Freehold vs Leashold

Know the differences of the mode of holding .

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Are FREEHOLD condominiums better than LEASEHOLD?

Many Singaporeans prefer freehold properties as they feel that they can leave a legacy to the next generation. But is it really worth paying a premium for a freehold property compared to a leasehold?

 

There are generally 3 types of tenure you can find in private properties:

Freehold, 999-year leasehold, or 99-year leasehold. You might even find very rare properties with 103-year leasehold in the property market.

  

What is a freehold property?

Freehold means that you have all ownership of the property with no expiry date tag on it. It comes with the titles: Estate in Fee Simple or Estate in Perpetuity.

 

What is a leasehold property?

Simply said, it means that at the end of the lease term tenure, the property owned will expire and return to the state. The state gains back ownership of the land once the lease term expires.

Although technically sharing the same fate, the 999 years leasehold property is reflected comparably to freehold property in Singapore, as it is still deemed as an asset that can be held for generations after generations, just like freehold.

 

So what are their differences?

Freehold new launch properties generally command a higher premium of about 15 to 20% because of their tenure title. It is also a status and a sense of pride to own a freehold property to some. In comparison, leasehold properties are more affordable. Some leasehold properties are located in better places with better facilities, more amenities, and near or next to MRT stations. It is important to look a little more in-depth and understand each and every property’s own attributes, as not all properties are the same, whether freehold or leasehold.

Give an example of a leasehold property in a CCR (Core-Central Region) location and freehold property in a secluded OCR (Outside Central Region) area. The leasehold property will be expected to perform better than the latter. This means that location determines the value, not the tenure.

In the eyes of an investor, what matters most is capital gain, rental yield, and an attractive entry price. It does not matter whether you can hold it forever. In contrast to some homeowners, a freehold title may have a significant benefit and a sense of security that they can be passed down to their children without worrying about lease expiry, especially when the asset is getting old.

 

The thing is, can you really hold it forever?

Many might have the misconception that buying a freehold guaranteed them FREEHOLD land. They are unaware that the government can take back or requisite the land anytime if the property sits on a site that requires expansion of roads, new MRT line, etc., for future development. The property can also be put up for en-bloc sale if the majority of the residents of the same development voted yes to the developer during an en-bloc exercise.

Many years back in Singapore, where we still have ample land and a smaller population, more freehold properties were available, and our grandparents might be lucky to have owned one during that time. As the government does not offer freehold land through GLS (Government Land Sale) nowadays, many freehold lovers feel that owning one of such properties with a freehold title is like owning something highly valuable and timeless.

Leasehold, on the other hand, gives more options to home buyers for their individual needs, like near their children’s school, convenience, and easy accessibility. In fact, for the past few years, new launch leasehold condominiums have achieved good capital appreciation, many even better than freehold properties in the same vicinity. This is due to active transactions in a leasehold development that pushes up the price, compared to freehold development where most owners bought the place to hold for long or have no intention to sell. With a low transaction rate and no other unit to compare with, freehold properties’ price growth does not have the TOP (Temporary Occupation Permit) effects like leasehold.

For investors who buy properties to rent out for passion income, price and location will be the primary concern when choosing their properties. Their tenants do not care whether they are staying in a freehold or leasehold property anyway if the place and the rental price are right.

So be it a freehold or leasehold property you are looking for, know the right property for your needs and wants before you decide to jump into it. Contact us if you want to learn more about the property that suits you, your lifestyle, or your family.

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