While Singaporeans generally prefer freehold properties for a variety of reasons (ability to pass down properties, generally higher value), more and more individuals are considering the purchase of leaseholds as well. The purchase of a home is closely tied to individual needs and goals, and therefore there isn’t a specific answer to ‘which is better’ - rather, it is important to figure out which type fits your future plans better!
In this post, let’s take a quick look at freehold properties and leasehold properties and their respective pros and cons.
The common understanding is that freehold properties can be held indefinitely by the purchaser. This allows families to hold onto properties over generations and allow them to appreciate in value for a potential future sale, and all but guarantees a home for multiple generations to come.
An example of a freehold condominium is The Waterina, at Geylang.
There are two exceptions to this, however:
There are two common subtypes of leasehold properties in Singapore: the 99-year leasehold, and the 999-year leasehold. The latter is often considered to be very similar to a freehold since a significant number of generations can stay in the leasehold.
An example of a leasehold condominium would be Grandeur 8 in Ang Mo Kio.
Leaseholds are becoming more and more appealing to the younger generations, who are often more focused on their careers and less inclined to traditional ideas of passing down properties through the family line. Younger generations perceive leaseholds as potential investments as well, and frequently consider home ‘upgrades’ by moving from leasehold to leasehold.
The chances of en bloc for leasehold properties is higher when the remaining lease goes below 65 years. Because it is likely to be in a rundown state and the subsidiary proprietors (SP) will be inclined to sell. On the other hand, a developer can pay development charge (DC) to top up the lease to a fresh 99 years tenure.
Regardless of a property tenure, ultimately it is the reserve price that plays an integral role to the success of a collective sale.
In terms of pure market value and assuming you are comparing leaseholds and freeholds in the same area:
If you are purchasing the property to subsequently rent out (for additional income), however, market trends show that leaseholds are better for renting out (10% higher yields) compared to freeholds.
For individuals looking to purchase a residential property to live in rather than rent out, other concerns may be more prevalent. These factors tend to matter much more within a lifespan than the status of the property, and includes: