The difference between freehold and leasehold

What is the difference between freehold and leasehold? This is the main question many real estate investors and buyers ask when deciding whether to purchase a property, whether in Georgia or Turkey.

With the continuous expansion of the real estate market in Turkey and Georgia, investors and buyers are constantly looking for the best options to make an informed decision.

The difference between freehold and leasehold is one of the most important concepts to understand before investing or buying.

In this detailed guide, we explore the difference between freehold and leasehold in terms of rights, obligations, and financial returns.

In addition to the differences between freehold and leasehold for investors in the Turkish real estate market (Istanbul, Antalya) and the real estate market in Georgia (Tbilisi, Batumi).

What is Freehold?

Freehold means owning the property and the land attached to it completely, without time limits.

Definition and Concept

• In the freehold vs leasehold context, freehold is distinguished by the fact that the buyer obtains a final title deed, allowing them to dispose of the property, sell it, and lease it without referring to the original landowner.
• The official contract (Tapu in Turkey and Public Registry in Georgia) grants the owner the right to transfer ownership, mortgage, or develop freely.

Importance of Freehold in Turkey and Georgia

• In Turkey: Arab investors prefer the freehold option in Istanbul and Antalya due to the stability of rights and the availability of real estate citizenship programs.
• In Georgia: Laws allow foreigners to own urban land freely, making freehold an attractive option in Batumi and Tbilisi.

What is Leasehold?

Leasehold is a contract that grants the tenant the right to use the property for a specified period, usually between 30 and 99 years.

Contract Form and Duration

• The difference between freehold and leasehold is that freehold is permanent ownership, while leasehold is temporary ownership.
• In Turkey, long-term lease contracts often extend to 49 or 99 years; the terms vary depending on whether the property is commercial or residential.
• In Georgia, leasehold is less commonly used in major cities, but it is an available option for agricultural land or land outside urban areas.

Uses of Leasehold in Both Markets

• Hotel and apartment hotel developers invest in Istanbul through short-term leasehold contracts.
• Some investors in Georgia choose leasehold to reduce the initial cost and enter the market quickly.

The Difference Between Freehold and Leasehold in Terms of Legal Rights

Land Ownership

• Freehold: The buyer owns both the land and the property.
• Leasehold: The tenant owns only the property, and the land remains the property of the original owner.

Ownership Duration

• Freehold: Permanent ownership that does not expire.
• Leasehold: Temporary ownership until the contract expires.

Registration of Rights

• In Turkey, freehold and leasehold contracts are registered in the Land Registry (Tapu), with fixed registration fees of up to 4% of the property value.
• In Georgia, contracts are registered in the "Public Registry" with relatively lower fees, with the possibility of registering long-term lease contracts for flexible periods.

Freehold vs Leasehold: Financial Comparison

Initial Cost

• The advantages of freehold over leasehold are evident in the fact that the initial purchase cost of freehold is about 30-50% higher compared to leasehold.
• Example: A 100 m² apartment in Istanbul freehold costs $160,000, while leasehold may start from $90,000.

Taxes and Fees

• Freehold requires paying property transfer tax, registration fees, and annual real estate income tax.
• Leasehold includes contract renewal fees and property management fees that are 20-40% lower than freehold fees.

Return on Investment

• Freehold offers greater capital appreciation in the long term and is considered a safe real estate investment.
• In leasehold cases, the value of the property decreases as the contract period approaches expiration, which may affect liquidity and resale potential.

Investing Between Freehold and Leasehold: Which is Better?

Freehold for Long-Term Investment

• Freehold is the most suitable option for those wishing to invest between freehold and leasehold, due to the stability it provides and the ability to obtain citizenship or permanent residency in Turkey.
• It is easier to obtain bank financing with favorable terms for real estate loans in Istanbul and Antalya when choosing freehold.

Leasehold for Temporary Projects

• Preferred by investors looking for the advantages of freehold over leasehold in terms of reducing capital expenditure.
• It is used in tourist accommodation and serviced apartments projects in Turkey, which contributes to reducing financial risks.

Differences Between Freehold and Leasehold for Investors

• Flexibility in resale is higher with freehold because the land and property are fully owned by you.
• Disadvantages of leasehold compared to freehold include the dependence of the property value on the remaining contract period.
• In the real estate market in Georgia, investors prefer freehold to facilitate financing and transfer procedures for individuals or companies.

Freehold vs Long-Term Lease: Which Suits You?

According to the Country of Investment

• Turkey: The value of a freehold property is linked to Turkish citizenship programs, making freehold versus leasehold of paramount importance for foreign residents.
• Georgia: The procedures are simpler, and freehold opportunities are open to foreigners without restrictions on urban land.

According to the Goal and Duration

• For permanent residence and long-term investment: Choose freehold.
• For short-term residence or tourism projects: Leasehold may be a practical and economical option.

Freehold vs Leasehold: Global Terms

• Freehold = Permanent Ownership.
• Leasehold = Temporary Ownership.
• This division helps in comparing freehold and leasehold globally, especially in the markets of London, Dubai, and Istanbul.

Step-by-Step Freehold and Leasehold Guide

Freehold Steps

1. Choose the right property according to your budget in Istanbul or Batumi.
2. Verify ownership and check records in the Turkish Tapu or Georgian Public Registry.
3. Sign the contract with payment of registration fees and taxes (≈4–5% of the property value).
4. Register for residency or Turkish citizenship when desiring real estate investment programs.

Leasehold Steps

1. Sign the lease contract, clearly specifying the duration and conditions.
2. Register the contract officially with the competent authority to guarantee the tenant's rights.
3. Compliance with legal and financial conditions (annual or semi-annual renewal fees).
4. Renew or assign the contract before the expiry of the term to preserve investment value.

Frequently Asked Questions: The Difference Between Freehold and Leasehold

What is the difference between freehold and leasehold?

The difference between freehold and leasehold lies in the duration of ownership and land rights: freehold is permanent ownership of the land and property, and leasehold is a temporary right to use the property only.

Is freehold better than leasehold in Turkey?

If your goal is to invest between freehold and leasehold to obtain Turkish residency or citizenship, then freehold is the best option.

What are the advantages of freehold vs leasehold?

Advantages of freehold: Full ownership, ability to develop, increased market value. Advantages of leasehold: Low initial cost, flexibility for short-term stays.

Can a long-term lease agreement be converted to freehold?

In some countries (including Turkey), a long-term lease can be converted to freehold under certain conditions and additional fees, after the approval of the original owner.

What are the benefits of leasehold versus freehold for new investors?

What are the benefits of leasehold versus freehold: reduced capital expenditure, ease of market entry, and flexible options for short-term projects.

Conclusion: The Difference Between Freehold and Leasehold

We have reviewed the difference between freehold and leasehold from multiple aspects, including legal rights, financial comparison, and investment in the Turkish and Georgian markets.

If you are looking for a long-term investment between freehold and leasehold with legal stability, then freehold is the best option.

But if your budget is limited and you want financial flexibility and for a shorter period, leasehold may be a practical option.

Use this step-by-step freehold and leasehold guide to determine the most appropriate option for your investment goals and lifestyle.