Which Is Better: Freehold Vs. Leasehold Condo Singapore
The argument between a freehold vs. leasehold condo in Singapore continues as prices for condos reach their bottoming point. Both types of condos talk about the length of time of an owner can hold the property. The physical structure of the property does not change, but the age of the property can alter the values of a freehold vs. leasehold condo over time. Freehold and leasehold properties do not mix–a condo is one or the other but not both.
Examine the differences between a freehold vs. leasehold condo as you decide which option might be better for your or your family.
A freehold condo strata title is held by the owner indefinitely, either through the original owner or through their family. The owner can use a freehold condo as a residence or an investment vehicle to earn recurring rental income. Because an owner keeps a freehold condo for as long as he or she owns the property, these properties are more expensive.
A leasehold condo strata title stays with the owner for 99 years. After that period, the property reverts to whoever owns the land on which the condo sits, either the government or the developer. Owners might write in collectively to extend the lease by topping up a certain amount. Another type of leasehold lasts for 999 years, but it is essentially the same value as a freehold condo because the terms are so long.
One distinct difference is the redevelopment potential of a freehold vs. leasehold condo. The government can claim a freehold property to make way for a highway, MRT line or other public improvements. The government can also take back a leasehold condo for security reasons which is not common.
There could also be the possibility of en-bloc redevelopment on a freehold condo. If a developer wants to redevelop the condo and the residents of a certain percentage agree to the change, owners must move to another property make way for the redevelopment. Owners compensated for this move, of course.
Even with these legal possibilities, a freehold condo is usually worth a higher price versus a leasehold. However, there are advantages to either type of property.
Prices and Demand
As of July 2015, Singapore had nearly 2,000 freehold condos. The freehold condos compare to almost 500 of the 99-year leasehold condos and about 140 999-year leasehold condos, according to 99.co. Beyond the popularity of freehold vs. leasehold condo properties, prices change at certain points.
Values change 21 years into a lease. A freehold condo is worth about 10 percent more compared to a leasehold. That may be an advantage for someone who wants to sell a freehold condo at that point. This change in value assumes all other factors are the same on location, amenities and market forces. However, it is impossible to predict how much a property may increase or decrease in value decades into the future.
Something more drastic happens at the 40-year mark. Banks may not finance a purchase of a condo for sale in Singapore if the unit is 40 years old or more. At the 69-year mark or 30 years left on the lease, buyers cannot use CPF money to purchase a leasehold condo. When a leasehold condo reaches 69 years old, the value falls too much less than that of a freehold condo. That provides another investment opportunities again even tenure left with that numbers of years.
During 2016’s second quarter, the average transacted price of a freehold condo was close to $2.1 million. A leasehold condo fetched close to 1.1 million in the same period. The lower entry prices of leasehold condos make them attractive for investors who want recurring rental income coupled with lower risk and potentially better returns.
There’s not much risk of the government reclaiming the condo by the time the leasehold is up in 99 years. Owners probably won’t outlive the leasehold condo’s terms. People who rent a condo in Singapore may not fixate on a freehold vs. leasehold condo since they sign terms of a lease instead of buying a title.
Which Is Better?
Which is better: a freehold vs. leasehold condo? That depends on what you want. A freehold may be worth more initially based on the popularity, location and age of development. However, a leasehold may be a better investment for you to earn a rental income due to a lower entry price.
The advantage of owning a leasehold condo is that the owner achieves a higher ROI over a freehold property due to lower entry costs of leaseholds property. Recently, more 99-year leasehold properties have developed as a result of GLS sales. You have nothing to fear when it comes to buying a leasehold property because the prices appreciate enough over time for you to sell the property and move on to another condo.
Leaseholds are truly a low-risk property investment since you pay a lower price versus a freehold, and the chances of the government taking the property back are rare. It all depends on what the owner’s goals are before committing to a leasehold vs freehold condo.
Thankfully, a professional property agent can help you determine which of these options is right for you.
Property Agent in Singapore
A professional property agent in Singapore can direct you to which developers offer a freehold vs leasehold condo. Dylan Tan can discuss your options and suggest what suits you the best when it comes to condo ownership. Dylan talks to you about financials and gets you into a condo that fits your family’s needs. Whether you want to live in your condo or rent it out as an investment, Dylan can advise you as to the best course of action based on demand, current market trends and which properties might be a better choice for a long-term purchase.