Buying a property isn’t all about the grandiosity of the structure or amenities being offered. The question of whether to buy a freehold or leasehold property is yet another huge issue that has been bugging out the minds of many home aspirants. The debate on which is better, freehold vs leasehold Singapore has long been established way back this country gained independence.
Like all Asians, Singaporeans are very traditional when it comes to owning a property. For most, land equates to family. They want their property to be passed on to future generations. But with the booming population and scarcity of available land parcels, how is this going to happen? Hence the birth of – leasehold and freehold properties.
What makes freehold and leasehold properties different from each other? Which is better? Will the 99 years make the cut? Given their monstrous cost, are freehold properties really worth it? Discover more about leasehold and freehold properties and why carefully choosing between the two is deemed to be crucial.
Leasehold vs freehold – Classification
Land tenure is defined as a legal regime in which the land is owned by an individual, corporation or even government. To put it on simple terms, this is the duration of property ownership. In Singapore there are two types of land ownership, freehold or leasehold.
Freehold – means you have full ownership to the land and you own it indefinitely. You can pass it on to future generations without restrictions. For a property to be classified as freehold, it needs to have two characteristics:
- There should be immobility or the property needs to be affixed to a land.
- There should be indeterminate duration or the property has no stated end to it.
Leasehold – when the duration of ownership is defined, the property is then classified as leasehold. The owner will lose the possession of the property once the lease comes to an end. Do note that although 999-year lease properties are often seen as a freehold, they are still technically under leasehold.
Freehold vs Leasehold Singapore – A Brief Comparison
Comparing freehold and leasehold properties is indeed a tedious task. There are many factors that one needs to consider to get a better perspective between the two. The land tenure, location, price, convenience, amenities, rental potential, investment returns and all others should always be taken into account when buying a property in Singapore. Below is a brief comparison between freehold and leasehold properties so you could assess things more appropriately without being too technical.
|Land Tenure Ownership||Indefinite property ownership.||30-year, 60-year, 103-year, 999-year and 99-year being the most common.|
|Transferring of Property||Can be transferred to a successor.||Can be transferred as long as there is a remaining lease.|
|Property Price||Higher price per square foot.||10-20% more affordable per square foot.|
|Property Financing||Banks do not impose a loan limit. There are less to no restrictions.||Banks can offer a loan up to 80% of the property price. There are restrictions especially those with < 60-year lease.|
|En-Bloc Potential||Higher chances of En-Bloc.||Possibility of En-Bloc depending on the age of estate.|
|Property Price Appreciation||The land value is likely to stay steady if not appreciate faster depending on the market status.||Price appreciation is highly volatile depending on the location as well as supply and demand of similar properties within the area.|
|Security of Land Ownership||Indeterminate, the land ownership is indefinite but it can be changed via the Government Land Acquisition Act.||Limited, the land will be returned to the owner, usually the State, once the lease is up.|
Freehold Properties – The Pros & Cons
Continuing on this leasehold vs freehold battle, freehold properties only makes up 5% of the total housing units available in Singapore. Some of them are located in major key districts but almost all are situated near suburbs that are yet to be developed in the near future.
- They are known for being able to uphold its market value. Although they appreciate in price pretty slow, the stability makes them a good earnest investment.
- They are rare, and they have a lease that never expires meaning you can hold your property as long as you want.
- Since they are technically lease-free, freehold properties are great for long term rental investments.
- Compare to leasehold, they have higher chances of En-Bloc and owners can dictate the sale price they want.
- With freehold properties, you can do whatever you want. You can totally re-construct your home or have major renovations without worrying about restrictions.
- Freehold status can be changed; the government has the right to re-acquire the land for their own use but owners will be rightfully compensated.
- Although the price difference between freehold and leasehold is only 10-20%, with properties costing more than 1M SGD, that equates to over $100,000 which is pretty substantial.
- Freehold properties are hard to upkeep financially and unrestricted home loans can seriously wreck your savings.
- Since freehold properties are rare, your options are limited. Acquiring a property in your chosen location, required size and budget is almost impossible to happen.
Leasehold Properties – The Pros & Cons
Next on this freehold vs leasehold Singapore is the ever growing leasehold properties. Mostly condominiums and HDB flats, approximately 80% of the land is believed to be under this category. Typically, these properties are bounded with 99-year lease agreement but other land tenure ownership are likewise available such as 30-year, 60-year or even 999-year.
- Most leasehold properties are located in prime districts near financial centers, tourist attractions, MRT stations, schools public transport and shopping centers.
- Leasehold properties are more affordable and it comes in all shapes and sizes. It could offer a significant amount of savings.
- With its very good location, the rental potential of leasehold properties is absolutely great. There are unlimited supply of possible tenants and lower capital cost.
- With 80-95% of land being sold on leasehold status, it means wider options for home buyers. You can freely choose your home’s location, size and budget.
- From an investment standpoint, a leasehold property is more lucrative since it has a greater possibility of short term resale and transient rentals.
- The number one concern with leasehold properties is the decaying lease. Every day, the reducing number of available lease affects the price of the property.
- Home renovation is extremely restricted, especially with condominiums and HDB flats. You can’t renovate your home according to your ultimate desires.
- Passing the property to future generations is only possible as long as there is a remaining lease. When the lease is up, there’s nothing to transfer.
- The property value of leasehold properties is not stable. It is highly volatile and greatly depends on the boom and downturn of the real estate market.
Choosing between freehold vs leasehold Singapore properties is really tough. There are multiple factors you need to consider when making a decision such as reason of buying, location of the property, targeted budget, financing options and many more.
If you want a long-term investment where budget and location are not of major concerns, getting a freehold property is a great option. They can be passed on to future generations and you have all the freedom in the world to do whatever you want on your property.
But if you want to yield high investment returns in a short amount of time, acquiring a leasehold property will definitely give you more value for money. With leasehold properties, you can maximize all income generating potentials with a lower capital cost.