In Singapore's competitive property market, understanding the nuances of property tenure is crucial for both first-time homebuyers and seasoned investors. Buying leasehold vs freehold properties come with distinct implications for your financial planning and investment strategy.
This comprehensive guide will delve into what’s the key differences between freehold and leasehold properties, exploring their pros and cons, and helping you make informed decisions that align with your long-term goals. Read on to discover which option is best suited for your needs and aspirations in the Singaporean property landscape.
Understanding Property Tenures in Singapore
In the Singapore property market, it's essential to grasp the different types of property ownership, known as "tenures." The two main types are freehold and leasehold, and understanding their distinctions is crucial for making informed decisions.
What Does Freehold Property Mean?
Freehold property ownership grants you the right to own the property and the land it stands on indefinitely. It's like having a permanent claim on the property, which you can use, sell or pass down to your heirs without any time constraints. This type of ownership is highly sought after in Singapore due to its permanence and flexibility.
What is Leasehold Property?
Leasehold property, on the other hand, grants you the right to own the property for a specific period. In Singapore, common leasehold durations are 99 years or 999 years. While this might seem like a very long time vs freehold properties, it's essential to remember that ownership eventually reverts to the state when the lease expires. This impacts the property’s depreciation as well as your long-term plans.
How to Determine a Property's Tenure in Singapore
If you're unsure whether a property is freehold or leasehold, you can easily find out through the Singapore Land Authority (SLA). The SLA maintains a public record of all land tenures in Singapore.
You can use the SLA's Integrated Land Information Service (INLIS) platform. This online service allows you to search for information about a property, including its tenure, lot number and other details. Simply enter the property's address or postal code to access the information.
Benefits of Leasehold Properties in Singapore
Some of the key benefits of leasehold properties in Singapore include:
More Selections
In Singapore, leasehold properties are more common than freehold properties. This means you'll have a wider range of options to choose from, giving you more flexibility in terms of location, property type and budget. Whether you're looking for a cosy apartment in the city center or a spacious condo in the suburbs, you're more likely to find a suitable leasehold option.
Affordability and Pricing
One of the biggest advantages of leasehold properties is their affordability. They typically come with a lower price tag compared to freehold properties, making them more accessible to first-time buyers and those with budget constraints. This allows you to enter the property market sooner or invest in a larger property for the same price as a smaller freehold unit.
To see how much you can potentially save, try using our housing loan calculator to compare monthly repayments for leasehold and freehold properties with similar prices.
Locations and Accessibility
Developers often strategically position leasehold projects in prime locations with excellent connectivity and amenities. This gives you the opportunity to live in desirable neighbourhoods with easy access to transportation, schools, shopping malls and other conveniences.
Spaces
Leasehold developments often offer more spacious units at a lower price per square foot compared to freehold developments. This can be a significant advantage for families who need more room to grow or investors looking for larger units to attract tenants.
Rental Yield
Due to their lower purchase price, leasehold properties can offer higher rental yields compared to freehold properties. This can be an attractive proposition for investors looking to generate rental income.
Ideal for Short-Medium Term Investments
If your investment horizon is shorter, leasehold properties can be a strategic choice. They allow you to enter the market at a lower cost and potentially benefit from capital appreciation within the lease period. This can be particularly appealing for those who anticipate relocating or changing their investment strategy in the future.
Benefits of Freehold Properties in Singapore The benefits of freehold properties in Singapore include:
Well-held Value
Freehold land in Singapore is becoming increasingly scarce due to land constraints and government regulations. This limited availability makes freehold properties highly sought after, creating a sense of exclusivity and prestige. While this can mean higher prices, it also means that freehold properties tend to hold their value well, even in fluctuating market conditions.
Perpetual Ownership
One of the most significant advantages of freehold properties is the concept of perpetual ownership. This means you own the property and the land it stands on indefinitely, without any time restrictions. This provides a sense of security and stability, knowing that the property is yours to keep, sell or pass down to future generations.
Will a Freehold Condo Maintain Its Freehold Status Forever? While freehold ownership implies perpetual ownership, there is a legal provision in Singapore known as the Land Acquisition Act. This act allows the government to acquire private land for public development purposes, even if it's freehold. However, such acquisitions are rare and typically involve fair compensation to the owner.
Stability
Freehold properties are generally considered more stable investments compared to leasehold properties. They are less susceptible to lease decay, which is the decline in property value as the lease approaches its expiry date. This stability can provide peace of mind and make freehold properties a more attractive option for long-term investment.
Potential For Inheritance
The perpetual ownership associated with freehold properties makes them ideal for passing down as a legacy to future generations. This can be a significant advantage for those who want to create generational wealth and ensure their family's financial security.
Long-term Value Appreciation
Historically, freehold properties in Singapore have shown a tendency for greater long-term value appreciation compared to leasehold properties. This is due to their scarcity, perpetual ownership and greater flexibility for redevelopment.
Enbloc and Redevelopment Potential: Leasehold Vs. Freehold
While freehold properties offer perpetual ownership, one disadvantage for both freehold and leasehold properties in Singapore is that they can be subject to en bloc sales (collective sales). This means that even if you own a freehold property, there's a possibility that the entire development could be sold to a developer for redevelopment.
