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Freehold or Leasehold?

The question on every would-be property buyer is always: “Should I buy

Freehold or Leasehold?” Before we attempt to answer that question, let’s look at

the definition of the 2 terms.


A freehold property belongs to the owner indefinitely, which means it can be

pass down from generations to generations. A 99-year leasehold property

reverts back to the state upon expiry of the lease. There is however a third type

which is 999-year lease, which is almost as good as freehold.


Generally speaking, a new launch freehold property is priced about 15% higher

than a leasehold property in an apple-to-apple comparison. So if you are willing

to pay more, you have an asset to leave for your future generations and you do

not have to worry about the lease running out.



According to the Singapore Land Authority (SLA) Bala’s Table, a leasehold

property at the 30th year is worth about 60% against a freehold property.




















But lease tenure is just one factor when considering freehold or leasehold. Other

factors you need to consider are:


- Rental yield. Tenants are not going to pay higher rental for a freehold

property; they are more interested in the location, nearby amenities and

condition of the property.


- En-bloc opportunity. Freehold properties tend to command a higher price

during en-bloc sales. For 99-year leasehold en-bloc, developers would

have to pay to top up the leases of that site.


- Affordability. Buying freehold would mean having to fork out more for

down payment and monthly repayment. So you should consider your

finances carefully.


- Long-term vs. short-term investment. According to URA data, over the

period of March 2010 to March 2020, leasehold property prices

appreciated from about $1,023 psf to about $1,594 psf which is

approximately an increase of 56%. Freehold properties over the same

period appreciated about 41%, from an average of $1,282 psf to $1,812

psf.


Ultimately, the decision will come down to location along with the amenities that matter the most to you. Well-located properties with important amenities or facilities nearby will always be easier to rent out, achieve higher rental yield and appreciate faster in the short term. And if you were buying for your own stay, better accessibility, convenience and amenities would matter more rather than freehold or leasehold.


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