"Never buy leasehold" is one of the most repeated pieces of advice in Malaysian property circles. It is also one of the most expensive — because it causes investors to overpay for freehold properties that deliver worse cashflow than a well-chosen leasehold alternative.
The freehold versus leasehold debate is not about which tenure is "better" in absolute terms. It is about which tenure produces a better return for your specific investment strategy, holding period, and target area. The answer depends on numbers, not ideology.
What Freehold Actually Means
Freehold land in Malaysia is held under a Geran (Grant) or Geran Mukim (Mukim Grant). The owner holds the land in perpetuity — there is no expiry date on ownership. Upon death, the land passes to heirs. There is no requirement to renew or extend anything with the state authority.
For strata properties (condominiums, apartments), freehold means the land the building sits on is freehold. Your individual unit is held under a strata title that derives its tenure from the master title. If the master title is freehold, your strata title is freehold.
Key characteristics:
- No time limit on ownership
- No premium payable to the state for tenure continuation
- Freely transferable without state consent (for non-Malay reserve land)
- Bank valuations are straightforward — no depreciation applied for tenure
What Leasehold Actually Means
Leasehold land in Malaysia is granted by the state authority for a fixed term — typically 99 years from the date of the original lease, though 60-year and 66-year leases also exist in some states. Under the National Land Code (Act 828), the legal basis is Section 76 which governs leasehold provisions and tenure types.
When the lease expires, the land reverts to the state. The owner has no automatic right of renewal, though extensions are possible (covered below). This is the core risk that drives the freehold premium.
For strata properties on leasehold land, every unit shares the same lease expiry date — the one on the master title. A "new" condo built on a leasehold parcel granted in 1985 already has 40 years consumed before the first unit is sold.
Key characteristics:
- Ownership for a fixed term (commonly 99 years from original grant)
- Reverts to state upon expiry
- Transfer requires state consent (adds 1-3 months to transaction timeline)
- Bank valuations decline as remaining lease shortens
- Extension possible but not guaranteed, and costs money
The Key Differences at a Glance
| Factor | Freehold | Leasehold (99 years) |
|---|---|---|
| Ownership duration | Perpetual | Fixed term, reverts to state |
| Bank valuation | Full market value | Depreciated based on remaining lease |
| Transfer process | Direct registration | Requires state consent (1-3 months) |
| Typical price premium | 10-20% higher | Base price |
| Extension process | Not applicable | Application to state authority |
| Extension cost | Not applicable | RM 1,000 - RM 50,000+ |
| Financing difficulty | Standard | Difficult below 30 years remaining |
| Foreign buyer restrictions | Standard rules apply | Additional state consent layer |
How Banks Value Leasehold Properties
This is where leasehold gets genuinely problematic — and where most investors underestimate the risk.
Banks do not value a leasehold property at the same level as an identical freehold property. As the remaining lease decreases, the bank's valuation drops. The depreciation accelerates in the final decades.
General bank valuation thresholds:
| Remaining Lease | Bank Valuation Impact | Financing Availability |
|---|---|---|
| 70+ years | Minimal discount (0-5%) | Full margin available (up to 90%) |
| 60-70 years | Moderate discount (5-15%) | Most banks still offer 80-90% |
| 50-60 years | Significant discount (15-25%) | Reduced margin, some banks decline |
| 30-50 years | Heavy discount (25-40%) | Limited to 60-70% margin, fewer banks |
| Below 30 years | Severe discount (40%+) | Very difficult to finance; cash buyers only |
Some banks apply a straight-line depreciation formula to leasehold valuations:
Adjusted Value = Market Value x (Remaining Lease / 99)
Under this formula, a property with 50 years remaining is valued at roughly 50% of what the same property would fetch as freehold. Not all banks use this exact formula — some apply a curved depreciation that is less aggressive in early years and steeper in later years — but the direction is consistent.
A leasehold condo with 45 years remaining on the lease may have a market price of RM 400,000, but a bank valuation of only RM 280,000-320,000. If you need 90% financing, your maximum loan is RM 252,000-288,000 — meaning you need RM 112,000-148,000 in cash instead of the RM 40,000 you'd need on a freehold equivalent.
The financing constraint is the real risk of leasehold. It does not just affect you — it affects every future buyer. As the lease shortens, the pool of buyers who can afford the cash requirement shrinks, creating downward price pressure regardless of the property's rental potential.
