What is the impact of aging on the different types of condos? Are freehold condos better value? Does location matter?
An in-depth analysis using our Market trend indicates a growing gap in the overall average price of freehold and leasehold condominiums as they age. Table 1 below shows the average price of freehold and leasehold condominiums of different ages in 2021. We also compared the average prices of older condominiums versus similar new condominiums and tabulated the difference.
NOTE: Bulk sales data has been excluded from older condominiums to avoid distorting average prices. The average prices shown in the tables below are for condominium units of all sizes, including older condominium units which are generally larger in size and therefore may have a lower price per square foot.
The difference in average prices between new and old condominiums is about the same for the first 20 years, but a more marked difference is observed for leasehold condominiums thereafter. This is because the lease for leasehold developments has an expiration date and is therefore deemed to be less valuable as they age.
However, full ownership does not always mean that the property belongs forever to the owners and their descendants. If the property is successfully sold en masse, the owners would have gained a windfall, but at the expense of a property they thought was theirs forever.
In addition, the Singapore government has the power to acquire any land, regardless of its tenure, for public purposes under the Land Acquisition Act. The government has invoked the Act to acquire several sites for construction of roads, MRT stations and other public purposes.
Block potential gives older condominiums a boost.
A price increase is observed when condominiums are 31 to 40 years old. This could be attributed to the greater block potential of older condominiums. Owners of these properties are more willing to consider bulk opportunities to avoid paying for necessary repairs and replacements in common areas, as this could incur significant costs if the sinking fund is insufficient. In addition, the bulk sale would allow owners to realize higher gains.
It is interesting to observe from Table 1 that the average price of freehold developments aged 21-30 years was $1,380 psf in 2021 but the average price of a similar property aged 31-40 years was $97 psf or 6.6% higher. The average price of leasehold properties shows a similar trend, but a lesser increase of $58 per square foot or 5.5%; clearly indicating the greater block potential of former freehold properties.
Does prime location trump age?
Location is vital for properties, but it would seem that a prime location doesn’t equate to downgrading leases. Referring to Table 2 below, the average price difference for freehold properties island-wide shows a gradual decrease for the first 20 years before falling sharply. However, the steep decline in prime freehold properties sets in when the property is between 21 and 30 years old before flattening out.
The average price of a freehold property island-wide between the ages of 41 and 50 was 42.4% lower than that of a similar new-build property. For example, 44 years old Pandan Valley averages $1,220 per square foot while unfinished Forest at Bukit Timah recovers $2,027 psf. A smaller difference of 41.9% is noted when comparing properties in a prime location, which is a clear indication of the demand and value that an older property in a prime location still enjoys.
Forest at Bukit Timah
A slightly different picture emerges for leasehold properties. Although the price difference for prime properties is greater in the first 10 years, the rate of change is equal for both types of properties when they reach 11 years. Please see Table 3 below for details.
However, note that the sample size for older condos decreases as they age due to its limited supply.
Despite the differences in rates, both types of properties fetch roughly the same average price when they reach 31 years old. The average prices for these prime and island-wide leasehold properties were $1,049 psf and $1,051 psf respectively; prove that leasehold decay has as much impact on leasehold properties in one prime location as it does on properties in other locations.
east versus west
New freehold condominiums in the east were selling for a higher average price of $2,157 psf in 2021 compared to the $2,030 psf their western counterparts were fetching. Average prices for Urban treasures along Jalan Eunos and Mount Botanik Residence along Jalan Remaja are $1,917 psf and $1,746 psf respectively. The higher average price for the east could be due to more established and popular residential areas such as Paya Lebar, Katong, Marine Parade and East Coast.
Freehold condominiums in the east seem to be more affected by lease deterioration than those in the west. The average price of properties 10 years or less in the East is significantly lower by 33.5% than that of new properties in the same region, but the West registers a drop of only 19.4%. Please refer to Table 4 below.
It would appear that freehold condominiums in the West offer a better value proposition because not only are they less expensive, but they are also more resilient to the impact of lease run-downs.
New leasehold properties in the west were selling for a higher average price of $1,778 per square foot in 2021, compared to $1,733 per square foot for leasehold properties in the east. The average price for Clavon along avenue Clementi 1 and Treasure in Tampines along Tampines Lane is $1,634 psf and $1,414 psf respectively.
Unfortunately, the picture becomes less clear when looking at prices for older properties in both regions. Referring to Table 5 below, properties in the East that are 10 years old or less are more affected by lease deterioration than those in the West. However, the downgrading of leases affects the properties of both regions equally when they are between 11 and 20 years old. Subsequently, the downgrading of leases hit condominiums in the west the hardest.
Thus, buyers of leasehold condominiums would be advised to buy in the East only if they intend to hold the property for at least 10 years. Buyers with a shorter investment time frame should consider the west.
Key points to remember
The age of the property affects the price regardless of tenure, especially after the property crosses the 20 year mark.
However, condominiums 31 to 40 years old are deemed to have stronger block potential, which gives its price a boost.
Freehold properties are more resilient to leasehold decay than leasehold properties due to their longer tenure.
Properties in Districts 9, 10 and 11 are still affected by lease run-downs. Although the prime location does not eliminate the impact, it helps to mitigate the price drop, especially for freehold properties.
Freehold condominiums in the west are less expensive and more resilient to the impact of lease run-downs than their eastern counterparts. However, the east might be more suitable for buyers looking for leasehold properties and planning to hold the property beyond 10 years.