Leasehold versus Freehold – Which should you consider?

There are a small but substantial number of buyers of Singaporean property who steadfastly refuse to even consider purchasing a 99-year leasehold condo, seeing freehold property as their only choice.

They argue, “May as well pour money down the pipe.”

The fact is, private property tenure seldom determines whether or not it is a decent deal, and this is independent of whether you are purchasing for your own staying or for investment.

There are also strong reasons why one should considering buying a 99-year leasehold condominium.

REASON # 1: Some Locations have only Leasehold Condos

Suppose you want Woodlands really, or your parents live in Punggol and you want to live near them. It’s difficult to buy a freehold condo in these cases, so there’s only none in these places.

Indeed, these are the places in Singapore where, or very few of them, there are no freehold condos at all. And there are some surprising inclusions:

• Woodlands
• Sentosa
• Keppel Bay
• Marina Bay
• Yishun
• Jurong East and Jurong West
• Choa Chu Kang
• Punggol
• Sengkang
• Tampines
• Areas over an existing underground MRT station directly

Yeah, Marina Bay is on a reclaimed land. Any residential site at Marina Bay belong to the state . Consequently, land parcels were tendered for construction by the government on a 99-year contract, with the famous Marina One Residences being a high-profile example.

Land immediately above an underground MRT station is also state land and similarly tendered for development on 99-year leases. Leasehold status definitely did not deter James Dyson from purchasing a penthouse at Wallich Residence that cost multi-million, designed as part of an iconic CBD integrated project immediately atop Tanjong Pagar MRT station.

The argument is also this: the worth of the properties of the property trophy extends beyond tenure. So, if you wish to be neighbors of the wealthy and famous, who do not bat an eyelid at the tenure of the property, then maybe you do not either.

REASON # 2: Certain locations have no leasehold condos

While Reason # 1 is a push factor, this is more of a pull factor ( i.e. you would want a leasehold option) (i.e. you want freehold but have no choice).

And here’s the premise: the reality remains that many Singaporeans have the desire to call home from a prime district address. But in the traditional prime districts of 9, 10 and 11, over 95% of properties are freehold.

Newly launched freehold, prime district condos usually out of contention cost mid-high income earners completely. In addition to the freehold property price premium, architects often take it a step more with a luxury placement, piling on high-end construction, fittings and finishings to support an even higher price tag in their search of customers with high net worth. They do this because they do it in their pursuit of high net worth.

If you’re curious, resale freehold assets are not anything to which potential residents in the prime district are attracted. Unlike common opinion, freehold assets often depreciate with age, and when facilities grow aged, maintenance fees grow.

There is, therefore, a large supply gap of the 99-year leasehold variety ‘s affordable prime district new launch condos. And when one arrives on the market, as Kopar At Newton of District 9 did earlier this year, it will attract a lot of interest from those buying for own stay but also from investors looking for a property with good rental yield.

The spanking new 99-year leasehold condo with a 50-meter lap pool was always going to get a lot better rent than a freehold condo with a 20-meter pool. * Expat tenants don’t care about the lifetime of a property.

REASON # 3: Size of Unit

If you see the allure of mega-developments of 1,000 units and beyond with sizeable land areas, like many potential new launch condo owners, so you’d presumably get all the freehold options filtered out.

The explanation that all the large-scale new launch condos in recent years are 99-year leasehold properties is because developers saw that purchasing old leasehold assets for renovation during the last en bloc fever in 2017 and 2018, and then paying for the lease to top up, was much more cost-effective and lucrative than purchasing freehold.

Coupled with the fact that a lot of freehold property in Singapore is divided into smaller plots, it is easy to see why all of the 99-year leasehold variety are the mega-projects we see. (The government also releases leasehold property from time to time for mega-residential developments.)

Buyers have done their math and due diligence, and have decided that any leasehold considerations outweigh the pros of large-scale projects like Avenue South Residence and Parc Clematis.

Several considerations are central to their decision in favor of those projects:

• In mega-developments there are a larger range of services.
• As they are divided between more than 1,000 homeowners, the maintenance bills remain manageable.
• The size of the amenities (bigger pool, bigger gym, etc.) is greater.

These buyers are still persuaded that the more spectacular mega-development facilities would ensure resale demand as well as increase profitability. Even if a freehold option pops available at the same price and venue, but with fewer units and downsized facilities, without hesitation, the buyer will still prefer the leasehold option.

One crucial thing to note is that the number of tenants of a mega-project can be more than sufficiently served by the more comprehensive amenities. Thus, a condo of over 2,000 units such as Treasure At Tampines will require more than one (it has two) 50-metre lap pool.

REASON # 4: Lower Quantum

The idea that a 99-year leasehold property is on average 15 to 20 percent cheaper than a freehold property is a widely accepted fact.

It is also established that we have seen local upgraders and developers gravitate towards private homes of a lower quantum for a few years now.

A good part of this is attributed to the hefty 12 percent upfront additional buyers they have had to pay since 2018 (even though the consumer wants to sell their current home). Thus, with more and more homebuyers, 99-year leasehold properties are becoming the preferred option.

For investors, reducing their spending on buying property also means, as part of a broader diversification strategy, leaving more money to invest in other investment products, such as stocks.

The days in which Singaporeans spend their savings on private property are gone. While younger investors also look at property as a worthwhile investment, as part of their more aggressive asset progression strategies, they now prefer to look for higher growth and higher risk instruments, which make their asset work harder for them.

After all, rising the money faster is the best way to purchase more homes. This is where new leasehold condos with good rental opportunities, such as the strategically positioned The Landmark and Uptown @ Farrer, are a consideration in their investment calculation in terms of property selection. The city fringe position and leasehold status of the two ventures help experienced developers strike a balance between capital gain and rental yield.

The takeaway? In most instances, most home owners and investors prefer 99-year leasehold condos.