Freehold or Leasehold Condo: Which One Is Good For You?

Freehold or Leasehold Condo in Singapore and what factors can affect your decision.

Freehold, 99-year, 999-year and leasehold might all be bewildering to someone who is new to the real estate market.

The owner of a freehold property can keep it eternally. However, a 99-year leasehold property, returns to the Singapore government after the lease expires.

Properties with 999-year leases are a remnant from the colonial rule. It is practically the same as freehold.

In any event, do note that the government can take back a property due to security or infrastructure needs. For instance, the freehold building at Thomson Road was bought over by the government as the North-South Corridor has been planned along this route.

In addition, if another property developer wishes to do a collective sale on the freehold development that you own and majority of the residents agree to the terms of the sale, you will have to sell.

Typically, a freehold development costs ten to fifteen percent higher than a leasehold property within the same vicinity.

Freehold or Leasehold Condo 99-year, which has more value?

Lifespan and Region:

It is may be difficult to determine what which factors contribute to property value. A property with lesser lease left, say for example eighty years balance lease tenure, in the Core Central Region (CCR) is likely to still cost more than a freehold property in Outside Core Region (OCR). Conversely, if a property in CCR has only 20 years lease left, then it may be the case that the freehold property in OCR will cost more.

Amenities:

In the same way, if a freehold property is located close to an MRT station, it may not be possible to determine how much of the property’s increased value is attributable to its freehold status rather than accessibility.

En Bloc:

En bloc can happen for both freehold and leasehold properties as long as majority of the residents within a development is interested to sell. It is usually thought that the en bloc of a freehold will be higher in value compared to that of a leasehold property as the leasehold building has a limited amount of balance tenure left. In reality, it may not be true all the time. En bloc value takes into account the amenities surrounding the property, market condition and zoning laws of the area that a property is sitting in. If there are good amenities like mrt station, plenty of eateries, malls, schools, good entertainment and recreational options, a property, be it leasehold or freehold, will have a good value. On the other hand, if there are not much improvement to the surrounding amenities, the en bloc for a freehold property will still be low.

Rental Yield:

As freehold property has a 10 to 15 percent premium over a leasehold property, the price of a freehold is higher. However, tenure does not bother potential tenants. Tenants pay about the same be it in a freehold or leasehold property for the same-sized unit. In this case, the rental yield in a leasehold is higher as the leasehold property costs less to purchase compared to a freehold property in the same area.

Average Price:

A comparison made on the average quantum of freehold vs leasehold developments residing in the CCR, it is indeed true that freehold prices are higher than that of leasehold prices.

Average PSF:

An interesting phenomenon is observed when we compare the average psf of freehold vs leasehold properties in the CCR. The average psf between these 2 different leases show that the difference is not great. In fact, at some point in the recent past namely in 2012, 2014 and 2016, the ave psf coincide; and it looks like 2021 is likely to show similar coincidence. This shows that the average psf of leasehold properties is narrowing the gap with freehold properties.

The following example illustrates the average psf point:

In the Central Area of Singapore, leasehold property Irwell Hill Residences new condo launch is selling at an average price of $2653 psf currently. At this price, it is higher than freehold new launch The Iveria which is selling at an average of $2630 psf. On the other hand, another new launch freehold condo, The Avenir The Avenir is fetching at an average price of $3133 psf. This works out to around 18% higher than the prices at Irwell Hill. All 3 properties are in the prime district 9 locale and are within 600 metres to the upcoming Great World City MRT station. While freehold condo The Iveria is selling lower in average price psf than leasehold condo Irwell Hill Residences, freehold condo The Avenir is fetching higher than Irwell Hill Residences. Note that The Iveria has less than 100 units and is sitting on a small plot of land while the other two developments have more than 350 units and are occupying larger land areas and hence have more to offer in terms of facilities and perhaps with concierge services thrown in too. Therefore, tenure alone cannot determine the price of a freehold and leasehold property.

With the limited supply of new condo units islandwide now due to the high demand of purchase coupled with slower release of government land sales (GLS), land bids by developers are getting crazily high. 2 cases in point are the recent land tender results of Ang Mo Kio Avenue 1 at $1181 per square foot per plot ratio (psf ppr) and Lentor Central at $1204 psf ppr. Industry experts say to expect these 2 land plots to sell on average at $21xx psf and $22xx psf respectively in 2022. The best part is that these 2 plots of land are not even in the CCR but in the OCR. This shows that what Morgan Stanley predicted about prices doubling by 2030 based on a rough 5% to 6% increase year-on-year is going to come true though it seemed unlikely at the time of the prediction in the masses’ minds.

Lease Alone Cannot Determine Prices Of Freehold Surely Higher Than Leasehold:

Other factors to be taken into consideration include:

• a) future transformation indicated in the URA Masterplan;
• b) surrounding properties prices; and
• c) transactional records within the development
Sources:
1) 99co
2) propertyguru