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Freehold vs. Leasehold Property in Singapore: Which Is Better?

freehold-vs-leasehold-singapore

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):

  1. What are freehold and leasehold properties?
  2. Debunking common myths about freehold properties
  3. Case Studies (Comparison of performance of freehold vs. leasehold properties)
  4. Is the lease tenure the most significant factor affecting property value?
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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, I am hoping 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.

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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. 

For property investors who are interested in capital gains, this is the chart to pay attention to.

99-years-vs-freehold
Prices of 99 years Leasehold Properties (non-landed)
freehold-vs-leasehold-property
Prices of Freehold Properties (non-landed)

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 52.16% across the decade. In contrast, Freehold properties prices only gained 40.7% in the same period of time. 

If you are looking to purchase a Freehold property simply because you think it has better capital gain potential, this comparison might inspire you to relook at your assumptions and options.

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.

freehold-or-leasehold-property
Prices of Freehold Properties (non-landed), age 21 to 30
Prices of 99 years leasehold Properties (non-landed), age 21 to 30

For older developments (around 21 – 30 years old),  Leasehold private properties outperformed their Freehold counterparts.

The chart on Freehold properties shows 15.76% appreciation across the decade, similar to their overall appreciation rate in the previous comparison.

On the other hand, Leasehold properties show an appreciation gain of 19.75%.

What does this ultimately show? That value appreciation for Leasehold properties are not as affected by the property’s age.

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.

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:

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?

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.

Bonus for my readers

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A Warm Hello From Your Property Consultant

Hey, I’m Rick! A property consultant and your host for this one-time sharing session.

 

While I wholeheartedly admit that I hope to be engaged and be part of your property journey, I also need you to know that, like you…

I don’t like sales pitches and being forced into selling and buying

 

I am looking forward to working with down to earth people

 

Looking forward to a happy property journey

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Self Introduction

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Rick Long, Associate Division Director of Huttons Asia Pte Ltd, has been in the Real Estate industry for more than 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.

Well-equipped with expertise in residential properties, Rick often impressed his clients with knowledge of market trends, advising on timelines, financial calculations and best options for his clients.

 

Amidst the hustle and bustle, Rick enjoys quiet time and indulges 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.

He is also a proud fur daddy to 2 rescue kitties and loves spending his free time with his wife and furbabies.

Related Articles:

Ever wonder if you are suitable for Sell one buy two investment concept? – Read more (Sell one buy two)

Is buying new launch or resale condo have better returns? – Read more (New Launch vs Resale condo)

Looking to upgrade from Hdb to condo? – Read more (Sell Hdb buy condo)

What to take note when selling Hdb resale flat? – Read more (Hdb Resale Process)

Buying another Hdb flat, and using the fund from current home? – Read more (Hdb contra)

Why do some Hdb flat price depreciate so much? – Read more (Hdb depreciation curve)

What is one of the most common reason for property negative sales? – Read more (Cpf accrued interest)

Financial calculation for selling a Hdb flat? – Read more (Hdb resale calculator)

Buying EC before selling your HDB? – Read more (Upgrade to EC before selling your HDB)

Should you sell your EC after 5 years? – Read more (Selling EC)

Should you sell your MOP HDB after 5 years? – Read more (Selling HDB after mop)

Property Wealth Planning – Read more (What is property wealth planning?)

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