Freehold Vs Leasehold – Which Is Better? - Property Launches & Investments

In Singapore, there are generally two types of tenure – freehold and 99-year leasehold. A 999-year lease is usually considered similar to freehold as its difference in value is negligible while banks are not expected to impose any loan limit even if the lease covers a few hundred years, revealed a report from OrangeTee Research.

Freehold property offers a few advantages to leasehold, such as a slower pace of depreciation, higher en bloc potential and no restrictions on using CPF for house purchases.

Despite this, new leasehold condominiums seem to have dominated the market in recent years, with leasehold units accounting for 95 percent of new sales and freehold taking up the remainder. This stands in contrast with the situation in 2006 and 2007 when freehold accounted for 70 percent of new sales.

The decline in freehold sales could be attributed to the tightening of en bloc rules in October 2007 and the recent ramping up of Government Land Sales (GLS).

However, proponents of freehold properties might point out that price appreciation in this segment will always outstrip that of leasehold properties which depreciate over the course of the lease. But the rate of depreciation can be slowed by various factors such as product quality and location, among others.

Nevertheless, a look at the broader market shows that freehold condominiums may not always have superior price appreciation than their leasehold counterparts.

“Our analysis of the freehold and leasehold indices over the last three property cycles shows that out of the three upcycles, freehold index only outperforms leasehold index over one cycle between Q3 2006 and Q2 2008,” the report said. But when the general market slumped following the dotcom crash, leasehold condominiums fell by almost two-fold compared to their freehold counterparts.

Over in the landed segment, the performance of terrace houses provides a different picture, with freehold terrace houses outperforming their leasehold counterparts in all periods except during the dotcom crash. This implies that freehold terrace houses are more resilient than their leasehold counterparts in downturns while performing better in good times.

So which is better – freehold or leasehold?

OrangeTee noted that “the answer depends on whether one is buying a landed or non-landed property. If he/she is considering a landed property, historical data shows that buying a freehold property might be a better choice… If it’s a non-landed property, buying leasehold could help to lock in more percentage gains if he/she buys and sells at the right time”.

“However, if we assume all else being equal, freehold property will always command a premium over leasehold property.”

Source: 15th October 2013 PropertyGuru

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Freehold Vs Leasehold – Which Is Better?

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