The cost of leasehold properties

A HANDSOME RM952,253, or almost RM1mil, was the renewal premium of an ageing, 60-year-old leasehold property in Jalan Othman, PJ Old Town.

The shophouse owner’s predicament is one example of a decades-old issue faced by owners of Malaysia’s older leasehold properties as their tenures approach expiry. Costly renewals and financing constraints have raised questions about whether these owners, many of whom are in their later years, are financially prepared for the years ahead.

The real case highlights how costly the process of retaining a leasehold property can become. The story, reported by The Star, explains that the owner’s family owned a 20ft by 80ft commercial shophouse along the busy street. The RM952,253 payment represented approximately 63% of the property’s worth, which was way beyond their means.

The efforts in seeking a shorter extension of 60 years instead of 99 years did reduce the premium to around RM567,349, but it was still unaffordable. At that time, around 150 shophouse owners in the PJ Old Town area were facing the same predicament.

Outlasting even the mortgage

For many Malaysians, owning a property is a long-term financial commitment because beyond the down payment and monthly instalments, there are also renovation expenses, maintenance fees, quit rent and assessment tax to consider.

However, throwing leasehold into the mix stirs up a brand new complication. Unlike freehold titles, leasehold properties are typically held for a specific period. Most common tenures are either 60 or 99 years.

As that time crunches, the owners may eventually decide to extend the lease, sell the property or just retain it under the existing tenure.

The tension gradually builds because a property with at least several decades left on the deed will probably continue to attract buyers, though that depends on its location, accessibility and surrounding developments as well.

But going back to the shortening lease, the financial implications become clear soon enough.

Say the existing owner is interested in selling the property, the scenario could play out whereby the new buyer has difficulty securing financing from hesitant lenders while the existing owner has to decide to incur the costly lease renewal to improve marketability.

So for households that rely on the property as a retirement asset or inheritance, the decision has to be made wisely as it can affect their long-term financial position.

The bank blockade

How does an ageing lease influence housing loan eligibility?

Banks assess property financing based on things like the borrower’s income, creditworthiness, property valuation and the remaining tenure of the title.

A shorter lease would likely affect the repayment period a lender is comfortable with offering, but again, it depends on financing policies.

As an example, the national mortgage corporation Cagamas Bhd requires leasehold properties to have at least 20 years remaining on their leases when the housing loans it purchases are fully repaid.

Although this requirement is not a blanket rule that gets imposed on every housing loan across Malaysia, it clearly illustrates how leasehold tenure can affect financing arrangements.

Take a property with 40 years left on its lease. Under Cagamas’ requirement, the buyer would have to repay the loan within 20 years, leaving another 20 years on the lease.

This could mean higher monthly instalments. For example, a RM400,000 housing loan at an interest rate of 4% would cost around RM1,910 a month over 30 years.

Shorten that to 20 years and the monthly repayment climbs to approximately RM2,424. That’s an extra RM500 or so every month for the same loan amount, which could put the property out of reach for some buyers.

The price of extending ownership

While financing difficulties can affect resales, renewal premiums are still the bigger financial challenge for leasehold owners.

In Peninsular Malaysia, Section 90A of the National Land Code has a mechanism for applications to extend leasehold titles before expiry, subject to the applicable state rules and approvals.

Selangor also provides eligible residential owners a choice when it comes to paying for a lease extension. In a 2026 written reply to the State Assembly, the state government said owners who settle the premium in one go can enjoy a 30% discount.

Those who cannot afford the full amount may choose to pay RM5,000 instead but there is a catch. A registrar’s caveat will be placed on the title and an additional land payment may be required if the property is later sold to someone outside the immediate family.

While the second one offers relief from forking out a large upfront premium, the associated restrictions can affect the transfers, like when owners intend to sell to buyers outside the family circle. This affects owners who may eventually have to liquidate their property to support retirement, medical expenses or other financial commitments.

Shophouse owners, however, face a different problem. In March 2025, The Star reported that the Selangor government was looking into a more affordable lease renewal formula for PJ Old Town shophouse owners following years of complaints over high premiums.

Preparing for an expense decades away

Unlike mortgage instalments, renewal premiums depend on factors including land value, area, use and the lease period being sought. But again, it is subject to the relevant state’s rules. This makes the expense difficult to predict decades in advance.

Still, the potential financial exposure deserves consideration, particularly when owners expect to hold a property for several generations.

As a simple illustration, setting aside RM120,000 over 20 years would require savings of RM500 a month, excluding investment returns and changes in future renewal costs. The figure is hypothetical, not an estimate of any property’s premium but it shows the scale of preparation a substantial future payment could need.

For commercial property owners, renewal premiums may compete with money otherwise allocated to renovations, business expansion or other investments.

The cost of renewing a lease could also become a concern for the next generation. Those who inherit an older home or shophouse may still have to fork out a considerable amount to extend the lease, even though the property was paid off years ago.

But how widespread is this problem?

National property reports provide figures on transactions, prices and market activity, yet there is little publicly available information showing how many leasehold properties are approaching the final decades of their tenure.

For owners, having a clearer idea of potential renewal premiums, title restrictions and the application process would make planning easier.

The difficulties are already being felt in established neighbourhoods. In July 2026, a daily news portal reported that some Petaling Jaya home owners were struggling with expensive renewals and waning buyer interest.

The report also noted that applications could take up to two years to process because of the volume received.

For those whose leases are getting shorter, leaving the matter until the final few years could make an already expensive decision even more difficult.

That does not mean leasehold properties are poor investments. A good location can still attract buyers and tenants but owners need to consider how many years remain on the title, particularly if they intend to sell or pass the property to their children.

After all, paying off the mortgage does not necessarily mean the end of a property’s financial commitments.