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Leasehold vs Freehold Property : Which one will you choose?

Updated: Jul 2, 2022

Freehold or leasehold?

This has always been a question for new buyers or investors in property.

What is leasehold, and what is freehold?

In Singapore, there are mainly 3 types of tenure for private property

  • Freehold

  • 99 Year Leasehold

  • 999 Year Leasehold

For freehold properties, it can be held indefinitely by the owner. While leasehold properties will revert back to the state or, in some cases, developers after the tenure ends. This applies to a 999-year leasehold. However, given the length of the tenure, 999 leaseholds are usually considered pseudo freehold properties.

For this article, we will make a comparison between a 99-year leasehold and a freehold property.

There is a perception that freehold is better than Leasehold in terms of value. However, nothing could be further from the truth. In fact, in some cases, leasehold properties actually perform better than freehold properties.

The main criteria to choosing between leasehold or freehold would be dependant on more than just the title. It will also be dependent on the individual property owner's intention, such as the holding period, the purpose of purchasing the property and the exit plan, among others.

Factors to Consider

1 Entry Price

For developments within the same district or vicinity, Leasehold tends to have a lower entry price. Freehold are usually priced 10-15% higher or more.

An example could be seen in D9

Kopar at Newtown (Leasehold)

1 bedroom suite ( 517 sqft) starts from $1,288,000 (2491 psf) and 2 Bedroom Delux (689sq ft) goes for $1,753,000 (2554psf)

The Atelier (Freehold)

1 Bedroom ( 549 sqft ) starts from $1,518,000 ($2765psf) and 2 Bedroom (872 sq ft) starts from $2,387,000 ($2737psf)

Kopar is located just next to The Altelier. In terms of %, Kopar is cheaper than The Altelier by a margin of 7-10%

2 Rental yield

Using the same example as above, tenants looking at renting would most probably NOT pay a higher price for the Freehold project than the Leasehold. Kopar has a bigger land size compared to The Altier. Additionally, it comes with full condo facilities, including tennis court clubhouses and it is closer to the MRT.

If potential tenants were to make a comparison base on facilities, they might even pay more to stay at Kopar than the Altier.

At the end of the day, Freehold or Leasehold status does not dictate rental yield. Rather, it will be the unit's location, amenities, and size that would determine the rental yield. As such, rental yields tend to be better for leasehold than freehold in the same area due to the lower entry price.

3 Location

Leasehold properties tend to have a better location than freehold. In recent years, Government Land Sales (GLS) are all leasehold. For GLS, prized locations around MRT and malls are common.

For Freehold projects, most of the time, they are the result of en bloc sales by developers. In these cases, they tend to be at sites that are less accessible or further away from amenities.

4 Transaction Volume

Leasehold projects tend to be bigger in land sizes. Some have units that hit the sweet spot of 500-1000 units. Freehold properties land are usually smaller in nature and have fewer units per development. Additionally, leasehold properties are often bought for investment, and there is a higher transaction volume. A higher transaction volume means more liquifity which equates to a potential for higher price movements.

Those buying Freehold, they tend to hold the properties longer. With lesser transaction volume, prices tend not to move by much within a short period of time.

5 Government Acquisition

This is not a factor, but here is a perception that freehold properties are exempted from government acquisition. This is not true.

Freehold and leasehold may be acquired by the government should the need arise. This means that there is NO advantage of holding Freehold properties in regards to this aspect.

6 Holding Period

For leasehold, there is a need to sell the property within 10-20 years. After that, lease decay sets in, and this will affect the selling price. For older properties, banks might provide a lower LTV for loans.

Additionally, CPF usage can be restricted for properties that are less than 60 years old.

For Freehold Properties, this is not an issue. Freehold can be held for longer-term due to its evergreen tenure.

7 En Bloc Potential

Both leasehold and freehold have the potential to go En Bloc. If you were to compare a similar plot of land within the same vicinity, Freehold would have a better En Bloc value than leasehold. For leasehold plots, developers will still need to top up the remaining lease; thus, the offer price will be lower. For Freehold, developers can crave out leasehold leases, giving them future income streams should they do so.

8 Investment vs Legacy

It is often said by agents that you should look at Lleasehold properties instead of freehold if you want to invest in properties. That is true to a certain extent. With the lower quantum and higher rental yields, the upside is better in the short term, especially if the units appreciate at a price during TOP.

On the flip side, while freehold may retain value due to the lack of transactions, it may not be a good vehicle for short term outlook. Nonetheless, should the general direction be up, freehold properties are still a good bet over the longer term.

9 Exit Plan

When purchasing a property, unless you intend to stay there in perpetuatity, always have an exit plan. An exit plan will help you determind if you should choose a leasehold or freehold property.

Freehold or Leasehold ? Let us be your guide

Navigating the property market can be a challenge even for seasoned investor. Frankly, even with all the factors above, within an in depth knowledge of the property market, it is often not easy to make a calculated decision.

If you have doubts or just need a professional opinion, do whatsapp or pm us. We would be glad to hold a session with you to explore your options.

Make an appointment with us here

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