Is freehold property really better than 99 year leasehold property?

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There are some die-hard Freehold Property fans, who would never take a glimpse of leasehold property. Of course, this group has become less in recent years, as freehold properties have become a scarcity in Singapore.

In year 2007, about 70% of newly launched private homes on the market were freehold tenure, and 99-year leasehold properties only accounted for 30% of the share. The trend started to reverse in year 2008, new projects in 99 year leasehold accounted for 70%. By 2013, more than 90% of new launch properties were in fact 99 year leasehold properties.

Freehold vs. Leasehold - Pros & Cons

Since freehold properties are rare, your options are rather limited. Acquiring a property in your preferred location, required size and comfortable budget is almost impossible to happen some times.  Unless you have a really deep pocket (>$2M-3M budget), leasehold properties could provide you a much wider options with significant amount of savings.

There are multiple factors to consider when making a decision on buying a property, such as location, price, amenities, connectivity, transformation, rental yield, and upside potential. Tenure is only one of the considerations, and it may not be the most important one. We use the following chart to compare the pros and cons between the 2 types:

Tenure Freehold Leasehold
Location Options are limited. Mainly in Orchard Road, Bukit Timah, Holland Village, East Coast. Other area also includes Geylang, Balestier, Little India, Kovan, Hillview, Serangoon & Telok Kurau. Almost everywhere and many are in superior location which is near MRT and amenities.
Facilities Most Freehold properties sits on small land, facilities are limited. Many do not have space for 50m Lap pool or Tennis Court. Many are big scale developments with comprehensive facilities.
Property Price About 20% higher than a comparable 99-years property More Affordable
Rental Yield Relatively Low due to higher property price (about 2-2.5%) In the range of 2.5-4%.
Property Financing No limitation There are limitations on bank loan and CPF usage for lease  < 60-year
En-Bloc Potential Higher chances and better value for En-Bloc Possibility of En-Bloc depending on the age of estate and plot ratio, developer needs to top up balance lease
Price Fluctuation Property value more stable than leasehold property Price is more volatile depending on supply and demand in the location. When lease less than 60 years, depreciation will accelerate

Two common misconceptions about freehold

Myth 1: Freehold appreciates faster than leasehold

In the last 10 years, the speed of appreciation of the 99-year property (green) and freehold property(red) has increased at the similar rate in the secondary market, in fact 99-yr property increased slightly faster at 57% compared with freehold at 52%. (photo: 99yr vs FH price appreciation)

As most leasehold properties are located in prime locations, near MRT and Schools, we have noticed that when there is a quick upsurge in the property market, they will normally outperform freehold properties due to higher demand and faster transaction speed.  Interestingly, 99-yr property had performed extremely well in the prime market since 2013.

Myth 2: Freehold can be held forever

Although a freehold title can be held forever in nominal terms, this is not the case always. Older houses over 20-30 years may enter a collective sale due to a proposal from the owner or developer. If the government needs to re-acquire the land to build roads or other public facilities, the owners also need to move out though the owners will be rightfully compensated.

Summary

In summary, the two types of property suits different groups of buyers depend on their needs.

Freehold is suitable for:

  1. Up-market segment with a budget of at least 2 to 3 million.
  2. People who are looking for a permanent home and wish to pass down to the next generations

The 99-year lease is suitable for:

  1. People who see location as more important factor than tenure
  2. Buyers with limited budget
  3. Investors who are pursing high rental yield properties
  4. Buyers who are ready to divest within 10-15 years

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