Freehold vs. Leasehold Property in Singapore
When buying or selling a condo, many people in Singapore prefer freehold property under the assumption that the government won’t be able to intercept it, you can pass it down from generation to generation, and it’s worth more overall.
While these are some excellent points, they may not cover the whole truth behind the freehold vs. leasehold Singapore debate.
What’s the Difference Between Freehold and Leasehold?
The main difference between freehold and leasehold property is their tenure length.
Freehold describes a property that can be held indefinitely by the owner, while a leasehold property will return to the state after 99 years. There is also the case of Colonial-era property which has a 999-year tenure, but for all intents and purposes, this could be considered freehold as well.
Based on tenure alone, many will opt to buy a freehold condo, but there are some caveats you might want to consider.
Is Freehold Property Untouchable?
While many people think that their freehold condo can be passed down to future heirs without the possibility of government interference, that’s simply not true. If your freehold property is in the path of any public structure, like a highway or city park, the freehold becomes null and void.
Additionally, your freehold condo may be forfeited in an en-bloc situation, meaning that if your entire building of owners agrees to sell, the freehold isno longer valid.
The Value of Freehold vs. Leasehold Condos
It’s also commonly believed that a freehold property is worth more than a leasehold one, and the logic does make sense. If you figure that the owners of a freehold property have more on the line, the condo should be worth more—but this almost always a myth.
When determining the value of any property, the actual logistics of the condo are going to account for more than the tenure involved. Variables like location, school district, zoning laws, and public transportation options are the true determinants of a property’s value.
So, if the government can intercept your freehold condo at any time and it’s not actually worth more than a leasehold property in most cases, then why buy freehold property at all? There is at least one way that freehold condos have an advantage, and it has to do with supply and demand.
The government in Singapore no longer offers freehold land parcels, and therefore, due to scarcity, freehold property has increased in value.
Overall, buyers and sellers should make their considerations from things like location and district, as previously mentioned, but say both condos are in the same building, and it’s strictly a matter of freehold vs. leasehold, freehold will then hold more market value.
Depreciation: Freehold vs. Leasehold
Depreciation is a term used in accounting to note decreases in value over time. Since the tenure of a leasehold property, at 99 years, is significantly less than the indefinite tenure of a freehold property, a leasehold condo will depreciate, meaning it will decrease in value over time.
The value of a leasehold property will start to differ from that of freehold property once it has 78 years of tenure left, but you’ll run into more significant issues once the leasehold condo hits the 40-year point because, in Singapore, it’ll be far more challenging to receive financing for a leasehold property with less than 40 years of tenure left. In general, the closer that number gets to zero, the faster the property value will depreciate.
Keep in mind that freehold property is typically more valuable in the market andcan be passed down through generations, as opposed to leasehold condos which do depreciate. It’ll become important to think about what your children want and whether it’s worth it, in the end, to pay more for the freehold. Similarly, if you find a leasehold property in your dream neighborhood, the freehold label may become less critical.
In short, the choice between freehold and leasehold property is yours to make. As with any big decision, buying or selling a condo will be a test of your values, and it’s imperative that you prioritize. What matters most? Location and schools? Market value and future generations? It’s up to you.
Overall, the best thing you can do is be as educated as possible and make the best decision with the information given. Now that you’re a bit more knowledgeable about freehold vs. leasehold, you’ll have a much better chance of making the right investment for you and your family.