Is a freehold always better than a leasehold property?
If you were given a choice to buy a freehold versus a leasehold property, which would you choose? You would think that many people would prefer a freehold property versus a leasehold unit, but if that were so, why are new launch leasehold properties still selling like hotcakes in a market where property prices have been surging up? And why do many leasehold properties still retain their value or even appreciate in value with time?
Those who advocate for freehold argue that freehold properties belong to the owners “forever” whereas leasehold ones would depreciate to “zero” when the lease expires. They argue that if they are planning to bequeath their assets to the generations that come after them, then perhaps it may make sense to buy freehold properties over leasehold ones, so that the freehold properties can still belong to the family and their children, and their children’s children, and their children’s children’s children. You get the idea lah. But really, in reality, whether a property is freehold or leasehold, the government can still take the land back for important infrastructural development, and if the development gets the minimum mandate required for an en bloc sale, you have no choice but to sell the property to the developers even if you voted against the decision.
However, if one is planning to buy a property for investment, such as for rental income, it may make more sense to buy a leasehold property since it would be 10-15% cheaper than a freehold property around the same area, and so in terms of rental yield, it would fetch a higher percentage. After all, when tenants rent a unit, they do not pay less in rental simply because the unit is leasehold. In fact, other factors come into play for tenants, such as convenience - whether the unit is near to an MRT station, a mall, a park etc, and whether the development has full facilities such as a gymnasium or a 50m lap pool, that would cater to their lifestyles. Many leasehold properties tend to be bigger in land size, so they can boast of full facilities, but there are many small land parcels that hold freehold properties, which have fewer to no facilities. Furthermore, there are more leasehold properties nearer an MRT station, than there are freehold properties, and generally leasehold properties tend to be relatively newer than freehold properties. So, for all these reasons and more, tenants may end up paying even more rental for a leasehold unit compared to a freehold unit in the same area.
So, there are many savvy landlords who would opt to pay for a leasehold property, and perhaps even invest in leasehold ones with shorter leases, because the price quantum is more accessible than freehold properties. Also, for those who are in their retirement years, buying a leasehold versus a freehold property may simply mean they have more cash they get to keep for their retirement years, than to have to tighten their belts and cramp their lifestyles in order to retain a freehold property.
Furthermore, it can be argued that location matters more than tenure. Buying a prime location 99-years leasehold property such as Marina One Residences, or new launch properties such as Canninghill Piers and Irwell Hill Residences, which are in the CCR (Core Central Region), will still cost more than a freehold unit say in the OCR (Outside Central Region). And this is true of real estate anywhere around the world, not just Singapore.
But I do think that there are various factors to consider when you make a property purchase, besides tenure and location. How about market research to gauge the current and future demand and supply of private properties in an area or district? The different types and percentage of units available in a development that may help you gauge who’s your competition in a rental or resale market? How do you gauge rentability for a unit in a specific locale? It’s different strokes for different folks, so that’s where realtors really can come in with their experience and expertise to advise clients accordingly. So speak to a realtor you trust when you are about to make a decision that could be the most costly asset you’ll ever buy. It could yield significant dividends for you in the long run.
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