Freehold or Leasehold?

showflat modelThis is always the billion dollar question – Is it better to get a freehold property or a 99-years leasehold property? Everybody wants to own freehold properties. But there are limited supply of freehold landed properties and condominium. Freehold lands are private land banks or previously private owners who have owned for many years ago. It is a government gazette that all land sales in Singapore will only be up to 99 year lease. That’s why there are far few freehold land sites that is available and all government land sales will only be 99 year leasehold. Obviously, if you are able to afford a freehold property, it is a premium product.

A freehold title allows the homeowner to have perpetual ownership of the property, while a leasehold title allows possession for a stated number of years, be it 99 or 999 years. When the lease expires, the title of the property goes back to the state. We consider 999-year leasehold to be the same as freehold, because their difference in value is negligible and banks will not impose any loan limits even if the lease runs into a few hundred years.

Freehold properties hold a few advantages over their leasehold counterparts – higher en-bloc potential, slower pace of depreciation and no restrictions on the use of Central Provident Fund for home purchases. But is it wrong to own a 99-year leasehold property?

In recent years, new leasehold condominiums seem to have dominated the market. The proportions of new leasehold and freehold condominium sales stand at 95 per cent to 5 per cent respectively as of first half of 2013. In contrast, back in 2006 and 2007, around 70 per cent of new sales were freehold. This could be attributed to the ramp-up of the government land sales program in recent years and the tightening of en- bloc rules in October 2007.

There is a price gap between freehold condominiums and leasehold condominiums. Typically, you may be looking at a gap of 20-30% range in general. In Singapore, majority of the new condominiums that are nearer to the MRT are usually 99-year leasehold. Having a better location as opposed to a freehold condominium which may be farther away from the MRT, 99-year leasehold condominiums tend to fetch a higher rental yield. Tenants don’t really care whether the place that they rent is freehold or leasehold, they only care about the proximity to amenities at the right rental price.

It is all fairly subjective whether you should be investing in a freehold or a leasehold property. By and large, properties in Singapore appreciates in capital over time, and we are talking about long term investment of 10 years or more.

If you wish to check out the options of buying a Freehold or a Leasehold unit, do feel free to contact Irene Tan at 9846 9648 for a non-obligation discussion.