Freehold vs Leasehold Property

Singapore homebuyers and investors are usually concerned with the land tenure of the property, whether is the property freehold or leasehold. What are the main differences between the 2 types of land tenure, and how would it affect your decision to purchase a property?

Land Tenure

Land tenure refers to the duration of the land or property ownership. In Singapore, there are 2 types of land tenure, namely leasehold and freehold. Generally, for a property to be categorized as freehold, it needs to possess two characteristics:

(1) Immobility – means that the property needs to be affixed to land and

(2) indeterminate duration – means that the property has no stated end to it. But do take note that if the government intends to acquire the piece of freehold land for any public purpose, they may do so, under the Land Acquisition Act.

Freehold Properties

With freehold properties, there are higher possibilities for En Bloc sale compared to leasehold properties, due to the indeterminate duration that one can hold the property for. However, En Bloc sale usually will not happen just because a property is freehold, but also because of other crucial factors, like location, proximity to amenities, proximity to city and financial districts, any future developments in the area by the government. When it comes close to confirming the En Bloc sale, majority of the owners must agree to the sale and the sale price (for strata-titled properties, like condominiums and apartments), as well as the agreement with the developers on the purchase price.

Because a freehold property allows the owner to own the property indefinitely, there are many who bought or are thinking of buying one, so that it can be a valuable asset to be passed on to the next generation. This is then contradicting to those who own or wanted a freehold property, for higher possibilities for En Bloc sale. Especially if a property has the ideal characteristics: excellent location, great convenience, perfect size for the family, it would increase the possibilities for En Bloc sale, but it would also be harder for owners to let go of their properties. Of course, this is a good problem, since either way works well anyway.

With the above advantages, it comes with a price. Freehold properties generally come with a higher price tag, compared to leasehold properties. I used the word “generally” because we usually are not able to do an apples-to-apples comparison when it comes to pricing of a property. One of the main characteristics of real estate is that it is heterogeneous, so every property is unique. Every property has a different location, design, construction, size, facing and view.

Leasehold Properties

Where the duration of ownership is defined, the property is categorized as a leasehold property, even a 999-year leasehold property, which is almost a freehold property but it’s not.

According to The Business Times report last year in 2013, in the recent years, there has been an increase in the number of new leasehold condominiums. This is due to the ramp-up of the Government Land Sales (GLS) programme, so the ratio of new leasehold vs freehold condominium sales are at 95 per cent to 5 per cent respectively as of first half of 2013, compared to years back in 2006 and 2007, around 70 per cent of new sales were freehold.

So does it make freehold properties more attractive because there are less available? Depends. With more leasehold properties, it means wider choices for homebuyers, and there is a higher chance for a leasehold property to be located at a better location. If a freehold property is situated at a prime location, you will expect it to command a premium price as well.

Freehold or Leasehold?

It is important for you to think carefully about your needs before deciding if getting a freehold or leasehold property is best for you. Ask yourself a few questions:

• Am I buying mainly for own stay or for investment?
• Do I need a freehold property?
• Do I have the right budget?
• Am I planning to sell the property after a few years?

If you are buying a property for investment, your main consideration should be whether the property is situated at a good location and/or close to any MRT stations, and not necessarily whether the property is freehold or leasehold. Your potential tenants will select properties based on their budget, location, convenience and other personal preferences, rather than based on the tenure of the property. For investors, capital gain and rental yield are the most important consideration. Given a choice to purchase a freehold or leasehold property, both with similar attributes (for example, both are at excellent locations), I’d recommend investors to go for the one that has a lower quantum (which will most likely be the leasehold one), as that will provide greater rental yield, and perhaps capital gain.

For homebuyers who are budget-sensitive, for example young couples looking for first marital home, leasehold properties will be good because you are likely to upgrade to a bigger home few years down the road. A leasehold property in a good location will also be able to yield good investment returns.

For those selecting properties for own stay and for those interested in long-term investments (10-15 years and beyond), freehold would be a better choice, as it would be a great asset to have many years to come, given that the freehold property is within your budget.

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Also view some of our choice properties: Highline Residences, Sims Urban Oasis, The Rise @Oxley, Sophia Hills, Hallmark Residences.