Lease Extension: Process and Cost
Leasehold owners can apply to the state authority to extend their lease. This is governed by Section 76 of the National Land Code, and each state has its own process and premium calculation.
General process:
- Apply to the state land office (Pejabat Tanah)
- State assesses a premium based on land value, location, and remaining tenure
- Pay the premium
- New lease period is registered on the title
Typical costs:
The premium varies enormously by state and location. For a standard residential unit:
| State | Approximate Extension Premium | Processing Time |
|---|---|---|
| Selangor | RM 10,000 - RM 50,000+ | 1-3 years |
| Penang | RM 5,000 - RM 30,000+ | 1-5 years |
| Johor | RM 3,000 - RM 20,000 | 1-3 years |
| Kuala Lumpur (Federal Territory) | RM 15,000 - RM 60,000+ | 2-4 years |
For strata properties, the extension must be applied for collectively — individual unit owners cannot extend independently. This requires the management corporation or joint management body to coordinate the application on behalf of all owners. The cost is typically shared proportionally based on share units.
Key complications:
- Extension is not guaranteed — the state can refuse
- Processing times are unpredictable (1-5 years depending on state backlog)
- For strata properties, you need majority owner agreement to proceed
- The premium is based on current land value, which may have appreciated significantly since the original lease
- Some states charge a separate processing fee on top of the premium
Despite these complications, lease extensions are routinely granted in practice. The state has a financial incentive to approve them (the premium is revenue). But the process is slow, expensive, and involves uncertainty — all of which should be priced into your investment decision.
The Price Gap: Freehold Premium
According to NAPIC property price index data, freehold properties consistently command a 10-20% premium over comparable leasehold properties in the same area. The premium varies by:
- Remaining lease length — the shorter the remaining lease, the wider the gap
- Location — in areas where nearly everything is leasehold (like most of Penang island), the premium is smaller because leasehold is the norm
- Property type — landed properties show larger freehold premiums than condos, because land appreciation is a bigger component of total return
In areas like Penang's George Town and Bayan Lepas, where the vast majority of properties are leasehold, buyers accept leasehold as standard. The freehold premium in these areas may be only 5-10%. In mixed-tenure areas of Selangor or KL, the premium can stretch to 15-25%.
The Cashflow Angle: Why Leasehold Can Win
Here is where the conventional wisdom breaks down. If leasehold properties are 10-20% cheaper but command similar rental rates, their yield is mechanically higher.
Worked example — identical condo, different tenure:
Assume two units in the same neighborhood, same size (1,000 sqft), same condition, same rental market:
| Factor | Freehold Unit | Leasehold Unit (75 years remaining) |
|---|---|---|
| Purchase price | RM 500,000 | RM 420,000 |
| Monthly rent | RM 2,200 | RM 2,200 |
| Gross yield | 5.28% | 6.29% |
| Loan amount (90% LTV) | RM 450,000 | RM 378,000 |
| Monthly installment (Islamic 4.0%, 35yr) | RM 1,992 | RM 1,673 |
| Maintenance + operating costs | RM 550 | RM 550 |
| Effective rent (after vacancy/agent) | RM 1,925 | RM 1,925 |
| Net monthly cashflow | -RM 617 | -RM 298 |
| Rent Coverage Ratio | 1.10 | 1.32 |
The leasehold unit loses RM 319 less per month. Over 10 years, that is RM 38,280 in cashflow difference — real money that hits your bank account.
The leasehold unit also requires a smaller down payment (RM 42,000 vs RM 50,000), freeing RM 8,000 for furnishing or reserves.
On identical rental income, the leasehold unit in this example produces a Rent Coverage Ratio of 1.32 versus 1.10 for freehold. The leasehold unit is closer to cashflow-positive — and with a slightly higher rent or lower rate, it crosses the line. The freehold unit needs a 17% rent increase to break even.
This is the core argument for leasehold as an investment: the lower entry price improves yield mechanics. You are buying the same rental income stream for less capital outlay. For cashflow-focused investors, that trade can be rational.
For a deeper understanding of what yield threshold makes a property cashflow-positive, see our guide on 5 signs a property will be cashflow-positive.
When Leasehold Makes Sense
Leasehold is a viable — and sometimes superior — investment when:
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Remaining lease exceeds 70 years. Banks value these close to freehold, financing is readily available, and resale to the next buyer is not impaired.
