For today's myth-busting series, we will be discussing the common age-old myth of an "Freehold properties are BETTER than 99-Year Leasehold properties" in our current property market.
This is one of the most common myths our clients and most Singaporeans are actually believing into! I'm sure a relative or friend has told you to always go for "Freehold", because it is "Better".
Forms of Interest in Land/ Property
There are two types of Freehold Estates:
- Estate in fee simple- totally freehold estate , no charges for land rent except statutory charge(property tax)
- Estate in perpetuity [Statutory Land Grant (SLG)]- Freehold but subjected to implied terms under State Lands Act (right of government to have free access to land,take minerals, oil and government's duty to maintain boundary marks)
Leasehold estates has a definite duration and comes to an end on some specified date. Some common forms of Leasehold Estates are 99 years, 103 years etc.
Now that we understand the basics, lets see how they compare.
We can see that over the past 11 years, freehold properties have risen 99.61%. But leasehold properties have risen by 184.98% in the same period.
Still not convinced? Lets look at 2 properties in the Prime River Valley area.
One Jervois (Freehold)
Domain 21 (Leasehold)
You can see that the data doesn't lie, Domain 21 (Leasehold) has out performed One Jervois (Freehold) and both developments are just opposite each other.
But why? There are a few factors that support leasehold properties.
A report done by 99.co, found that contrary to popular belief, freehold condominiums are more common than leasehold condominiums.
Did you know that a leasehold property still holds 80% the value of a freehold property after 30 YEARS!
The Singapore Land Authority (SLA) has a table which valuers use to evaluate the tenure.
Even after 60 years have passed, a leasehold property still holds 60% of a freehold property's value. Which is why leasehold properties have a good hold on value even in the long run!
Because of the lower entry price (-15%~30%), leasehold units are better for rental yields and tenants are not affected by whether it’s leasehold or freehold.
For example, say you buy a leasehold condo that is $1 million, and generates $3,000 a month in rent. This is a rental yield of 3.6%.
Now say you buy a freehold counterpart, in the same area, and it costs 15 percent more. That’s $1,150,000. But rental is usually the same.
Why? Because it does not matter to the tenant whether you have a 99 year leasehold or a freehold. You will probably still get $3,000 in rental income. The total rental yield is thus 3.1%, making it less attractive to a landlord.
When it comes to leasehold versus freehold, we can see that the "benefits" of freehold properties are more theoretical and myths rather than practical benefits.
When it comes to properties, we need to examine key principles that create value: What are the prices of surrounding properties, what future transformations is the government planning, how big is the development, where is your tenant/ buyer pool and what is the rental yield.
Are you still over-weighing the hypothetical benefits of freehold? Do you want to lose the opportunity today to grow your wealth and assets?
Every housing decision needs to be carefully catered to each individual's needs and situations. If you are still lost or unsure, please contact us today for a free discussion. We have helped many clients to create a clear strategy plan and make the informed decision for their loved ones.
Many Thanks Teoduoproperty
Our Recent Posts
5 Feng Shui Misconceptions That Most Singaporeans Have
February 18, 2019
Myth-busting Series 2.0 (Part 4): Singapore Small and Insignificant
February 18, 2019
Myth-busting Series 2.0 (Part 3): Interest Rates Kill Interest