Real Estate Ownership Models: What works for you?
Updated: Feb 13
Real estate ownership is a major financial decision that can have a significant impact on your overall wealth and financial security. There are a variety of different real estate ownership models, each with its own advantages and disadvantages.
Conventional Real Estate Ownership Models
Conventionally most people know just one form of real estate ownership model where they buy physical real estate like land or a building constructed on the land. These conventional ownership models include:
Freehold Ownership
Freehold ownership is the most common type of real estate ownership model. It gives the owner complete and unconditional ownership of the property, including the land and any buildings on it.
This is the most secure form of ownership and is the most popular choice for buyers who intend to live in the property themselves or rent it out.
Freehold ownership is also the most expensive type of ownership as the buyer is paying for the land and the buildings.
This real estate ownership model is shaping the global real estate market in a number of ways.
First, it is driving up the prices of real estate as buyers are willing to pay a premium for the security and flexibility that freehold ownership offers.
Second, freehold ownership is encouraging the development of new residential and commercial properties, as developers can sell these properties to freehold owners and generate a significant profit.
Third, freehold ownership is making it easier for people to invest in real estate, as they can purchase a property and then rent it out to generate a passive income.
Leasehold Ownership
Leasehold ownership gives the owner the right to occupy and use the property for a set period of time, typically 30-99 years. At the end of the lease period, the property reverts to the landlord.
Leasehold ownership is typically less expensive than freehold ownership, as the buyer is only paying for the right to use the property for a set period of time.
However, leasehold owners may also be subject to additional costs, such as ground rent and service charges. Additionally, in some jurisdictions, leasehold owners have a right of first refusal, which means that they have the right to match any offer made by a third party to purchase the property.
In other jurisdictions, leasehold owners may have a right to renew their lease at a market rate, but they may also be subject to a ground rent, which is a fee paid to the landlord for the use of the land.
In some cases, there may also be legal restrictions on the landlord’s ability to refuse to renew the lease. For example, in the United Kingdom, landlords must have a valid reason for refusing to renew a lease, such as if they need to redevelop the property.
Leasehold ownership is shaping the global real estate market in a number of ways:
First, it is making it more affordable for people to buy property, particularly in expensive cities where freehold ownership is out of reach for many buyers.
Second, leasehold ownership encourages the development of new residential and commercial properties, as the lease helps generate a recurring income.
Third, leasehold ownership is making it easier for businesses to rent commercial properties, as they can sign a lease for a set period of time without having to commit to buying the property outright.
Cooperative Housing Ownership
Cooperative housing society is the second most common type of real estate ownership in the world, where members of a cooperative society own a share of the society's property.
Members have the right to occupy and use a specific unit on the property, but they do not own the unit outright.
Cooperative housing society ownership is typically less expensive than freehold ownership, as members are only paying for a share of the society's property.
However, cooperative housing society owners may be subject to restrictions on ownership and use, such as the need to obtain the society's permission before selling or renting their unit.
Cooperative housing society ownership is shaping the global real estate market by making it more affordable for people to buy property, particularly in expensive cities.
Cooperative housing societies are also playing a role in the development of new residential properties, as they can pool their resources to purchase land and develop new housing estates.
Emerging Real Estate Ownership Models
In recent years, a number of new real estate ownership models have emerged, such as fractional ownership and co-living.
These models are offering buyers and renters new and innovative ways to own and use real estate.
Fractional ownership and co-living are sometimes confused because they both involve sharing a property with other people, but they are two different concepts.
Fractional Ownership
Fractional ownership allows buyers to purchase a share of a property, rather than the entire property. This can make it more affordable for people to own property in expensive locations.
Fractional ownership is also becoming increasingly popular for vacation homes as it allows buyers to share the costs and maintenance of the property with other owners.
It is noteworthy that in this type of ownership model, multiple people own a share of a single property. Each owner has a right to use the property for a certain amount of time each year, proportioned to their ownership share.
Typically, this type of ownership is managed by a company that specialises in fractional ownership. The company is responsible for maintaining the property and arranging for the owners to use the property.
Co-living Ownership
Co-living is a type of shared housing arrangement where people share a common living space, such as a kitchen, living room, and bathroom.
Co-living is typically less expensive than other real estate ownership options, and it can also offer residents a sense of community.
This type of ownership is increasingly becoming popular with young professionals and students.
In other words, in co-living arrangements, residents typically have their own private bedrooms, but they share common areas and amenities.
Which Real Estate Ownership Model is Right for You?
There is no one-size-fits-all answer to the question of which real estate ownership model is best. When choosing a real estate ownership model, it is important to consider your individual needs and circumstances.
The best model would typically fit into your budget, meet your investment goals in your preferred time horizon involving minimal risk, and of course, save you taxes in the process as well.
Budget
Freehold ownership is typically the most expensive, followed by cooperative societies, leasehold, fractional ownership, and co-living.
When deciding your budget think of how much you’re willing to spend and to achieve what benefits out of the ownership.
