The introduction of the leasehold is aimed at promoting equal access to housing. This ensures that certain sections of the population are given the opportunity to build and at the same time creating a tool to combat land speculation.
In practice, the ground lease is mostly used by owners of large areas to economically exploit the development potential of land and still receive their basic assets permanently. Leaseholds are therefore rarely awarded primarily by municipalities, churches and foundations of aristocratic landowners and businesses.
Each landowner is entitled to appoint a leasehold. With the leasehold, land speculation can be excluded because the leaseholder is contractually obligated for construction of the property or a luxury real estate.
Leaseholds are awarded occasionally to charitable organizations (sports clubs) to create the possibility of building a clubhouse without the club having to take the risk of real estate financing.
Property owner’s rights
The leasehold offers the property owner the option to define the extent to which the holder can exercise his rights. For example, a municipality may impose that a sports club should use the clubhouse only for relevant purposes. Otherwise, the sports club is in breach of contract and must, unless this has been agreed, the ground lease will be transferred back to the community (reversion).
The client maybe interested in a Luxury Real Estate Long Beach Island if the payment of the ground rent for it is cheaper than financing a property purchase price.
The profitability of a ground lease for the building owner at the market rate of 4% of the land value is currently often questioned. Since mortgage rates are relatively low for several years to finance the annual installments for a loan to purchase the property. In addition, the annuities in leveraged purchase remain the same, while the ground rent increase every three to five years in most cases.
Furthermore, the client is debt free after paying off the credit for the purchase of a building site, whereas a ground lease usually last 99 years shall reimburse the ground rent to the land owner.
One way to counteract this situation that the calculation base value is set lower than the actual market value.
Alternatively, the interest rate can be lowered from the ground level. A concrete possibility of benefit, for example, entails differently configured reductions in the interest rate for minor children of the leaseholder (for example, the ground rent will be reduced at a reduction of 1% of the land value per child for a family of five to 25%).
The leaseholder must approximately every three to five years (depending on the contractual agreement in the value clause) expect an adjustment of the ground rent based the consumer price index. As a rule, this means an increase of the ground rent, as the general consumer prices fall only exceptionally.