If you live in Amsterdam and you own your own home - or are thinking of buying one - you cannot escape the issue of who actually owns the land your house is built on.
Erfpacht has been a hot item in the news over the past few weeks, because city officials have finally decided to shake up the system.
In the Netherlands, there are two types of ground ownership:
› freehold (eigen grond)
› leasehold (erfpacht)
In my opinion, it is always better to buy a freehold property rather than a leasehold property. Because it’s better to own the land under your property than having someone else (the municipality) being the landowner.
In Amsterdam, outside the canal area but inside the A10 ring road, almost 70 percent of all properties are leasehold. This means that in the Dutch capital it is difficult to buy a freehold property. You also need to be aware of leasehold properties in cities such as Utrecht, Rotterdam, The Hague and Haarlem.
If you are not lucky enough to find a freehold property you will have to deal with leasehold.
There are two types of leaseholds:
› municipality (gemeentelijke erfpacht)
› private (particuliere erfpacht)
Private leasehold property is to be avoided at all costs because it’s almost impossible to finance (i.e. get a mortgage) and to sell in the future because potential buyers will also have problems arranging a mortgage.
If you cannot avoid buying a property with a private leasehold attached, make sure the leasehold has got a "green declaration" (groenverklaring) to be sure some banks are willing to provide a mortgage.
In Amsterdam, where the problem is most acute, there are two leasehold systems:
› annual leasehold (jaarlijkse erfpacht)
› pre-paid leasehold (afgekochte erfpacht)
For a homeowner, the pre-paid leasehold, often for 50 years, is more interesting than the annual leasehold. The longer it's been pre-paid, the better it is for the buyer!
Example: The annual leasehold is calculated by the Amsterdam municipality and depends on the value of the ground (soil) under the house. This means that on a property costing for example 400.000 euros you will also have to pay, again for example, 1.200 euros a year to cover your leasehold bill. In addition, having an annual leasehold also decreases your borrowing capacity!
Amsterdam officials have now decided to introduce a new system which would allow homeowners to prepay the leasehold forever (eeuwigdurend afgekocht) rather than just for a number of years.
Homeowners in leasehold property have until February 19, 2017 to make their views on the changes known to officials.
The city council expects to take a final decision in June this year. If the new system is approved, homeowners will be able to switch to the new system - by paying a rather large sum.
Example: A homeowner in Osdorp, living in a house on a plot of leasehold ground of 137 square metres, needs to pay 100.000 euros (730 euros per square metres) to prepay the leasehold forever.
At this moment, according to SEBA less than 5 percent of people are considering paying off the leasehold forever. Especially because of the high amount and the difficulty in financing it.
Amsterdam estate agents doubt whether the value of your property will increase in the same way, which will make it more difficult for banks to provide an extra amount of mortgage.
The impact of the changes on new homebuyers will be significant. You can calculate the effect of the proposals on your personal situation here.
It’s to be seen if the Amsterdam municipality will decide positively in June on the current plans.
Henk Jansen is a mortgage consultant with more than 20 years of experience helping expats in the field of housing and mortgages. For more info visit Expat Mortgages or fill in the form below.