I’ve mentioned many times before that buying property in Asia can be complicated as a foreign investor.
When buying your first condo in Bangkok or a villa in Bali, you’ll have to overcome more than just linguistic and cultural barriers. You must also contend with local property ownership laws and customs that are often unheard of in the West.
One of the most common issues that you might encounter is the idea of leasehold vs. freehold ownership.
Certain places don’t allow foreigners – or anyone, for that matter – to own real estate outright. Yet they’ll allow you to own property by purchasing a long-term lease, which can last anywhere between 30 to 999 years.
While leasehold ownership allows you to effectively own a property, these leases function a bit differently from traditional freehold ownership. Therefore, in this article, we’ll break down:
The differences between freehold and leasehold property ownership;
Countries in Asia that only allow leasehold ownership; and
When (and if ever) you should consider buying a leasehold property).
Freehold Versus Leasehold Property Ownership
To understand how leasehold ownership works, let’s begin by discussing an ownership system that you’re likely more accustomed to – freehold property ownership.
If you own your property through a freehold title, then you have complete and total ownership of that property until you sell it or pass it on. So unless your assets are seized, your real estate belongs only to you until it’s sold. And you may transfer ownership of the property at will.
Leasehold property ownership, on the other hand, is slightly more complicated. Under such a system, you sign a lease that allows you to own a property for a certain amount of time. Once that time has passed, you may or may not be able to renew your lease on that property.
Unlike renting an apartment or a house from a landlord, buying leasehold property essentially allows you to own real estate for a set amount of time. For the most part, you can change and maintain the property as you desire until the lease term has ended.
However, this system of ownership does not give you the same amount of control as freehold ownership. That’s because you might need to abide by certain rules and regulations set out in your lease agreement.
Perhaps more importantly, the lease that you have on your property is a depreciating asset. As your lease term becomes shorter, its value declines substantially, which in turn depresses the value of your property. Even if it’s in mint condition in a prime location.
Finally, after your lease expires, ownership of the property will revert back to the government or the original owner unless you choose to renew your lease.
Nonetheless, renewing your lease isn’t always easy or straightforward. The original owner may choose to charge substantially more for the next lease term. Or they may deny you the option to renew at all.
Thanks to these potential complications, I rarely recommend purchasing any kind of leasehold property. Under a long-term lease, you’ll never truly own your property. And due to the lease’s depreciating value, you won’t get much – if any – return on your investment.
Singapore’s two most desirable neighborhoods are Marina Bay and Sentosa Island. But despite the city allowing foreign condo ownership, you won’t find any freehold buildings available in these areas. Leasehold is your only choice.
Countries With Leasehold Property Ownership in Asia
Although I don’t recommend buying leasehold property in most cases, some countries in Asia give you no other choice than to buy leasehold property if you wish to own a home.
If you are looking to buy property in Asia, you should be aware of how each country regulates property ownership along with what kinds of restrictions are placed on foreigners.
Many Asian countries allow foreigners to buy freehold property in some form. Yet five nations, specifically Vietnam, China, Indonesia, Hong Kong, and Laos, do not allow you to own property outright.
Each of those above five countries approaches leasehold property ownership differently. Some nations, like China and Vietnam, have leasehold property systems rooted in their government’s communist origins.
Others, like Indonesia, let their citizens own freehold property while banning foreign nationals from permanent ownership.
Thus, whether you want to invest in up-and-coming Vietnam or secure your dream beach villa in Indonesia, you should understand how the following countries approach leasehold property ownership.