Freehold vs. Leasehold Property in Singapore: Which Is Better?
As part of youhome.sg series to address popular topics amongst property investors [New launch vs. Resale condo], I am addressing another hot favorite: Freehold vs. Leasehold properties.
In addressing this hot topic, I 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?
- Debunking 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.
Common Myths about Freehold Property
When debating the pros and cons of freehold and leasehold properties, people tend to make quite a few assumptions.
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.
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.
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.
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
Still not convinced? Let us look at some cold-hard numbers to understand if there is really a tangible difference between Freehold and Leasehold properties in Singapore.
First up is a comparison of the quantitative performance of ALL freehold and leasehold properties in Singapore for the past decade.
As you can see, the numbers clearly paint a different story from the common assumptions about Freehold properties.
The chart on Leasehold properties prices shows an appreciation of 57.4% across the decade. In contrast, Freehold properties prices only gained 32.7% in the same period of time.
However, there are also exception cases. Let us look at another case for comparison.
Next up is a comparison of the quantitative performance of OLDER Freehold and Leasehold properties (aged 21 to 30 year-old developments) in Singapore during the same time period.
Here we do see that the properties age matters.
For older developments (around 21 – 30 years old), Freehold private properties outperformed their Leasehold counterparts.
The chart on Freehold properties shows 32.9% appreciation across the decade, similar to their overall appreciation rate in the previous comparison.
On the other hand, Leasehold properties only show an appreciation gain of 19%.
In contrast, Leasehold properties will see more significant capital appreciation in the earlier stages of the property and see a decline in capital appreciation rate as they are nearing the end of the lease tenure.
Comparison of Performance: Freehold vs. Leasehold Properties
As a property consultant who has facilitated many Freehold and Leasehold property transactions, I can safely share that lease tenure is just one of many factors that affect a property’s value and rental yield.
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, [Related article: Understanding Growth Plans For Singapore Investment Property]
- 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.
Food for Thoughts
- What property concept did you based your property purchase on?
- Will you be keen to go the extra step and further analysis the properties that you shortlisted?
- Have you assess current stage of the property you shortlisted – Growing, Stagnant or Depreciating?
Conclusion - So, Does It Really Matter If A Property Is Freehold or Leasehold?
Well, if you have made it far enough into this article, you should have a clear answer in your mind now.
The answer is NOT REALLY.
There are other important considerations you should factor in when you are doing your research and homework before buying or investing, that take precedence over its tenure.
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Rick Huang, Associate Deputy Group Director of OrangeTee & Tie, has been in the Real Estate industry for a decade.
He is driven, committed and is enthusiastic about real estate investments.
Today, he leads Team Youhome.sg, and together, he aims to provide his clients with the best experience in their property journey.
The team focuses on understanding the client’s finances and needs and is determined about delivering the best solutions and results for them.
Amidst the hustle and bustle, Rick enjoys quiet time and indulge himself in the intricate art of tea-brewing and teapot appreciation.
He would also take this chance to energize himself and reflect on his personal development and areas of improvement.
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