If you’ve read our article on buying a freehold condo, you will know that there are many questions to ask yourself first before deciding whether to sink your money into a freehold or leasehold condo.
The land lease trio in Singapore
You’ll also learn that there are 3 types of condo leases in Singapore – freehold, 999-year leasehold, 99-year leasehold – and what each means.
Just to recap, freehold means the lease is perpetual. It does not expire. When you buy a freehold condo, it is yours forever, barring that there isn’t an en bloc sale or government acquisition for development somewhere down the line. When either of these two events occurs (though seldom), you still have to give up your freehold condo ownership.
Next, 999 years is almost one millennium. It is a very long time and it’ll take many generations to cover that span of time. So, a 999-year leasehold property is essentially the same as a freehold property.
That leaves us with the 99-year leasehold. This type of lease expires in less than a century, whereupon the land and property have to be returned to the state. All public housing (HDB and ECs) and most condos in Singapore are 99-leasehold.
Singapore’s ubiquitous HDB flats are all 99-year leasehold
So, why are there fewer freehold compared to leasehold properties in Singapore? The reason is obvious. We have limited land. Hence, most land tenures expire in 99 years so that the state can reacquire it to build whatever fits the needs and reflects the tastes of that time.
Besides giving the area a facelift, redevelopment also ensures that property prices do not skyrocket beyond control as a result of unlimited change of hands as in the case of a freehold property.
Is there no other way for 99-year leasehold condo owners to hang on to their properties at the tail end of their leases? Well, they can try appealing to the Singapore Land Authority (SLA) for a lease extension but there’s no guarantee of success. If you’re successful, extension comes at a price, and if you fail, there’s no compensation.
So, freehold or leasehold?
It’s true that buying a freehold condo allows you a better chance of passing it to the next generation or selling it at a good price decades later. But the snag is: not everybody can afford one.
A freehold and a 99-year leasehold condo in the same vicinity with similar facilities and design will have a price difference of 15 – 20% with the freehold being more expensive.
If your income doesn’t qualify, you cannot secure a bank loan for the pricier freehold condo. You may think of getting around this by putting a higher down payment or stretching your loan period, but it’s easy to figure out that those decisions come at a price.
Which is why, most people decide that a 99-year leasehold is a wiser choice. But let’s not come to the conclusion that people “settle” for leasehold properties because freeholds are priced out of their reach. There actually are pluses to leasehold ownership, so don’t write off leasehold properties so easily. Let’s look at some of their advantages here.
The 6 advantages of owning a 99-year leasehold property in Singapore
1. Enjoy more cash in hand in the here and now
What’s life if you have to scrimp and save for decades just because you decided to buy a freehold property? Imagine the sacrifices that you have to make to your entire life and lifestyle just for that, not forgetting that of your family’s too.
Have some money left over to finance your other dreams
If you had chosen a more affordable property, you could go for your dream holidays, pamper yourself with nice meals and whatnots every so often, save up for your kids’ education or your own retirement, and even furnish your house exactly the way you like it.
Remember that life is as much in the present as it is in the future. Relax. Your future generations can take care of themselves. Have faith.
If you are an investor, having more cash in hand also means you can spread your money across more investment instruments, such as stocks, bonds, and unit trusts, which are more liquid than brick and mortar. What’s more, the returns from these investments can be channeled towards your next property purchase!
2. Enjoy better rental yield
If you were thinking of buying a condo for investment (i.e. to collect rent), then a 99-year leasehold would be a better choice than a freehold. This is because you have better rental yield with a leasehold property.
Rental yield is your annual rental income divided by your property’s value.
Now, tenants don’t care whether your property is leasehold or freehold. They care if it’s near amenities, has good facilities, is well kept, and is affordable rent-wise.
Seek to understand what tenants look for
Supposing that all these considerations are the same for a freehold and leasehold property (which translates to the same annual rental income for both) then the rental yield of a leasehold property is certainly higher than that of a freehold property because the freehold has a higher value (read: more expensive).
3. Enjoy lower maintenance costs
As we’ve said earlier, there’s more leasehold than freehold land in Singapore.
Because of this, leasehold developments typically sit on a larger piece of land than their freehold counterparts. As a result, developers can build more apartment blocks, which means more people will be living there.
It’s true that a denser population has its downside, but the upside is, when you share the cost of maintaining the development with more people; you pay less in maintenance fees! The money saved (which can be substantial) can be channeled towards other aspects of your life.
What’s more, as the facilities age in an ageing freehold condo, maintenance cost will go up too.
4. Enjoy greater rent-ability
In point no. 2, we said you would probably enjoy better rental yield with leasehold than freehold condo. Not only that, your leasehold could be more rentable. Why is this so?
Because, as we’ve said in point no. 3, leasehold condos are likely to be sited on larger parcels of land. This not only translates to more apartment blocks, but more and bigger facilities too. Now, who wouldn’t like a bigger swimming pool, more Jacuzzis, or a bigger gym?
You certainly wouldn’t find an infinity pool with a view in an old freehold condo
Being more attractive in the eyes of tenants, these mega-developments will enjoy greater rent-ability.
5. Enjoy higher value than a freehold (if you choose well)
The general consensus is that, by virtue of their unlimited lease, freehold properties enjoy higher value as compared to leasehold properties. But this is not necessarily so. It depends on a few factors, chief of which is location.
A 99-year leasehold condo in Orchard has higher value than a freehold in Sengkang if both have similar built, size, facilities, and age. So, if you had chosen well, your leasehold could easily rival (or even surpass) a similar freehold in terms of value.
The moral is: don’t get swept away by sweeping statements such as freehold properties always have higher value.
6. Enjoy a good resale price (if you sell at the right time)
It’s common knowledge that freehold condos generally appreciate in value (because of their limitless tenure) while leasehold condos generally depreciate in value (because of their limited tenure).
The keyword here is “generally”. Take note that freehold condos can depreciate in value too as age will render its facilities passé, for example.
Hence, it does not necessarily mean that you will get poor returns if you decide to sell your leasehold condo. It boils down to when you sell your leasehold condo and what’s on offer (read: mega developments with bigger, better facilities).
If you sell your leasehold with only 30 years lease left, you certainly can’t expect to sell for a tidy profit. But, if you sell it well above the 78-year threshold, there’s no rule saying that you can’t command a good price.
One thing to remember though: If you’d bought your leasehold condo brand-new, try holding on to it for at least 4 years to avoid paying the Seller’s Stamp Duty (SSD). Generally, you won’t be able to flip well if you flipped anytime before the 4-year mark.
Study these tables to see how some owners collected a tidy profit from flipping their leasehold condos.
With all being said, it all goes down to how much the buyer is willing to pay for your unit. If it has an awesome view, is located in a prime area, and has all the coveted luxuries, who’s to say you can’t profit from the sale? Even humbler abodes like HDBs have changed hands for well over a million bucks!
So, don’t be too taken in by common talk. Choose what suits you best. If it’s a leasehold condo, then so be it. A freehold condo is not necessarily a far more superior buy.
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representatives.
Lastly, don’t forget to like, subscribe and share our articles with your friends if you think our content is useful to you. And if you would like us write a review for any property projects, have a blast in the comment section below.
