Freehold vs Leasehold Properties
We are addressing another hot favorite: Freehold vs. Leasehold properties.
In addressing this hot topic, We will cover 4 key areas (feel free to skip ahead to the area of your direct concern at Table Of Content):
- What are freehold and leasehold properties?
- Discuss common myths about freehold properties
- Case Studies (Comparison of performance of freehold vs. leasehold properties)
- Is the lease tenure the most significant factor affecting property value?
Table of Contents
Freehold vs. Leasehold Properties in Singapore
For the uninitiated, property ownership in land-scare Singapore largely consists of freehold estates and leasehold estates (mainly 99-year leases or 999-year leases).
Freehold properties, as the name suggests, means the property owner pays for the property and owns it indefinitely (no rents required) and upon death, passes on the ownership to his beneficiaries.
In contrast, leasehold properties are owned by the State (the Singapore government) who leases the property for a fee and a limited duration of time, after which the property will be reclaimed.
At first glance, it may seem that without a doubt, the freehold property is much more attractive than the leasehold property.
After all, indefinite ownership is always the best right? Not necessarily, let me explain more by addressing some of such common myths about freehold properties.
Common Myths about Freehold Property
When debating the pros and cons of freehold and leasehold properties, people tend to make quite a few assumptions.
So, we hope this can help shed some light on these common myths that people tend to believe about the benefits of freehold properties.
Myth #1: Freehold properties are better because the Government cannot take back the property
The idea that a freehold property allows you to pass on the property for perpetuity is a very tempting premise.
However, even freehold properties come with conditions – albeit a lot lesser than their leasehold counterparts.
If you are looking for a freehold property purely for this reason, I am sorry to burst your bubble.
There are provisions in freehold properties contract that allows the Government to reclaim your property for developmental purposes.
In 2016 and 2017, several such freehold landed properties and apartment block owners had to vacate their homes to make way for the new MRT lines in Singapore.
This goes to show that even freehold properties aren’t safe from being taken back by the government!
Myth #2: Freehold properties are better because they are not subject to en-blocs
That is absolutely untrue! En-blocs are not subject to the ownership of the properties.
If a substantial number of residents (> 80%) in your freehold property (e.g. a condo) agrees to it, an en-bloc can still go through, regardless if its freehold or not.
Well, you may think that your property can at least fetch a better price for en-bloc since it is freehold?
Not exactly too. That leads us to the 3rd myth.
Myth #3: Freehold properties are better because they fetch better prices (for sale or rental)
Property values are determined by way more factors than just lease tenure alone.
While freehold properties are indeed scarcer, it does not always result in a better price for many other reasons.
People who are looking for a home are likely to care more about the location and amenities of the property than whether they can hold onto the property for long.
For rental, it is even less true. People looking to rent, are in it only for short-term – the tenure of the property itself is usually not relevant for them.
So, if you are a property owner looking for a rental property, you probably do not really need to consider its tenure.
Comparison of Performance: Freehold vs. Leasehold Properties
Let us look at some cold-hard numbers to understand if there is really a tangible difference between Freehold and Leasehold properties in Singapore.
For property investors who are interested in capital gains, this is the chart to pay attention to.
From the chart above, we can see that for OCR (outside central region) – 99 years leaseholds perform better than Freehold properties.
But from the chart above, we can see that for CCR (core central region) – Freehold performs better than 99 years leasehold properties.
It’s important to note that the numbers can vary depending on the region, so there isn’t always a clear winner.
Despite what some may say, there’s no hard and fast rule that all freehold properties will perform better.
If you are looking to purchase a Freehold property simply because you think it has better capital gain potential, the above comparison might inspire you to relook at your assumptions and options.
Comparison of Performance: Freehold vs. Leasehold Properties
As property consultants who has facilitated many Freehold and Leasehold property transactions, we can safely share that lease tenure is just one of many factors that affect a property’s value and rental yield.
The advantages of Freehold properties that you hear about are often more in theory than in practice – this can be seen from our first set of data comparison.
For homeowners or property investors interested in appreciating property values, it will be more relevant and practical to consider other factors too, including:
- Location and accessibility
- Amenities within the neighborhood
- Upcoming developments around the vicinity
- Finding quantitative statistics to support your decision
For property investors looking to improve rental yield, all of the factors stated above applies and take precedence.
In addition, the key is selecting a property of lower total cost – regardless whether it is Leasehold or Freehold.
Lower cost results in higher yield for you as a landlord. Rental income is rarely affected by the property’s tenure – so it really should not be a priority when you are shortlisting a property to invest in for rental yield.
Conclusion - So, Does It Really Matter If A Property Is Freehold or Leasehold?
After diving into the nitty-gritty of freehold and 99-year leasehold properties in Singapore, you might be left wondering if it’s really worth sweating over the small stuff.
Well, my friend, let me tell you – it’s not. While the tenure of a property can certainly play a role in its value and desirability, it’s just one of many factors to consider.
At the end of the day, what really matters is finding a property that checks all your boxes and meets your unique needs and goals.
Bonus for our readers
While the debate between freehold and 99-year leasehold properties might seem daunting, remember that it’s just one piece of the puzzle.
So, if you’re ready to take the next step in your property journey, start by identifying your must-haves, scoping out potential neighborhoods, and connecting with a trusted realtor who can guide you through the process.
If you’re interested in learning more about the benefits and drawbacks of freehold and 99-year leasehold properties in Singapore, contact us today to schedule a consultation and let’s get started on finding your dream property!
Who should apply
- Local residents of Singapore who are looking to purchase a property for personal use or investment purposes.
- Foreign investors who are interested in investing in the Singapore property market.
- First-time property buyers who are unfamiliar with the Singapore property market and need guidance on the different types of properties available.
- Seasoned property investors who are looking to expand their portfolio and want to make an informed decision on the best property type to invest in.
Questions & Answers
Q1) How can I ensure that I’m getting the most value for my investment in a freehold or leasehold property?
Answer: Maximizing the value of your investment in a freehold or leasehold property requires careful consideration of a variety of factors, including location, market trends, and the terms and conditions of the property.
Q2) How can I tell if a freehold or leasehold property is “the one” for me?
Answer: Are you searching for your perfect match in a freehold or leasehold property? Finding the right fit for you involves carefully considering your unique lifestyle and needs. How long do you plan to stay? What are the past price trends of the property? Which location best suits your preferences? By taking all of these factors into account, you can confidently determine if a property is “the one” for you.
Q3) Can you help me find my dream home, and do I have to commit to working with you after our initial discussion?
Answer: Let’s make your dream home a reality! Whether you’re seeking a chic freehold property in a coveted location or a cozy leasehold property with plenty of character, I’ve got the expertise and resources to help you find the perfect fit. Worried about commitment? Don’t be! Our initial discussion is just the beginning, and there’s no pressure to work with us beyond that point. Let’s chat and see how we can help you find the home of your dreams.
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