Is Singapore Freehold Property Always Better Than Leasehold?
Everyone desires owning a property in Singapore but we must be aware of the various property types in order for us to make the best of choices when we eventually decided to invest.
Before ever setting out to buy or invest on a property in Singapore – it is essential that you should at initial step be aware of the deal you are contracting. Since a property option is as much significant to you as it is with your finances – you must consider the terms that best suit your transaction with regards to leasehold or freehold.
It is wise to reflect whether you want a freehold or leasehold property in Singapore irrespective whether it is a landed property, or a condominium. Generally a freehold property cost around 10 to 15% more than a leasehold property in Singapore. The premium will be even higher for freehold condo near MRT station.
For the purpose of this article, let us elaborate the distinctions between freehold and leasehold property in Singapore to lead you in your judgment.
Leasehold vs Freehold
What is the difference between Leasehold and Freehold?
What is Leasehold Property?
What does leasehold means? And how does leasehold work? As the word LEASE denotes, it simply means that the property owned will expire at the end of the lease term tenure. The proprietorship of land is of a fixed period as detailed in the lease document – for example – thirty years, sixty years, 99 years or 999 years Leasehold. And once the property/land is owned by the state i.e. the government - the ownership will be returned to the state once the lease term expires. The 999 years leasehold property is reflected comparably to a freehold property in Singapore, as their value is not much of difference. Financiers, lenders or the Banks will not enforce any loan bounds when it comes to 999 years leasehold and freehold property, subject to Total Debt Servicing Ratio (TDSR) of the purchasers. The span of the lease is typically up to 99 years and some are lesser like thirty years for industrial properties.
Understanding these basic differences between the two property terms, leasehold properties will be a bit more reasonably priced than the freehold tenure in overall. And some of the leasehold properties are also situated in better locations with better facilities and amenities such as markets and most of them are located next to or close to MRT Stations – since majority of them are state lands. However freehold title may have one distinct benefit that is the land can be passed on to the next generations, when comes to Landed property.
Singapore Freehold or Leasehold properties are both great assets as owning a land or property does not only afford you profits and other benefits but also peace of mind that you have something that is indeed valuable and can serve you as a shield or collateral any day and anytime. Always ensure to crosscheck and understand all legal aspects before parting with your money for any property so as to avoid unforeseen ugly situations.
We shall further buttress with more facts why the property market has folks and investors clamoring for 99-years leasehold properties. These are of course leasehold properties and their prices are going through the ceiling much faster than freehold properties in last decade.
In the past, freehold properties were more favored in purchasing but nowadays the leasehold seems to be on the favored side. Why would an investor who is aware of the facts that a freehold title permits the proprietor to have permanent ownership of the property, while that of a leasehold title permits ownership for a stated number of years and when the lease expires, the title of the property returns back to the government – still prefer the latter? The reasons are not far-fetched.
Immigrants (Singapore Permanent Residents) or foreign investors do not care if it is leasehold properties as the 99-year lease still stands way better than sixty-year leases in places like China or Hong Kong. And investors these days – are founded on concepts and lifestyle.
And differing to the conformist mindset of various Singaporeans who think freehold properties are somewhat better, the perception of leasehold proprietorship is extensively acknowledged and common overseas, from the United States to United Kingdom, Indonesia, Hong Kong and China amongst others. Expats are well familiar with leasehold terms and thus several of these investors are not discouraged by the leasehold situation in Singapore. Leasehold properties are favored with regards to factors like property location as tenure is now of a lesser consideration.
What is Freehold Property?
What does freehold means when buying a house? The word freehold for property simply means that you have complete ownership of the property. Some examples of Freehold titles are – an Estate in Fee Simple and Estate in Perpetuity. It does not matter if it is small or large, as an investor who is the sole owner of the asset; you have the choice in whatever you want to do with it and in this scenario - Freehold is more valued when it comes to the proprietorship of land. But on the other hand – when it comes to Freehold condominiums (also known as freehold strata) and other types of properties, owners will get a certain share value. And since you principally own the unit purchased in the development, the Freehold property price may be as much as 17% higher than Leasehold property in same scenario.
A leasehold property that is occupying a prime location has prospects for very good capital appreciation rather than those so called best buy condo, which normally situated in certain suburban district of Singapore – thus an attractive pointer for investors who do not bother anymore if it is a freehold or leasehold.
Notwithstanding though; any property investor should have to decide for himself with respect to his/her budget and preference situation. For investors - leasehold properties generally provide higher rental yield and this is as a result of their lesser capital cost.
Also leasehold assets are more responsive to the ups and downs of the economy, as paralleled to freehold tenure and show that when there is a quick upsurge in the property market, leasehold properties will generally outperform freehold properties.
Leasehold properties are also striking to investors that plan to rent the property; as generally 99-years Leasehold property are less expensive and provides you a higher rental yield. But on the other side, banks may refuse to loan or lower the size of lending if the leasehold property has a left lease of less than sixty years at the point of application. The loan term may also be abridged if the remaining lease goes below forty years on loan maturity, because the sales deal of the property will be impacted as the lease reduces.
For an investor, when considering going for a property in Singapore, you should ask yourself questions and note your priority if it is based on returns on rental – or gains on capital appreciation. And if yield is considered very significant to you, then go for leasehold. And for capital increase, if you feel the demand for freehold will surpass quicker than that for leasehold – you should settle for freehold.
It should not take any more than common sense to realize that freehold property costs more in the short and long run. It also would attract 10 – 15% more than its leasehold counterpart. Check that out on a 2 million dollar freehold property and you will be dealing an extra $200,000.
Also taking the idea hook and sink that freehold properties are permanent locations can be a wrong thought, as they are not truly permanent on a final say. Depending on the Master Plan in Singapore, the Government may decide one day that it needs to build a government-proposed edifice there; what this means is that the freehold property terms becomes null and void. Please do not fall completely to the idea of permanence with freehold, as a property is only freehold for as long as government bodies like Urban Redevelopment Authority (URA) do not feel like cutting that dream short.
Note that freehold properties are mostly disposed through en-bloc sales; and after a while within some years, your tenants may feel tired and want to change the scenery.
For emphases again, remember that for location benefits - leasehold properties are close to the MRT station for instance, surely beats its freehold equivalent in term of market value. Thus when out for property new launch search; never get sidetracked by freehold status, rather keep a focus on the property’s location, its promising rental income, and its basic convenience.
Lastly, the notion and worries over the issue that when a 99-years lease runs out, the leasehold property value will depreciate faster than freehold also holds for both sort of tenure deal; as a boom and bust market will affect both kinds of property the same way. Note that in Singapore, leasehold properties can be disposed via collective sales too, with the purchaser (normally developer) going through the leasehold extension process by topping up the lease back to 99 years by paying the upgrading premium.
It makes sense that 99-years Leasehold would outperform in terms of rental yield. Tenure has little to no impact on rents. The choice is yours to decide after all said and elaborated. Leasehold vs Freehold, we love both tenure for properties but from indices and professional point of view for interest of would-be investor or home stayer; leasehold gets the recommendation!