When is Leasehold 99 Better than Freehold?

By perception, freehold is always a better investment. This has always been the case, especially among the older generation.

๐Ÿ“Œ There are 3 main types of condo tenures in Singapore: Leasehold 99, 999 & Freehold

By law of demand & supply, freehold is naturally better because there’s less freehold property.

All government land sales are sold on a 99yr basis. As Government land sales form the majority of our land supply, it just makes freehold rare. Any freehold that you see in market they are likely to come from en bloc redevelopment.

However, there are instances where the land is freehold but sold to buyers on a 99 years basis. This will be another topic to be covered in another blog.

๐Ÿ“Œ Question: If freehold is so much better than why don’t more people buy FH property?

There are two main reasons for that

The first reason is budget constraint because as most of you know, FH property has a premium attached to it when compared to Leasehold 99 years property. Normally, the former will be around 20% more expensive than the latter

Second Reason, is the lack of options. there are a lot of choices in the market these days but they are mainly Leasehold 99 Property.

Leasehold 99 Better than Freehold

When is Leasehold 99 better than freehold – 3 Scenarios

๐Ÿ“Œ #1 When is Leasehold 99 better than freehold:

Holding Period is Short

When you intend to hold property for short period, Leasehold 99 will be better than Freehold e.g. Sell and cash out within 10 years. Psychologically speaking, when potential buyers ask about the age of the resale property that they are interested in, they’re generally nonchalant when the property age is below 10 years.

When your holding intention is short

Also, Leasehold properties generally have the best capital appreciation potential in their first 10 years. The value of a 99yrs property will decrease when it gets older, especially after the 40yrs mark. This phenomenon can be explained using the Balaโ€™s table, which plots leasehold value relative to freehold land.

This table is used by government agencies like HDB (Lease buyback Scheme) and SLA (Lease top-up for en bloc)

bala-table

When a propertyโ€™s remaining lease falls below 60 years, there will be limits on CPF usage as well as bank loans unless certain conditions are met

๐Ÿ“Œ #2 When is Leasehold 99 better than freehold:

You want Better Rentability

When you want better rentability, LH99 property will generally be superior to Freehold properties. Tenants like condo to be new, near MRT and big. Big condo comes with lots of facilities. And most of the projects that fit all these three check boxes tend to be leasehold property. Landlords also prefer condos near MRT because this condo will have less turnover or vacant time.

When you want better rentability

๐Ÿ“Œ #3 When is Leasehold 99 better than freehold:

You want Higher Rental Yield

When you want to higher rental yield, Leasehold 99 will be better than freehold. Rental yield is calculated by taking the annual rent divided by the property price and because freehold is normally sold at a premium, naturally the yield will be lower. Tenants will not pay you higher rent because it’s freehold as they are very price sensitive. They will rather pay more for size and location but not for the tenure.

leasehold 99 has higher rental yield

Conclusion:

From our ground experiences, a lot of buyer have misconception that their private condo must be freehold. This is not true for most of the cases.

Whether freehold or leasehold is more suitable for you, give us a call and talk to us. Let us help you ascertain whether if you really need a freehold condo because I’m very sure after a 1-1 consultation chat with us, you will find that your options will open up a lot more. We will give your the right advice at different stages of your property life cycle.

You’ll be surprised at what’s available out there in the market, because we are on active agents the ground and we know what’s happening.

Find this “When is Leasehold 99 Better than Freehold ” article useful?

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Dennis Lim

Dennis has more than a decade of experience investing in real estate. Like many fellow Singaporeans, he grew up in a HDB flat with dreams to live in a condominium. Through careful financial planning & hardwork, this became a reality when he was 30. He now owns 3 private properties in Singapore and has helped hundreds of Singaporeans to achieve their goal of upgrading their homes in land-scarce Singapore.

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