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Significant price discount exists. If the leasehold unit is 15-20% cheaper than a comparable freehold, the yield advantage can be substantial. Below 10% discount, the risk-reward tilts toward freehold.
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Strong rental demand area. Leasehold properties in high-demand rental markets (near MRT, universities, commercial hubs) benefit from stable occupancy and rent levels regardless of tenure type. Tenants do not care whether the property is freehold or leasehold.
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Medium-term holding period (5-15 years). If you plan to hold for 5-15 years and sell, a property with 75+ years remaining will still have 60+ years at exit — well within the comfortable financing zone for the next buyer.
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Penang island. Most properties on Penang island are leasehold. Avoiding leasehold here means avoiding the entire island market, which includes some of the strongest rental demand in northern Malaysia.
When to Avoid Leasehold
Leasehold becomes risky when:
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Remaining lease is below 50 years. Bank financing becomes restricted, the buyer pool shrinks, and the depreciation curve steepens. The exit becomes difficult.
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You plan to hold for 20+ years. A property with 65 years remaining today has 45 years at your planned exit — entering the danger zone for financing and valuation. Run the numbers at your intended exit date, not today.
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You are a foreign buyer. Foreigners face additional state consent requirements for leasehold transfers, and lease extension applications by foreigners face higher scrutiny. The already-slow process becomes slower.
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The price discount is thin. If a leasehold unit is only 5-8% cheaper than freehold, the yield advantage is negligible and you carry tenure risk for minimal benefit.
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Strata property with fragmented ownership. Lease extension for strata requires collective action by all owners. If the management corporation is dysfunctional or owners are uncontactable, extension becomes practically impossible.
State-by-State Tenure Landscape
The mix of freehold and leasehold varies dramatically by state:
| State / Territory | Dominant Tenure | Notes |
|---|---|---|
| Kuala Lumpur | Mostly freehold | Federal Territory land, strong freehold supply |
| Selangor | Mixed | Varies by area; Shah Alam and Petaling mostly freehold, some districts heavily leasehold |
| Penang (island) | Mostly leasehold | Historical state land grants; freehold is scarce and commands heavy premium |
| Penang (mainland) | Mixed | More freehold available than on the island |
| Johor | Mixed | Iskandar zone has significant leasehold stock; JB city center more freehold |
| Perak | Mostly freehold | Ipoh and surrounding areas predominantly freehold |
| Sabah / Sarawak | Mostly leasehold | Different land code (Sabah Land Ordinance / Sarawak Land Code); 99-year leases standard |
In Penang, where leasehold dominates, the market has adjusted. Buyers, banks, and agents all operate within a leasehold framework, and the "stigma" is much smaller than in KL or Selangor where freehold is readily available.
The Decision Framework
Rather than asking "freehold or leasehold?" in the abstract, ask these five questions about the specific property:
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What is the remaining lease? Above 70 years is comfortable. 50-70 is acceptable with a meaningful price discount. Below 50, walk away unless buying cash for pure rental yield.
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What is the price discount versus freehold? Calculate the exact yield difference. If leasehold does not give you at least 0.8-1.0% higher gross yield, the risk is not compensated.
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What is the rental demand depth? Check for 3+ active rental comparables in the same development. Strong rental demand protects you regardless of tenure. We cover this methodology in our property investment beginner's guide.
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What is your holding period? Map the remaining lease at your intended exit date. If it falls below 60 years at exit, you face valuation headwinds when selling.
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Can you finance it? Get bank pre-approval before committing. Do not assume financing terms — verify them. Leasehold financing terms vary significantly between banks and between remaining lease durations.
The investors who profit from leasehold are the ones who buy with eyes open — calculating the yield advantage, understanding the tenure risk, and choosing properties where the discount more than compensates for the constraints. The investors who lose money on leasehold are the ones who buy without checking the remaining lease term or understanding what happens to bank valuations as it shortens.
Use our cashflow calculator to model both scenarios side by side — enter the freehold price and the leasehold price with the same rental figure, and see which one puts more cash in your pocket each month. The numbers will tell you what no amount of conventional wisdom can.
Sources & Further Reading
- National Land Code (Act 828) — land tenure types and leasehold provisions
- Strata Titles Act 1985 — strata property ownership framework
- NAPIC Property Price Index — price appreciation data for freehold vs leasehold properties
- State Land Office Guidelines — leasehold extension and premium calculation procedures