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The
common tenures of private residential properties in Singapore
are 99-year leasehold, 999-year leasehold and freehold. The
main difference between a leasehold property and a freehold
is that when one invests in a leasehold property - an owner
is only conferred the right to the exclusive use and possession
of the land for a fixed term whereas in the case of a freehold
property, an owner will have the full ownership of the land
and the property in perpetuity.
Why
buy 99-year leasehold when there are freehold landed properties?
Will the value of a 99-year leasehold landed property fall
when one wants to sell later? For a landed property, which
gives a better yield - freehold or 99-year leasehold? These
are some of the questions that come readily to one's mind
when contemplating the purchase of a landed property.
In Singapore more than half of its population lives in HDB
flats. It would be quite safe to assume that for those who
bought HDB flats, the 99-year leasehold title was not an issue
as all HDB flats only hold 99-year leasehold title. Why then
when it comes to private residential property, this tenure
issue features quite prominently in any decision to purchase
one. Price and affordability are the key words. When the price
is considered cheap and affordable, the 99-year label is brushed
aside or ignored. This is why people who purchased HDB flats
do not ask the question - why buy 99- year leasehold? Hence,
if a 99-year leasehold landed property were cheap and affordable,
a homeowner should not be too concerned with its tenure. For
the potential buyer, how would he know that the 99-year leasehold
property that he is eyeing is cheap?
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The
differential in price between 99-year leasehold and freehold
landed properties is about 20% to 25%. This is mainly due
to the limited supply of freehold land, relatively higher
demand for freehold properties and the difficulties in securing
a bank loan for leasehold properties with short remaining
tenure. Hence, any 99-year leasehold landed property that
is 20% to 25% cheaper than a similar freehold property would
be considered a good buy. However, do bear in mind that this
is only a general guideline. Other factors like location,
design and quality of finishes must be taken into consideration
as well.
As mentioned before, affordability plays an important part
in any potential buyers' decision-making process. Hence, there
is always a market for 99-year leasehold landed private properties
as they are more affordable.
This
is especially relevant for those with a budget constraint
and yet require bigger living space due to reasons like large
family size, lifestyle preference etc. Currently, there are
numerous freehold apartments that cost as much as leasehold
landed properties particularly terrace houses. Though the
costs are almost similar, landed properties usually have larger
built in areas compared to apartments. Therefore leasehold
landed properties would be a logical consideration for this
group of homeowners.
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Where
capital gain is concerned, by assuming all other conditions
being equal, the price appreciation of a 99-year leasehold
landed property will always grow in tandem with its
freehold counter-part. This is because property prices
will always move in the same direction based on market
demand.
When
a tenant lease a property, the tenure of the property
does not affect his decision to lease, neither would
the price at which the property was purchased. A tenant
is only concerned with the location, design, quality
of the finishes and most importantly, the rent. Typically,
yields for a freehold property is in the 3.5 - 5% range,
whilst that of a leasehold property is in the 5 - 6%
band.
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Thus,
from the viewpoint of yields, a 99-year leasehold landed
property commands higher returns than a freehold. For
buyers considering investing in a property for rental,
therein lies another reason for considering a 99-year
leasehold landed property.
Another point to take into consideration when purchasing
a 99-year leasehold property is that being cheaper as
compared to a freehold property means borrowing less
from the banks and that ultimately translates to paying
less interest.
So the next time someone pops the question - why buy
99 years leasehold? The response could be - Why not?
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PRICE
& YIELD COMPARABLE BETWEEN 99-YEAR LEASEHOLD AND
FREEHOLD LANDED PROPERTIES
|
| DEVELOPMENT# |
TRANSACTED
PRICE (S$)
|
ASKING
RENTAL
(S$/MTH)
|
YIELD
%
(GROSS)
|
TENURE
|
|
YR
2003
|
YR
2003
|
| Saraca
Villas |
856,000
- 945,000
|
3,000
- 4,000
|
4.66%
|
99YRS
LH
|
| Mimosa
Terrace |
1.24
- 1.39 mil
|
3,000
- 4,000
|
3.19%
|
FH
|
| ValVista |
1
- 1.06 mil
|
4,000
- 5,000
|
5.24%
|
99YRS
LH
|
| Goldenhill
Villa |
1.38
- 1.65 mil
|
4,000
- 5,000
|
3.56%
|
FH
|
| *Sources
from SISV and URA website. |
| #based
on projects with similar location, design type and finishing
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| Saraca
Villas - exterior & interior shot |
PRICE
& YIELD COMPARABLE BETWEEN 99-YEAR LEASEHOLD AND FREEHOLD
FREEHOLD CONDOMINIUM
| DEVELOPMENT# |
TRANSACTED
PRICE (S$)
|
ASKING
RENTAL
(S$/MTH)
|
BUILT-UP
(sq ft)
|
YIELD
%
(GROSS)
|
TENURE
|
|
YR
2003
|
YR
2003
|
| Spring
Grove |
700,000
- 915,000
|
2,800
- 5,000
|
1012
- 1388
|
5.79%
|
99YRS
LH
|
| Mirage
Tower |
860,000
-
1.15 mil
|
2,800
- 4,800
|
1227
- 1496
|
4.53%
|
FH
|
| Mandarin
Gardens |
515,000
- 850,000
|
2,000
- 3,200
|
1528
- 2024
|
4.57%
|
99YRS
LH
|
| Amber
Park |
800,000
- 910,000
|
2,000
- 3,200
|
1744
|
3.65%
|
FH
|
| *Sources
from SISV and URA website. |
| #based
on projects with similar location, design type and finishing
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