Is Leasehold land a good option for you?
Buying Leasehold Land in Vancouver
One main feature of the Vancouver real estate market is the soaring prices. To complicate the situation even further, many housing units are small and inadequate.
This leaves few options to customers who want to remain in the City and are in need of better, more affordable housing, but one option is prepaid leasehold property as the purchase prices tend to be lower than freehold market prices.
I am often asked, what is Leasehold Property? The short answer is this: When you own the house in which you live but not the land on which it is situated upon, you own leasehold property.
With some leaseholds, you make regular remittances in the form of rent to the landowner. Leasehold land is sometimes leased to private developers, examples of which can be seen at SFU and UBC. The developer then builds a house or housing units from which they get rent from tenants.
Land lease property is typically leased for a period of 100 years. Many landowners require developers and homeowners to pay for this lease up front (a prepaid leasehold). The landowner could be an organization, or the city of Vancouver. For example, most of the lease lands close to Granville Island belong to the City of Vancouver. In addition, some of the plots around the city belong to individuals, while others are First Nations Reserve Lands. Most of the land in Vancouver’s West End belongs to a number of organizations.
How Long Does the Lease on Leasehold Property Last?
Many who purchase a leasehold property decide to hold on to the property until the lease expires. However, you may also opt to sell the property to a third party before the expiry of the lease. There is also room for the property owner to renegotiate if the lease is about to expire.
Due to all the dynamics of leasehold property, it is important that you conduct due diligence before you purchase one. For a detached home on leasehold property, get acquainted with the current house and the landowner, the terms of the lease, and the duration remaining to its expiry. A keen look at the lease contract is critical.
Mortgages and Leasehold Property:
One challenge that confronts many buyers is the choice between freehold and leasehold land. Different lenders treat the two properties differently. The issue of mortgages on leasehold properties can be a tricky one to someone inexperienced. An experienced REALTOR® and mortgage broker will help you navigate through this and other leasehold property issues. Some financial institutions tend to shy away from property whose lease is about to expire. If they approve of a mortgage on the property, then it is likely that the term of the mortgage will be shorter than the lease itself. Lease lands belonging to individuals and organizations are the most challenging when it comes to mortgage issues. A First Nations Reserve Leasehold fares slightly better. The most promising leasehold property is that owned by the City of Vancouver as many lenders tend to look at such holdings favourably. In my experience, I have found credit unions to be your best bet for obtaining financing on leasehold properties on all types of leasehold ownership.
Whichever you eventually settle on, whether leasehold or freehold property, there will be financial institutions that will back you and others who will shy away. The important thing is that you examine the contract of the lender carefully before you put pen to paper. Better still, seek the services of a qualified real estate agent in Vancouver to help you read and interpret all the fine print that goes with such contracts. That way, you will be safe in the knowledge that you are making the best deal.
Additional Information on Pre-Paid Leases:
Normally, the landowner will require that you pay taxes and strata fees on the property. Additionally, you will be expected to meet your monthly leasehold property remittances if applicable. This is quite common with property on the First Nations Land reserve. However, you can circumvent all this by choosing the pre-paid lease option. This option allows you to make all the payments up front, so the landowner will not slap you with any regular payments. However, it is common knowledge that many landowners factor in all the fees before they quote the lease price.