Singaporeans get traditional when it comes to property. We want the land we pay for, and 99 years won't cut it. We want our descendants holding on to it.
But freehold property is a monstrous cost; and are we being practical, or buying an overpriced security blanket? In this article, we examine how freehold property has conditional value. Depending on your situation, it may not be the best choice.
Freehold condominiums in Singapore
In Singapore, property can be leasehold (held for 99 years) or freehold (held in perpetuity). Here are some of the freehold properties in Singapore and how their prices look like.
Freehold condominium | Address | District | Price (psf) |
Watercove | Wak Hassan Drive | D27 | $794.74 |
The Midas | 20 Lorong 30 Geylang | D14 | $886.00 |
The Canopy | 83 Yishun Avenue 11 | D27 | $926.30 |
Meadows @ Pierce | 626 Upper Thomson Road | D26 | $1,091.78 |
Tivoli Grande | 126 Koon Seng Road | D15 | $1,200.96 |
Alexis | 356 Alexandra Rd | D03 | $1,384.32 |
The Navian | 178 Jalan Eunos | D14 | $1,658.45 |
Bukit 828 | 828 Upper Bukit Timah Road | D23 | $1,680.00 |
The Addition | 21 Meyappa Chettiar Road | D13 | $1,731.50 |
Arena Residences | 20 Guillemard Crescent | D14 | $1,845.20 |
Amber Park | 14 Amber Gardens | D15 | $2,107.98 |
Twentyone Angullia Park | 21 Angullia Park | D9 | $3,176.99 |
Given the size of Singapore, it's not surprising that these freehold condominiums are rarer than leasehold ones. Almost 80% of our land is leasehold, typically lasting for 99 years. Contrary to popular belief, the government isn't obliged to pay compensation when the lease expires.
As such, leasehold doesn't sit well with traditional Asian perspectives, since we've been raised to equate family with land. But coming from a more practical angle, there are some disadvantages to freehold properties. Let's look at 5 of these.
1. Higher cost
It shouldn't take a stroke of genius to figure out that freehold property costs more.
All things being equal (same location, same size, same annoying neighbours, etc.), freehold property will cost 10 - 15% more than its leasehold counterpart. When we're talking about a million-dollar condo, and that's an extra $100,000.
When monthly repayments start, your financial situation becomes riskier than a roller coaster in a Chinese theme park. You will have to upkeep this mortgage by possibly delaying your retirement age, or cutting back on other things you enjoy.
Essentially, a freehold condominium is in the same league as a luxury item. You shouldn't go out on a limb for it, because when your day-to-day is a struggle, your home's freehold status means little.
2. Freehold status can be changed
Many property buyers are attracted to the allure of a "forever" property, but freehold status isn't permanent.
If the government decides to build a military base, or satellite dish, or run an MRT line right through the land where your house is sitting, it's gone; freehold or no.
At best, you will receive compensation at market value. But don't succumb to any notions of permanence; it's all subject to Urban Redevelopment Authority's (URA) masterplans.
Also, be aware that freehold property is prone to en-bloc sales; after 30 or 40 years, your neighbours might decide they're sick of the scenery. Then your condo is sold off and you're back to house hunting...
Well, this may great for the younger folks who will benefit from the cash in, but not too great if all you want is a stable home.
3. Location is probably more important than lease
When it comes to renting and resale, the emphasis is on the location, not on the lease.
A leasehold condo that's near an MRT station, for example, probably beats its freehold counterpart in market value. Likewise, if someone wants a place near their children's schools, they might be willing to pay more regardless of leasehold status. Hey, they can always move in 20 years.
Tenants, obviously, couldn't care less about any of this. So when you're out house hunting, don't be distracted by freehold status. Stay focused on where the property is located, its possible rental income, amenities and other conveniences.
4. Freehold condominiums may risk becoming outdated
The Singaporean family unit has changed. It's no longer assumed that children will live with their parents, and it has become the norm for married couples to find their own place. That removes the need to build the equivalent of a fantasy ancestral palace.
If your children or grandchildren move out anyway, the extra you paid for freehold becomes irrelevant. You could have just gotten a leasehold, and spared yourself years of excessive repayments.
For a first property, a leasehold is good enough. If you find that you have more cashflow later on, you can hunt for a freehold property then.
5. Little difference in depreciation
There's a common worry that, as the 99-year lease runs out, leasehold property will depreciate faster than freehold.
In truth, a boom and bust market will affect both kinds of property the same way. During the 2002 - 2005 cycle, for example, freehold prices were just as depressed as leasehold prices. Likewise, during an upswing, your leasehold property will appreciate just as quickly as freehold counterparts.
Tenure isn't always relevant to property prices; whether you buy leasehold or freehold, it doesn't free you of the need to time your purchases. Don't let tenure put your radar on the fuzz; if the market conditions are bad, don't feel pressured to buy just because it's freehold.
Getting the right home loan
Still can't make up your mind? I'd advise you to consider the financing with care.
Visit MoneySmart and compare the available home loan packages. This website automatically picks the best home loan on the market, and you can use the home loan calculator to compare leasehold and freehold options. Once you're prepared to buy, MoneySmart can even put you in touch with a mortgage specialist, who can advise you further.
What do you think of freehold properties? Comment and let us know!
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