Mahalo for his support of the Honolulu Star-Advertiser. Enjoy this free story! For the third…
When it comes to buying a private condominium, one of the main considerations is whether the property is freehold and leasehold condominium. In between, home buyers tend to opt for freehold properties. This is because the general consensus is that freehold properties:
But is the above true? In this article, we will explain the differences between a freehold and a leasehold property and whether it is always better to choose a freehold property.
3 types of condominium tenure in Singapore
99 year lease
999 year lease
Before getting into the freehold vs. leasing debate, you should know that there are three types of condominium tenure in Singapore: freehold, 99-year lease, and 999-year lease. The 999 year leasehold developments are essentially freehold properties.
It is commonly accepted that freehold properties can be held indefinitely by the buyer, while 99-year leasehold properties will revert to the state after the end of the lease. The 999 year leasehold properties also technically revert to condition after the lease ends.
But if you exclude the 999-year leasehold from the table, how do freehold and 99-year leasehold compare?
The common conclusion is that:
Freehold ownership pays better
The lease brings better rental yields
Freehold has theoretical advantages rather than practical advantages
These are the most common conclusions many buyers come to after researching the pros and cons of leasehold and freehold properties in Singapore. Let’s explore further.
Freehold vs Leasehold: Theoretical and Practical Advantages – Myths and Misconceptions
The government cannot take back the property
The government can lease back a development at any time
Freehold properties cannot be bulked
The value of your property will drop dramatically as the years of your lease get shorter.
Freehold properties have higher market values
Rental developments have a lower market value
Freehold Myth # 1: The government can’t repossess property
This is perhaps one of the most important points to address in order to eliminate misconceptions. The common misconception is that the government cannot take back a freehold property and the owner will be able to keep it for life and pass it on to the next generation. This is however a myth.
For example, the government can repossess the property at any time, if it is on a site intended for future development (for example if your property obstructs a new underground MRT network). However, the government will compensate you accordingly at the current market price.
Freehold Myth # 2: Freehold properties cannot be set up for En-Bloc
Another common misconception is that freehold developments cannot be put up for sale in bulk. This is another myth. The truth is, if a developer tries to buy your condo in block, the sale will continue if the majority of the residents in your development agree, you will have no choice but to sell your home.
Freehold Myth # 3: Freehold properties have a higher market value
It depends entirely on the location of your unit. A leasehold condominium located in the Central Business District (CBD) will have a higher value than a freehold condominium in Punggol, for example.
Location plays the most important role in determining the value of a condominium, not its length of occupancy.
Now let’s take a look at common myths about leasehold properties:
Leasehold Myth # 1: The government can take back a leasehold at any time
While this is true, it also applies to freehold projects, as explained above.
Leasehold Myth # 2: The value of your property will drop dramatically as the years of your lease get shorter
In the 40 years remaining on the lease, the banks will limit funding for the sale of the unit; within 30 years, potential buyers will no longer even be able to withdraw their CPF to finance their purchase.
While this is true, as the lease nears expiration, the development will likely be put in place for redevelopment and the lease will be completed for a further 99 years. That said, during the 99-year lease, the condominium lease is owned, just like an HDB.
Myth # 3: Rental developments have a lower market value
It’s wrong. As mentioned above, the value of your unit depends more on its location, and not so much on how long it is occupied. A leasehold condo located in a prime area will most likely get a much better return than a freehold located somewhere further away.
Read also : Executive condo vs private condo
Now that these misconceptions are cleared up, let’s move on to another popular debate: Do freehold condos have better values?
Freehold vs Leasehold: which one has the best value for money?
Freehold ownership pays better value
One of the most common reasons that property buyers in Singapore choose to buy freehold property is that it is perceived to be higher.
Based on the assumption that a leasehold condominium and a freehold condominium are located in the same area and have the same facilities, the freehold development will have a higher value of about 10% – if it less than 78 years left in the entire leasehold development.
On the other hand, if there is more than 78 years in the condominium, its value is generally always equivalent to that of a freehold condominium. It is only when the lease reaches the 78-year mark that its value begins to decline. However, the difference becomes more significant when the lease reaches its 40-year threshold, when the residents of the condominium would have attempted a block sale.
Recommended article: How a property’s remaining years can affect its price
Freehold vs Leasehold: which one offers the best rental yields?
Leasehold properties get better rental returns
The rental yield formula is the annual rental income divided by the total cost of the property. This means that assuming the same rental income, the more expensive the property, the lower your rental yield.
Now we know that the initial selling price of freehold condominiums is about 10-15% higher than that of rental condominiums in the area. However, since tenants don’t care about the lease of the property, rental prices are usually the same.
As a result, the rental yield of freehold condos is generally lower. So, if you are looking to invest in real estate in Singapore, you might want to go with a leasehold condominium for better rental yield.
Final verdict: Freehold or leasehold condo?
Ultimately, the decision is in your hands. But the easy answer is to ask yourself what you are looking for. If the appreciation of house prices is important to you, choose a better located condominium, one that is close to an MRT station or that the government has marked for future development.
But if what you’re looking for is a property that can house your next generation, keep in mind that many young people prefer to move out after marriage and typically don’t stay with their parents. Also keep in mind that freehold condos don’t have many advantages over leasehold condos and you will probably have to pay a premium for it.
Considering all of this, good luck in choosing your next home!
Other FAQs related to freehold or leasehold properties:
Is Freehold Better Than Leasehold In Singapore?
It depends. If you are looking for a yield, then the lease offers better value because of its higher rental yield. If you are more value oriented then a freehold condo is a better store of value than a leasehold property because of its timeless leasehold.
Recommended article: 21 Cheap Freehold Condos in Singapore Under 600k
What does freehold ownership mean in Singapore?
Properties that have a freehold “lease” can be held by the landlord until he decides to sell them. However, in certain circumstances, the government may buy the property back from the owner for future development at market price.
What is the difference between freehold and leasehold ownership in Singapore?
For leasehold assets, you own the apartment under the lease rights, at least until the lease expires. For freehold properties, you own both the house and the land on which the property sits. In addition, there is technically no lease expiry date, unlike with leasehold ownership.
Can foreigners buy freehold property in Singapore?
Foreigners (including Singapore PRs) have the right to purchase freehold property in Singapore. However, an additional stamp duty for buyers (ABSD) of 20% is levied on the purchase of a property if you are a foreigner, and 5 to 15% for PR.
Can PRs buy freehold property in Singapore?
As a PR, you will be eligible to purchase all freehold properties as a strata in Singapore.
Are you looking to rent / buy a condo?
Visit PropertyGuru and browse thousands of listings to find your dream home.