The case for buying a 99-year leasehold condo – a better idea than freehold?
A freehold property isn't always a superior option to a leasehold one. Here are the reasons why.
There is a small but significant number of Singaporean property buyers who steadfastly refuse to ever consider buying a 99-year leasehold condo, seeing freehold properties as their only option.
"Might as well throw money down the drain,” they argue.
Truth is, the tenure of a private property seldom defines whether it’s a good buy or not, and this is regardless of whether you are buying for own stay or for investment.
There are also compelling reasons why no one should ever write off – or swear off – buying a 99-year leasehold condominium.
Let’s go through them one by one.
REASON #1: SOME LOCATIONS ONLY HAVE LEASEHOLD CONDOS
Suppose you really like Woodlands, or your parents live in Punggol and you want to live near them. In these instances, it’s impossible to buy a freehold condo, because there are simply none in these areas.
In fact, here are the areas in Singapore where there are no freehold condos at all, or very few of them. And there are some surprising inclusions:
• Jurong East and Jurong West
• Choa Chu Kang
• Keppel Bay
• Marina Bay
• Areas directly above an existing underground MRT station
Yes, Marina Bay is on the list. Because the entire area is reclaimed land, every residential land parcel there belonged to the state from the very moment it came into existence. Subsequently, land parcels were tendered out by the government on a 99-year lease for development, a high-profile example being the iconic Marina One Residences.
Land directly above an underground MRT station, too, is state land and similarly tendered out on 99-year leases for development. Leasehold status certainly didn’t stop James Dyson from buying a multi-million dollar penthouse at Wallich Residence, built directly atop Tanjong Pagar MRT station as part of an iconic integrated project in the CBD.
The point is also this: The value of property trophy assets goes beyond tenure. So, if you want to be neighbours with the rich and famous, who don’t bat an eyelid at the property’s tenure, then perhaps, neither should you.
REASON #2: SOME LOCATIONS DON’T HAVE LEASEHOLD CONDOS
While Reason #1 is a push factor (i.e. you want freehold but have no choice), this is more of a pull factor (i.e. you’d crave a leasehold option).
And here’s the premise: The fact remains that many Singaporeans harbour the aspiration of having a prime district address to call home. But over 95 per cent of properties in the traditional prime districts of 9, 10 and 11 are freehold.
Newly launched freehold, prime district condos typically price mid-high income earners entirely out of contention. In addition to the price premium for the freehold property, developers often take it one step further with a luxury positioning, piling on high-end design, fittings and finishings to justify an even higher price tag in their pursuit of high net worth buyers. They do this because it increases their margins significantly.
In case you’re wondering, resale freehold properties aren’t something that aspiring prime district homeowners are drawn to. Contrary to popular belief, freehold properties also depreciate with age, and maintenance fees increase as facilities get older.
So, there’s a big supply gap of affordable prime district new launch condos of the 99-year leasehold variety. And when one does arrive on the market, like District 9’s Kopar At Newton did earlier this year, it’s going to attract a great deal of interest, not just from those buying for own-stay but also investors looking for an affordable, high-yielding property investment*.
*Expat renters don’t care about a property’s tenure. The spanking new 99-year leasehold condo with a 50-metre lap pool was always going to fetch a much higher rent than an 2000s freehold condo with a 20-metre pool.
REASON #3: SIZE MATTERS
If, like many aspiring new launch condo owners, you see the allure of mega-developments of 1,000 units and above with sizeable land areas, then it’s likely you’d have filtered out all the freehold options.
The reason why all the large-scale new launch condos in recent years are 99-year leasehold properties is because during the last en bloc fever in 2017 and 2018, developers saw that buying old leasehold properties for redevelopment, and then paying to top-up the lease, was far more cost-effective and profitable than buying freehold.
Coupled with the fact that a lot of freehold land in Singapore is split up into smaller parcels, it’s easy to understand why the mega-projects we see are all of the 99-year leasehold variety. (The government also releases leasehold land for mega-residential developments from time to time.)
Buyers have done their math and due diligence, and decided that the pros of large-scale projects like Avenue South Residence and Parc Clematis outweigh any leasehold considerations.
Key to their decision in favour of such projects are several factors:
• There’s a greater number of facilities in mega-developments.
• The scale of the facilities is larger (bigger pool, bigger gym etc.).
• The maintenance costs remain affordable as they are split between more than 1,000 homeowners.
These buyers are also convinced the more impressive facilities of mega-developments will guarantee resale demand as well as maximise rentability. Even if a freehold option comes up at the same price and location but with fewer units and downsized facilities, the buyer could still pick the leasehold option without hesitation.
One important point to note is that the more extensive facilities should more than adequately serve the number of residents in a mega-project. Hence, an over-2,000 unit condo like Treasure At Tampines would need more than one 50-metre lap pool (it has two).
REASON #4: A LOWER QUANTUM IS A BIG DEAL
It’s a commonly known fact that a 99-year leasehold property is, on average, 15 to 20 per cent cheaper than a freehold property.
It’s also established that, for a couple of years now, we’re seeing local upgraders and investors gravitate towards private homes of a lower quantum.
A big part of this is because of the hefty 12 per cent upfront Additional Buyer’s that they have had to pay (even if the buyer intends to sell their existing home) since 2018. So, 99-year leasehold properties are becoming the default choice for more and more homebuyers.
For investors, reducing their outlay on a property purchase also means leaving more money to invest in other investment products such as stocks, as part of a broader diversification strategy.
Gone are the days in which Singaporeans will spend their savings on a freehold private property. While younger investors still look at property as an worthwhile investment, they also tend to seek out higher growth and higher risk instruments, and make this portion of their wealth work harder for them as part of their more ambitious asset progression plans.
After all, the only way to buy more properties is to grow your money faster. In terms of property selection, this is where new launch leasehold condos with assured rental prospects, such as the centrally-located The Landmark and Uptown @ Farrer, factor into their investment equation. The two projects’ city fringe location and leasehold status help savvy investors strike a balance between capital outlay and return on investment.
The takeaway? In most cases, buyers of 99-year leasehold condos are making a highly conscious and informed decision.
This story first appeared on 99.co.