Leasehold or erfpacht in dutch
Leasehold options
When buying a property in Amsterdam and some other cities, you sometimes encounter leasehold. This is a system in which you own the house but not the land it stands on. The way leasehold is structured has significant financial and practical implications. It is important to make an informed decision between purchasing a property with or without leasehold. Additionally, we help you understand the factors involved in deciding whether or not to buy out the leasehold.
What is leasehold?
leasehold means that you pay for the use of the land on which your home stands without owning the land itself. in Amsterdam, the municipality is often the owner of the land. the fee you pay is called the ground rent. depending on the leasehold agreements, your housing costs, mortgage options, and future resale value can vary significantly.
The leasehold options: which one suits you?
Temporary leasehold
with temporary leasehold, you lease the land for a fixed period, usually 50 or 75 years. after this term expires, you must renew the contract, often at higher costs. this can create uncertainty.
- advantages: lower costs at purchase, suitable for buyers with a shorter investment horizon.
- disadvantages: uncertainty about future ground rent, less attractive to future buyers.
- risks: significant increase in ground rent after the term expires, difficulties in selling the property.
Perpetual leasehold
with perpetual leasehold, you pay off the leasehold obligations in one go. this means you never have to pay ground rent again, providing certainty for you and future buyers.
- advantages: no future costs, attractive to buyers, no risk of rising land prices.
- disadvantages: high costs for redemption, less attractive if you plan to sell the home soon.
- risks: high initial investment can create financial pressure.
calculate how much you need to pay using this tool (in Dutch): leasehold calculation tool (Amsterdam)
Timeframes within temporary leasehold
with leasehold using timeframes, the ground rent is revised after a fixed period, such as 25 or 50 years. this can lead to higher costs depending on the land value at that time.
- advantages: predictable costs within timeframes, lower initial costs.
- disadvantages: significant uncertainty about ground rent after revision.
- risks: higher expenses if land value increases, less attractive for buyers.
Fixing the ground rent after a timeframe
after a timeframe expires, you can choose to fix the ground rent again for a new period. this process is known as “fixing” the ground rent. the amount is determined based on the current land value and other factors.
- advantages: ensures predictable housing costs for the new period.
- disadvantages: the new ground rent can be significantly higher, depending on land value increases.
- tips: check with the municipality early about conditions and possibilities to avoid financial surprises.
Key risks for mortgage options
if a home has a leasehold with less than 10 years prepaid or if you must pay ground rent, this has a significant impact on your maximum mortgage amount. banks consider these situations risky because they create uncertainty about future housing costs. this can result in being able to borrow less than expected. additionally, ongoing ground rent payments increase your monthly expenses, further limiting your borrowing capacity. it is therefore crucial to check when buying a property how long the leasehold is prepaid and what the ground rent obligations are.
Risks of property transfer tax exemption under 35 with leasehold
although the property transfer tax exemption for buyers under 35 is an attractive benefit, there are risks to consider, especially for homes with leasehold. in some cases, the value of prepaid leasehold can be included as a value component in the property price assessment. this means the tax authorities may not only consider the purchase price but also the financial value of the prepaid leasehold period. as a result, the total property value may exceed €525,000, even if the purchase price is exactly at or below this threshold.
the consequence is that you may no longer qualify for the transfer tax exemption and will still owe property transfer tax. this can lead to unexpected financial costs, particularly if you were not anticipating them. buyers should check with their real estate agent, notary, or tax advisor to determine whether this value component applies in their specific case, avoiding surprises during the purchase process.
Tax benefits of not paying off leasehold
if you choose to continue paying ground rent annually, you may be able to deduct these costs on your income tax. this can be an attractive option if you are looking for lower monthly expenses without making a large upfront payment.
Is perpetual leasehold redemption a good choice?
a home with perpetual prepaid leasehold is more attractive to buyers. it provides certainty, eliminates future costs, and increases resale value. as a result, the home often sells faster and can achieve a higher price.
Should I buy a home with leasehold?
The choice between temporary leasehold, perpetual redemption, or timeframes depends on your financial situation and future plans. Consider the risks, benefits, and impact on your mortgage. By being well-informed, you can make a decision that benefits you both now and in the future. Contact us to explore your options in more detail and determine the best choice for you.