Leasehold or Freehold
It isn’t the case that it is all about location location location, when it comes to buying property in Singapore. The question of whether to buy freehold or leasehold is something that comes a very close second in buyers’ minds, and the debate about which is best seems to have been raging for almost as long as the country has been independent.
There are certainly arguments for both, and the situation is a fluid one. There is a third option, but for the sake of argument we will include the 999 leaseholds in with freeholds, as for all intents and purposes they behave as freeholds and are treated as such.
If we compare the situation of today from that of 9 years ago, we can see just how much the landscape has changed in the property market in Singapore. In 2006/7 just over two-thirds of new sales were freehold. Today the picture is reversed with 95% of condo sales being leasehold. This is an astonishing turn around, and can mainly be put down to two initiatives – the recent Government Land Sales program and the tightening of en-bloc legislation in October 2007.
Of the 5% that makes up freehold purchases, almost none of it will be in traditionally prime locations – practically majority of the properties close to MRT stations (current and planned) are leasehold.
The main differences between the two options are as follows, but these aren’t the case for 100% of the properties, so each property should be viewed on its own merit:
- Rental yield will be higher for leasehold properties. This is purely down to the fact that whether or not the property is freehold or leasehold makes absolutely no difference to the tenant, so the rental price will be the same, but leasehold properties tend to be cheaper.
- Regarding the price, it can be a bit of a misnomer that leaseholds are a lot cheaper than freeholds. Though there is a difference, it is hard to compare two similar properties, and the figures are skewed somewhat by freeholds often being in less desirable locations.
- Freehold properties tend to depreciate slower.
- Traditionally, leasehold properties rise and fall by greater margins during property booms and respective downturns than their freehold cousins.
- Freehold properties have greater en-bloc potential.
- Freehold means forever! Sure? Like what we have mentioned, freehold properties have a greater en-bloc potential. Likewise, leasehold private properties and HDB flats, they all may have to go under Collective Sales / Selective Enbloc Redevelopment Scheme ( SERS) once they have reached certain age. And the government holds the right to re-acquire the piece of freehold land from any of us should they decide that they need the land for their own use. ( But definitely, the owners will be compensated based on the market value of the property)
As well as the argument for which is better, another school of thought says that it is merely a matter of splitting hairs. Both options are good, both result in capital appreciation, it just depends on your individual preferences and requirements, and what you want the property to do for you. If you are an investor looking to maximize your rental income yield, hop straight to leasehold at a more strategic location as it definitely comes with a less premium price comparing to freehold property. If you are a homebuyer, you are prepared to pay more for a freehold property, by all means, go for it! At the end of the day, there isn’t really a wrong decision whichever one you opt for.