Developers are
ordinarily bound by certain timeline commitments towards the lessor, ensuring
the interests of owners.
A good example is the
plots at Bandra Kurla Complex
a A plot with clear title, as a thorough due
diligence of the title is done and developer credentials are also intricately
verified.
Cons
X Uncertainty after
the lease tenure.
X Possible additional & substantial
liabilities in the future on renewal of the lease.
X Possible devaluation
of the property as the end of the lease term nears
X Possible transfer charges levied by the
lessor on any transactions in the premises.
End - User Perspective..
Given a choice and if
the budget permits - it is preferable to invest in a freehold alternative,
given the better clarity on the future.
It is also easier to
leverage a freehold property to procure funds in case of future requirements.
Developer
Perspective..
A builder is usually
most concerned about costs incurred, so most developers will prefer to build on leasehold property. The
land cost is usually lower than that of purchased freehold land, and not all of
this cost benefit is passed on to the buyer.
Land cost in premium
locations is invariably the most significant cost to a builders, so any savings
on this front are highly preferable.
In most cases, the
builder will have completed all tasks and responsibilities associated with the
plot long before renewal is due, and will have already exited the premises.
Therefore, he is not concerned whatever transpired after
that. It is true that it is harder for him to leverage the land for funds
initially, but the leasehold route is still the more preferable one.
About the author...
Mr. Ramesh Nair, COO - Business, Jones Lang
LaSalle India
For Media Contact..
Arun Chitnis - Head –
Corporate Communications
Jones Lang LaSalle
India
Level 6, Amar Avinash
Corporate Plaza
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Pune - 411 001.
Tel: (020) 3093 0441
Fax: (020) 4019 6101
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29999
Website:
www.joneslanglasalle.co.in
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