For example, if you wish to have full control over the land and the construction on the land, freehold ownership is for you, and you must decide your budget accordingly.
Likewise, if you’re okay with sharing your space with others, you can perhaps decide your budget for a co-living space.
Investment goals
If you are looking for a long-term investment, freehold ownership is the best option for you.
Leasehold and fractional ownership can also be good investment options, especially if you own a primary real estate to meet your primary requirements.
However, it is important to carefully consider the terms of the lease or agreement before investment.
Time horizon
If you are planning to live in the property for the long term, freehold ownership is best for you. Otherwise, if your plan is to move to a new place after a couple of months or in a few years, you should perhaps think about leasehold or fractional ownership.
Your time horizon will yet again depend upon your short-term and long-term goals. And likewise, your preferences for the ownership model will change.
Risk tolerance
Freehold ownership is the most secure type of real estate ownership, mainly because it offers undisputed usage rights to the land and construction on the land.
On the other hand, leasehold and fractional ownership can be riskier, as the value of your investment may depend on the performance of the overall property market, and so would your returns.
If you are unsure which real estate ownership model is right for you, it is a good idea to speak with a qualified financial advisor or real estate agent. They can help you assess your needs and circumstances and recommend the best model for you.
Overseas Real Estate Ownership
Overseas real estate ownership can be especially lucrative for young professionals, retirees, business owners, and/or groups of friends or families who want to have a secondary home in a foreign destination.
Of course, they all can have different reasons for doing so. For example, a young professional could consider fractional ownership to make it more affordable to live in an expensive city like London or New York.
A retiree may want to spend their winters in warmer destinations and can consider buying a freehold property in tourist destinations like Spain or Portugal.
A business owner who frequently travels overseas could consider leasing a property to use as a home base.
However, there are a few things to keep in mind before investing in overseas real estate. First, it is important to do research and understand the laws and regulations governing property ownership in the country where you are interested in buying. You should also consider the potential risks involved, such as currency fluctuations, political instability, and travel restrictions in the country where you’re interested in buying real estate.
Here are some additional benefits of overseas real estate ownership:
Diversification: Overseas real estate can be a good way to diversify your investment portfolio.
Income potential: If you rent out your overseas property, it can provide you with a steady income stream.
Capital appreciation: Overseas property can appreciate in value over time, providing you with a capital gain when you sell.
Lifestyle benefits: Owning overseas property can give you the opportunity to live in a different country and experience a new culture.
If you are considering purchasing overseas real estate, it is important to work with a qualified real estate agent and lawyer who can help you through the process.
What is the Future of Real Estate Ownership?
The real estate ownership space is changing quickly due to geopolitical and economic changes worldwide. More and more people are now moving away from ownership, especially middle-class working people.
Here are some predictions for the future of different real estate ownership models over the next decade:
Freehold ownership will become more expensive
Freehold ownership is likely to remain the most popular type of real estate ownership model for the foreseeable future. It offers buyers the greatest security and flexibility, and it is the preferred choice for buyers who intend to live in the property themselves or rent it out.
However, freehold ownership is likely to become increasingly expensive in the coming years, as demand for real estate continues to grow and supply remains limited. This will make it more difficult for first-time buyers and people with lower incomes to afford to buy property.
Leasehold ownership will become expensive to maintain
Leasehold ownership is likely to become more popular in the coming years, as it offers a more affordable way to buy property, particularly in expensive cities.
Leasehold ownership is also likely to become more attractive to developers, as it allows them to generate a recurring income from the land.
However, leasehold ownership is likely to face some challenges in the future. For example, leasehold owners may have difficulty obtaining mortgages, as lenders may be reluctant to lend money on a property that will eventually revert to the landlord.
Additionally, leasehold owners may be subject to increasing ground rent and service charges, which could make it more expensive to own and maintain a leasehold property.
Cooperative housing will help develop new residential properties
Cooperative housing society ownership is likely to continue to be popular in India and other developing countries, where it offers a more affordable way to buy property.
Cooperative housing societies are also likely to play an increasingly important role in the development of new residential properties.
However, cooperative housing society ownership has its own set of challenges.
For example, cooperative housing societies can be complex and difficult to manage.
Additionally, cooperative housing society owners may have difficulty selling or renting their units, as they need to obtain the society’s permission.
Fractional ownership and Co-living will continue to be popular
Emerging real estate ownership models, such as fractional ownership and co-living, are likely to become more popular in the coming years, as they offer buyers and renters new and innovative ways to own and use real estate.
Fractional ownership is likely to become more popular with people who want to own property in expensive locations or who want to share the costs and maintenance of a property with other owners.
Co-living is likely to become more popular with young professionals and students who are looking for an affordable and flexible housing option.
Overall, the future of the different real estate ownership models is likely to be shaped by several factors, including affordability, flexibility, and innovation. Emerging real estate ownership models are likely to play an increasingly important role in the global real estate market, but they are also likely to face some challenges in the coming years.
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