Freehold Growth Chart over last 15 years
As seen from the chart above with reference from squarefoot and URA data, Freehold property grow 146% over the last 15 years. New freehold properties are often hard to come by as the government don’t sell freehold land nowadays to build residential property already. All the new freehold properties are from previous collective sales.
Most home buyers will prefer to buy freehold property as the property will be deem as “free to hold forever” and can pass down generation and freehold property generally doesn’t depreciate over the years.
99 Years Leasehold Growth Chart over last 15 years
Most properties on the other hand are 99 years leasehold, be it HDB, Executive condo or even private condominium as the government sells the land via URA government land sales on a 99 years leasehold tenure. Cost of freehold tenure land cost more than that of a 99 years and that is why, freehold condo cost generally about 20% higher than that of a 99 years leasehold condo.
However, as can see from above over the last 15 years, price of leasehold condo rose 202%, which is about 50% more than that of a freehold condo. Transaction volume also rises as compared to that of freehold condo.
Which is a Better Buy? Freehold or Leasehold?
Shouldn’t freehold condo cost more than a freehold condo and price should rise faster than 99 years leasehold condo? But from the above example, the price of a 99 years leasehold rose faster than that of a freehold condo by 50% over the last 15 years.
Why it’s so?
Transaction Volume
Similar to stocks, there must be transaction volume to push up the prices with more people buying than selling. As can see from the above chart, there are more transactions in 99 years leasehold property as compared to freehold property to push up the prices.
Owners’ Mindset – Free to Hold Forever?
With freehold come owner mindset “Free to Hold Forever” until the price is right will result in fewer transactions to push up the property prices. Valuation is done based on the last transacted price. But with not much transaction to reference for freehold condo as people tend to hold long term, prices tend to stay stagnant.
Leasehold property has higher enbloc potential as lease get shorter and homeowners will get more motivated. Freehold property homeowners tend to hold longer.
Age of Property
Regardless of Freehold or Leasehold, wear and tear do happen as one property aged. In fact, the older a property get, water leakage, cracks, and other defects tend to appear. That is why when the property nearing 40 years mark, homeowners will be more motivated to enbloc, regardless of whether leasehold or freehold.
On top of this, leasehold and freehold experience the same stagnation cycle.
Read more on Using Bala Table to determine price of leasehold property
Mortgage Sustainability
Freehold condo rental yield normally is lesser than leasehold property as often, freehold condo normally prices 20% higher than leasehold condo and tenure, be it leasehold or freehold has not much value to tenants even though the cost be higher. Tenant simply will not pay more just because its freehold, resulting in lower rental yield.
Also, leasehold property tends to be newer, and thus, a higher occupancy rate resulting in a better choice for investors looking for investment.
Conclusion
99 Years leasehold property tends to perform better as compared to freehold property as shown over the years. Some factors contributing to it include higher transaction volume, higher rental yield, higher enbloc potential.
Homeowners and developers also prefer 99 years leasehold condo for enbloc as 99 years leasehold homeowners are often more motivated to sell and also negotiate for prices as wear and tear get more prudent in older developments.