However, it's important to note that this applies primarily to strata developments, such as condominiums and strata landed properties. If you own a pure landed property, you won't face the possibility of an en bloc sale.
According to the Land Titles (Strata) Act, a collective sale can proceed if at least 80% of the owners in a development that is 10 years or older agree to the sale. For newer developments (less than 10 years old), the threshold is 90%. This means that even if you don't want to sell, you might have to if the majority of the owners agree to the en bloc sale.
Generally, freehold properties tend to have higher perceived value in the eyes of developers due to the absence of lease decay and the potential for higher redevelopment value. However, several other factors influence a property's en bloc potential, including:
Location
Properties in prime locations with high development potential are more attractive to developers. This is because they can command higher prices for new developments in these areas.
Land Size
Larger land sizes offer more flexibility for redevelopment and can accommodate larger-scale projects, making them more appealing to developers. However, it's not just about the size of the land, but also the plot ratio.
The plot ratio determines how much can be built on a piece of land. For redevelopment, developers often seek land with potential for an increased plot ratio. This allows them to tear down the current building and rebuild it to house more units, thus increasing the development's profitability.
Neighbourhood
The overall desirability and future development plans of the neighbourhood can also impact a property's en bloc potential. Areas with upcoming infrastructure projects or revitalisation plans are more likely to attract developers.
Comparing Leasehold and Freehold Properties in Singapore
| Feature | Leasehold | Freehold |
|---|---|---|
| Ownership Duration | Temporary (typically 99 or 999 years) | Perpetual (indefinite) |
| Initial Cost | Generally lower | Generally higher |
| Long-Term Value | Subject to lease decay; value may depreciate as the lease gets shorter | Tends to hold value better over the long term; potential for higher appreciation |
| Flexibility | May have restrictions on renovations and modifications | More flexibility in making changes to the property |
| Inheritance | Can be passed down, but the remaining lease term might be a factor | Ideal for passing down as a legacy asset |
| Resale Potential | Can be affected by the remaining lease term | Generally higher resale potential due to perpetual ownership |
| Financing | May face restrictions on loan terms and CPF usage for shorter leases | Easier to secure financing and more favourable CPF rules |
| Rental Yield | Potentially higher due to lower purchase price | Potentially lower due to higher purchase price |
| Availability | More common and widely available | More scarce and limited in supply |
| Location | Equal spread across prime and non-prime locations | Equal spread across prime and non-prime locations |
| En Bloc Potential | A well-located leasehold can be a cheaper alternative for developers, due to lower rebuilding costs and higher potential for sales. | May be attractive due to perpetual ownership, but developers may be cautious due to high redevelopment costs and difficulty in selling at a premium. |
Other Factors Affecting House Values: Freehold Vs. Leasehold
While the tenure of a property plays a significant role in its value, it's not the only factor. Several other elements can influence the price and appreciation potential of a property, regardless of whether it's freehold or leasehold. Here are some key considerations:
- Supply of Competing Properties: The number of similar properties available in the surrounding area can affect the value of your property. If there's an oversupply of comparable units, it could put downward pressure on prices.
- Layout and Design: The layout, design and quality of the units within a development can significantly impact their desirability and value. Well-designed units with efficient layouts and quality finishes tend to command higher prices.
- Demand from HDB Upgraders: In Singapore, demand from HDB upgraders can significantly influence the prices of certain properties, especially those located in areas popular with HDB upgraders.
Conclusion: Should I Buy Freehold or Leasehold?
The age-old question: Freehold or leasehold, which is better? The truth is, there's no one-size-fits-all answer. The ideal choice depends on your individual circumstances, priorities and financial goals.
You Can Consider Leasehold When
- Affordability Is a Primary Concern: Leasehold properties generally offer a lower entry point into the market.
- You Prioritise Space and Value For Money: Leasehold developments often provide more spacious units at a lower price per square foot.
- Your Investment Horizon Is Shorter: If you're not planning to hold the property for the long term, leasehold can be a strategic option.
- You Prioritise Location and Amenities: Leasehold properties can be a more affordable alternative if you're looking to live in a prime location but can't afford the higher price tag of freehold properties.
You Can Consider Freehold When
- You Desire Long-term Stability and Ownership: Freehold offers perpetual ownership and greater peace of mind.
- You Prioritise Potential For Inheritance: Freehold properties are ideal for passing down as a legacy asset.
- You Seek Higher Potential For Long-term Capital Appreciation: Freehold properties generally hold their value better and have a higher potential for appreciation over time.
While freehold properties offer perks like perpetual ownership, the idea that it's always better is misleading. Leasehold can be strategic for affordability, shorter-term goals or specific locations. Ultimately, the best choice between freehold vs leasehold depends on your individual needs and priorities.
To learn more about which property type is best suited for you, as well as how to tackle other topics like rising mortgage stress, contact the mortgage specialists in Singapore at Mortgage Master today! We can provide expert guidance and help you make informed decisions about your property investment.
