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What is better for the average property owner? Is it more advantageous to own freehold properties or should you go for Leasehold? Find out which one to pick!
Owning property in Singapore can be a tricky affair with the number of rules and regulations involved. The choice to be made here is between two types of properties, permanent freehold property or a temporary leasehold asset.
We have often come across questions from property buyers about which of the two would be a better option. The answer? Well, it isn’t as simple as you imagined.
What’s the difference between Freehold and Leasehold?
The main difference here is that you can have complete ownership of freehold properties. This means that no one else can claim to own your assets or try to take them away.
Also, owning a freehold property not only gives you ownership of the house but also of the very land it is built on. For example, if you invest in freehold condos that are still being built, you will own both the condo and the land. Freehold status means full ownership. The property is yours to use and maintain at your own expense.
Freehold property is more likely to be located in rural cut-off spaces that are far away from the city.
On the other hand, buying a leasehold property or leasehold lands only gives you temporary ownership. However, these properties are located in more urbanized areas with good connectivity to commercial hotspots.
Leasehold properties come in two arrangements, a 99-year lease, and a 999-year lease. It is basically like a long-term rental agreement where you regularly pay for the maintenance and usage.
Buying leasehold condos only gives you ownership over the condo itself and not the land on which it resides.
Which is a better choice: Freehold or Leasehold?
Well, it depends on the statistics of the five regions of Singapore. It is important to note that both types are almost equal in property market performance. This can be established by observing the price trend and keeping property taxes in mind.
When we look at property prices in the last ten years in all the OCR and general regions, we see that leasehold properties have had a higher price increase. However, when observing properties located in the RCR and landed regions, freehold properties are the winners. The final category, which is the core central region (CCR), has seen high growth in property values for both types of properties.
Leasehold vs Freehold Properties | Which To Buy?
Choosing between the two depends on two factors; how long do you intend to stay, and what do you want to use it for?
Leasehold properties are a good option if you plan to set up a temporary residence. It is also the right choice if you plan on renting out the property rather than using it as a home.
If you’re looking at this purchase as an investment, it makes sense to buy a leasehold property and sell it once the price has increased. This is quite beneficial for the owner as leasehold properties tend to be located in urbanized regions. This means that leasehold properties have a faster chance of increasing their value than freehold.
For example, commercial properties on leasehold located in Farrer road or Katong park will appreciate faster than freehold residential properties in East coast park. This is because the former two areas are closer to public transport hubs like MRT stations.
However, freehold property is the obvious choice if you’re looking for a generational home that you can pass down to your descendants.
Leasehold Landed Property In Singapore: Are they worth buying?
Leasehold landed properties are worth buying only if you want to stay in an urban area for a limited time. Most Singaporeans are already homeowners and do not need to purchase a new home for their descendants. So buying a leasehold property and spending a few years in the city doesn’t seem like a bad deal.
Moreover, leasehold properties are more affordable when compared to freehold properties. So in most cases, paying the extra amount for a freehold property may seem redundant.
Buying leasehold property is a good investment strategy as well. For example, you could buy leasehold estates and sell it off later instead of getting a lease top-up. Private properties like leasehold condominiums can be financially advantageous if you sell it within 20 years of the lease tenure.
Reasons Why Freehold Is Better?
The primary advantage of freehold is that you can become a valued property owner in land-scarce Singapore. What’s more, freehold developments will be an option available to you, which is not the case for leasehold units. As a freehold property owner, you have the freedom to develop your property as you see fit.
Owning freehold property comes with no time limits, irrespective of property age.
Unlike leasehold projects, you don’t have to top up the lease period for any reason. It’s a good long-term investment as you can rent it out for as long as you wish.
Moreover, freehold owners have access to en-block sales, which is unavailing to leasehold owners.
Are 99 Years Leasehold Really Enough?
In some cases, yes. Buying 99-year leasehold properties in an urban area and then opting out after 20 years can be financially advantageous.
Leasehold properties have shown a guaranteed increase in value within the first 20 years, after which it depreciates rapidly. An intelligent investor could use this as a viable business investment with sure returns.
Of course, if it is used as a permanent residential property, you will have to keep up with the lease extensions. While this ensures a prolonged residence, it slowly reduces all your investment to zero. So it’s much smarter to move every twenty years and use the balance investment on paying for a new lease.
Does freehold property have restrictions?
Although freehold properties give you complete rights over the land, it still comes with some restrictions. You don’t have to worry about lease expiry or keep track of the lease period. This guarantees permanent legal ownership, which is unavailable for 99-year leasehold lands or even 999-year leasehold properties. However, this doesn’t mean you’re out of the woods.
The Singapore land authority can still claim your freehold assets if they collide with any development projects. This is also true in the case of collective sales for en-bloc redevelopment programs. This means you will have to sell your property to a developer if every other landowner in the unit decides to sell.
Although you will be paid the entire market value in both situations, you will still have to forego ownership rights.
Pros and Cons: Freehold and Leasehold
Freehold assets make good residential properties as well as good resale properties. Freehold properties offer full ownership, but they cost more despite being located in rural areas. However, they tend to have more space compared to leaseholds. For example, freehold condominiums are more likely to have a bigger unit size compared to leasehold condos.
On the other hand, leasehold properties are cheaper, are often located in urban areas, and increase in value during the first 20 years. However, as a leasehold owner, you cannot make changes to the property or sell it off.
Which One Fetches Better Value?
On a broad scale, freehold properties fetch a better value in the private property market. However, there are many cases where leasehold units are cheaper than freehold units.
For example, a 99-year lease condo located in an urban area will cost less than a freehold condo in a rural area. Leasehold units tend to increase in value in the early stages of the lease. However, their value rapidly declines during the late stages. So it’s basically a question of ‘when’ rather than ‘what’.
Freehold and Leasehold: Which One Gives Better Rental Yields?
When it comes to rental yields, leasehold units usually rate higher. This is because of their close proximity to urban hubs and modern amenities.
Freehold properties that are located in rural areas often come at cheaper rental prices.
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