Is freehold property really better than 99 year leasehold property?

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:

TenureFreeholdLeasehold
LocationOptions 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.
FacilitiesMost 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 PriceAbout 20% higher than a comparable 99-years propertyMore Affordable
Rental YieldRelatively Low due to higher property price (about 2-2.5%)In the range of 2.5-4%.
Property FinancingNo limitationThere are limitations on bank loan and CPF usage for lease  < 60-year
En-Bloc PotentialHigher chances and better value for En-BlocPossibility of En-Bloc depending on the age of estate and plot ratio, developer needs to top up balance lease
Price FluctuationProperty value more stable than leasehold propertyPrice is more volatile depending on supply and demand in the location. When lease less than 60 years, depreciation will accelerate

Two common myths about freehold & leasehold

Myth 1: Freehold appreciates faster than leasehold

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

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 always the case. Older houses over 20-30 years may enter a collective sale due to a proposal from owners or developers. If the government needs to re-acquire the land to build roads or other public facilities under the Land Aquisition Act, owners also need to move out though the owners will be rightfully compensated at the market rate.

Summary

In summary, freehold and leasehold properties suit different groups of buyers depend on their needs.

Freehold is suitable for:

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

The 99-year leasehold is suitable for:

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

Some Additional "Odd" Information

Any real differences between freehold and 999-year leasehold properties in Singapore?

We tend to say 999-year leasehold is equivalent to freehold because of the subtle difference which we can simply ignore. 999 years are long enough, even in human history.

In fact, there is no real difference at this point of time. Both freehold and 999-year leasehold condo can be acquired back by the Singapore government under the Land Acquisition Act.
The "oldest" 999 years tenure in Singapore is from 1826/27, e.g., Liang Seah Court, Emerald Garden, Heritage Place. So all 999 years leasehold properties have more than 804 years remaining. That is still beyond many generations. Of course, when 999-year lease has a remaining lease of 99 years, it cannot be considered as freehold any more.

Why 999 years or 99 years leasehold? cannot put 1000 years or 100 years?

There is no legal requirement that it must be 999 or 99 years leasehold. E.g., Lutheran Towers has a 103 years lease.

The leasehold timespan of 99 years is usually considered as a safe period which will cover the lifespan of the lessee or lessor and secure the property ownership of the lessor. It will also encompass three generations.

The 999 years leasehold is the tradition from the British era, when 999-year lease is deemed as permanent in nature under historic common law.

Oldest condo in Singapore?

Lutheran Towers at Bukit Timah, has a 103-year lease from 1974.

And likely there is no other condo built before that. In 1972, the Straits Times article "The Condominium Concept - a new approach to gracious living" introduced condo to Singaporean - "In simple terms, a condominium means comprehensive planning which preserves the natural features of the land while seeking to improve the living environment and establish communal facilities in a housing estate".