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99 year Leasehold vs Freehold - Which is better?


Defining "99 years", "999 years" and "Freehold"


Simply put, an owner of a freehold property can hold on to their property indefinitely. A freehold property is also termed "estate fee in simple".


999-year leasehold properties are a holdover from the Colonial era. 999-year leasehold properties are viewed the same as freehold, for all intents and purposes.


But this does not include situations where the government needs to acquire the land for security or infrastructure developments.


99 year leasehold properties returns back to the state after the lease is up. Earlier in 2017, three owners of private terrace houses in Geylang were told they had to vacate their properties with no compensation by 31 Dec 2020. Read more here.


So in this scenario, if you have already decided on purchasing a private property, choosing between freehold and 99 year leasehold seems to have a straightforward answer - Freehold, right? But it isn't always so clear cut. 99 year leasehold properties have better appreciation rates, for example.


The debate for leasehold vs freehold never seems to end. Traditionally, majority of people will prefer freehold if given a choice. I definitely see why, but consider the following factors before committing to a purchase.


Appreciation Rates


Over the past decade, leasehold condominiums have appreciated 89.7 percent vs 60.8 percent for freehold counterparts.


This could be because freehold condominiums are usually sold at 10 to 15 percent higher than leasehold condominiums. So leasehold properties already have a "headstart" so to speak.



(source: 99.co)


The argument, freehold vs leasehold, seems more theoretical when looking at the above statistics. Other more important factors like rental yields, nearby amenities, quality of facilities should play a more important role than the tenure of the property.


What about during an en-bloc fever?


In theory, a freehold property proves its quality during an en-bloc sale. Freehold units are supposed to fetch higher prices as there is no timer on the lease and owners are more reluctant sellers.


The height of the en-bloc fever was in 2017 when there was a huge influx of Chinese developers. The fever died down when the Singapore government introduced a 30 percent Additional Buyer Stamp Duty (ABSD) on housing developers as part of its cooling measures announced on July 5, 2018.


So during an en-bloc fever, do freehold properties appreciate more than leasehold properties? No, but only narrowly. The following chart below shows that leasehold properties only appreciated 12.2 per cent more than freehold properties in the 2017 period.



source: 99.co


During the en-bloc fever, freehold properties seem to appreciate more than the "normal" period, but probably not as much as investors would have hoped.


Comparing leasehold vs freehold in the same district


Let's take district 9 (Orchard Road) for example. Freehold or leasehold, they both share the same access to amenities and retail shops. District 9 is also a relatively small area and most of the condominiums are built to the same high standards.


In the last ten years, leasehold properties in district 9 appreciated 80 percent per sqft compared to 66.2 percent per sqft for freehold properties.



source: 99.co


The same results is reflected in District 15 where there is a cluster of different condominiums sharing the same amenities and proximity to the beach.


The difference is about 15 percent, similar to the results seen in District 9.




Homebuyers prefer leasehold as well


Even if price appreciation is not your priority, buyers should not default to freehold. Freehold properties, commanding a premium of 10 to 15 percent, affects affordability.


Before the 99 year lease has an impact, most would have sold their property and moved on. Buyers should not view their homes as the home they will be living in till the end of their life as most will change homes before that happens. For example, downsizing when the children grows up and moves out.


In the example above, the buyer would have paid more for freehold for no good reason.


After looking at the above factors, there are a few conclusions:


The lease on a property, is just one of the many factors affecting the property's value. It is hard to compare between districts for example, a leasehold property in the CBD (Central Business District) vs a freehold property in Sembawang. If a freehold property is near to the MRT, its proximity to the transport is as important a factor as its tenure. But we will not be able to tell for sure.


For a long time, analysts and investors have debated over the effects of leasehold vs freehold on the price of the property. There are a few conclusions we can come to:


- Price differences occur at the 78 year and 30 year mark

- Better rental yields for leasehold properties

- The "advantage" for freehold is more theoretical than practical


Price differences occur at the 78 year and 30 year mark


Leasehold properties show bigger depreciation compared to freehold properties when the property is 21 years old and again at 40 years old. Before these two critical points, one can even assume that leasehold property depreciates slower than freehold counterparts.


Better rental yields for leasehold properties


Leasehold units have better rental yields because simply, leasehold properties are sold at a lower price compared to freehold properties.


Rental yields are calculated by using the total amount of rent collected divided by the cost of the property. Therefore, lower the property price, higher the yield.


The "advantage" for freehold is more theoretical than practical


Investors would do better to look at prices of properties in the surrounding areas and the master plan. The amenities and recent transaction prices hold more importance than whether the property is leasehold or freehold.


Three Principles to Guide Your Buying Decision


1. Location, Location, Location!


2. To win real life Monopoly, buy leasehold property


3. A house is not a permanent residence


1. Location, Location, Location!


There is absolutely no substitute for a superior location. It can be very well the most important factor in determining price appreciation.


A comparison between condos in Novena and Sembawang:


Source: URA, Realis, 99.co


In this 15 year chart, the average psf for Novena had a much bigger upside compared to Sembawang. Another two points to note:


- the price difference between freehold and leasehold in Novena is negligible. 99-year leasehold properties had higher prices in 4 out of 10 years (2008-2017).


- 99-year leasehold property has seen greater upside than freehold property in Sembawang area.


The first rule of thumb in selecting a property is location. So thus, a property that's located near amenities or the CBD has more demand. Tenure of the property is of secondary consideration.


A freehold property that is inaccessible won't be able to attract tenants. And if you live there, you yourself may find it a major hassle to commute.


When you try to sell the freehold property, all these factors will be taken into account. Unless, of course, major developments have occured. Even then, your property may still need to catch up compared to better locations that have had improvements taken place as well.


Buyers would inevitably choose a better location within their set budget over an inaccessible location. Even if they have to compromise on size.


2. To win real life Monopoly, buy leasehold property


If you want higher yield, buy older (read: cheaper) leasehold property. Comparing similar property conditions, an older leasehold property would have a higher yield compared to a freehold as traditionally freehold property are higher priced. The rental amount would be similar regardless of tenure.


3. A house is not a permanent residence


Leasehold buyers has to have a clear exit strategy. This is in contrast to living in a freehold property till old and passing it on to your children.


Leasehold property owners can enjoy the change of scenery once in a while and upgrade. It can be a kid's school or seizing the next opportunity in property boom or bust. The permutations are endless.


All the above guiding principles are interlinked. It is more difficult to upgrade if you bought in a bad location for example.


There are a few 99 year leasehold new launches that are selling well like Kopar at Newton, Affinity at Serangoon, Treasure at Tampines and a few others.


Do drop me a message to work out your property wealth plan. We can discuss numbers, your eventual goals and an investment roadmap that can work out for your family.


Schedule a 1-time free 30-min Property Wealth Planning (PWP) consultation via online video call.

A PWP consultation includes:

- An in-depth financial affordability assessment

- Highly relevant investment insights

- A clear and customised investment road map for your real estate investment journey ahead.


About the Author:


Susanna has been in real estate since 2006. She has transacted many private properties including GCBs (Good Class Bungalows) and Sentosa landed properties and of course HDBs. She is married with two lovely girls, Sophie, 6 and Sage, 2.


She loves travelling and cooking and eating good food. She ran her own cold pressed juice business for three years.


When she isn't working, she is hanging out with her family.


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