This is a question on a lot of current and would-be property owners’ minds – “Are freehold properties better?“
Well, to answer this question simply – Yes*. Note the asterisk sign there. Read more below.
*If you compare a like-for-like property in the same location, same development characteristics and specifications, and selling at same price. Basically, if you place 2 identical apples side-by-side and declare one as freehold and the other as leasehold, you can say the freehold one is better.
What does this mean? Assuming all other factors are identical, a freehold development is better. But in reality, does properties work like that? Does the world work like that?
OF COURSE, NOT. Let’s explore further.
Types of property tenure
There are typically 3 types of property tenure commonly seen in Singapore.
Freehold
Properties which can be held by the owner indefinitely. The idea of freehold means there is no limit/deadline where the land has to be returned to the State.
99-year Leasehold
Properties which has to be returned to the State after 99 years.
999-year Leasehold
Properties which has to be returned to the state after 999 years. For such properties, it is commonly regarded to be as good as a Freehold property due to its long lease period.
These will apply more residential developments. For commercial developments, you would see even shorter property tenures. To note though, ultimately all land in Singapore belongs to the State.
People’s preference for Freehold Developments
I’m sure you will have heard many of your friends and relatives thinking of purchasing a Freehold development. Maybe, you are thinking on the same line as well.
The common reason for this preference is the idea that freehold developments are able to preserve wealth better. The concept is that there will be less erosion of property resale price in the long run when compared to a 99-year leasehold development due to its freehold status.
This is not technically wrong, but as what I’ve shared earlier – the reality is more complex than that.
What are you using your property for?
To continue from above, so why is reality more complex than that? The reason is that people are purchasing properties for many reasons other than mere preservation of wealth.
For example, if the idea is to invest and profit in maybe 5-10 years, a freehold development which is typically found in less convenient areas may not appreciate as much as a 99-year development.
Also, a 99-year development may be better placed in an area of high future growth which buyers are willing to pay for to achieve that growth. This can be assessed by looking at the URA Master Plan.
If the idea for buying a property is for you to stay comfortably with specific requirements – then you may look at factors such as layouts and facilities. If the freehold development can’t satisfy that compared to a 99-year development, would the freehold development be better then?
Also, what happens if en-bloc is going to happen before any wealth preservation effect can take place?
The thing is that we can’t say freehold developments are definitely better regardless. We will need to assess other factors such as potential growth, layouts, facilities, location, personal requirements, etc.
Typical Characteristics of Freehold and Leasehold
Here are some typical / general characteristics for a comparison. This is not an exhaustive list.
Freehold | Leasehold |
Properties are priced at a premium due to Freehold status | Priced reasonably |
Less erosion of property price in the long run - usually 20 years onwards | Price can erode faster and faster as it approaches end of lease period |
Lower rental yield due to higher price at the start | Better rental yield |
Smaller in development size and facilities | Typically larger in development size with more facilities |
Typically found in less convenient areas | Can be found in more convenient areas |
Lower transaction volume | Higher transaction volume |
What’s Important For You Then?
In 3 words, really: Property Portfolio Planning
Go beyond just looking at freehold or leasehold. Know what you want or need – in the short, medium and long term.
Chances are that you might not necessarily know for sure, especially in the medium to long term. After all, life changes constantly. But this is something you can and SHOULD include in your planning too.
Do your own research or speak to a property agent who can share with you more. Get as much sound advice as possible. After all, this is a significant purchase that will take a good part of your assets.
If you need help planning, or just advice on this topic. Feel free to reach out to us!
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