When you venture into Singapore’s property market, terms like leasehold and freehold can leave you puzzled – especially since these tenure types can have a significant impact on your investment strategies and long-term property journey. With a mix of leasehold and freehold tenures for all private property types in the market, potential homebuyers are presented with a set of benefits and challenges that require distinct strategies.
In this article, we are going to break down all of the differences between a leasehold and a freehold property in Singapore. We will go over the key differences between each tenure and highlight factors like ownership duration, value appreciation, resale potential, market demand for leasehold and freehold properties, and the financing options for each tenure type.
Understanding Tenure Types
All residential properties in Singapore are available in two different tenure types: Leasehold and Freehold. Let’s go over the defining characteristics of both.
Leasehold Properties
A leasehold property is characterised by ownership that lasts for a predetermined period. In Singapore, the majority of leasehold properties have a tenure of 99 years. Buyers of leasehold properties possess the right to occupy and use the property for the duration of the lease, however, they do not own the land on which the property is built. As such, the ownership of a leasehold property reverts to the landowner, which is the Singapore Land Authority (SLA), after the lease expires unless it is extended with extra costs.Moreover, owners of leasehold properties are permitted to sell or transfer their lease but must ensure that they comply with the terms and conditions outlined in their lease agreement. They are also responsible for the upkeep and maintenance of the property and have to adhere to Singapore’s regulations around leasehold properties.
Freehold Properties
Freehold properties are characterised by indefinite ownership of both the property and the land it occupies. Owners of freehold properties have perpetual rights with no time limitations on their ownership status. This tenure type may offer owners greater security and a higher potential for long-term investments.
Owners of a freehold property in Singapore have full rights to sell, lease or modify their property without many of the constraints that may be found in leasehold properties. These could include subletting restrictions, loan restrictions, transfer conditions, and constraints caused by the remaining lease duration for leasehold property owners. It is essential to note that freehold property owners are still required to comply with the necessary regulations and are responsible for the maintenance and upkeep of their property in compliance with Singapore laws and regulations.
Key Differences Between Leasehold and Freehold Properties in Singapore
Both leasehold and freehold properties have distinct differences that impact ownership experience, market dynamics and long-term investment plans. Whether you intend to own a property you can pass down through generations or want to purchase property you can put on the resale market after a decade, it is essential to understand the varying factors that will affect your property journey.
Ownership Duration
The first key factor that differentiates both tenure types is the ownership duration of each.
For leasehold properties, the ownership period in Singapore is typically limited to 99 years. Once this lease expires, the property’s ownership status reverts to the landowner – the Singapore Land Authority (SLA). Additionally, it is essential for property owners to note that when they purchase a leasehold property, the lease reflects the remaining duration at the time of purchase rather than the full 99-year time period. For instance, if a leasehold property originally has a 99-year tenure but has been occupied for 20 years, the new buyer will only have 79 years left on the lease after purchase.
The ownership duration for freehold properties is indefinite, allowing property owners to retain their property with no time limit on a lease. In a city like Singapore, with significant space constraints, the permanence that comes with owning a freehold property provides property owners with a higher sense of stability and security in the long run.
Value Appreciation
As the lease term decreases, potential buyers may view the property as less desirable. This can lead to a reduced demand for the property and slower price increases. Moreover, the perception of leasehold properties can vary throughout their lease duration. Older properties that are deep into their 99-year lease term may also experience a slower appreciation or even depreciation of value due to the Bala’s Curve Effect, especially in a competitive market with newer developments.
Freehold properties, on the other hand, may experience a more consistent rate of appreciation over time due to their appeal to buyers and investors. The permanent nature of freehold properties may make these properties a safer and more attractive option for long-term investments.
In some cases, leasehold properties can appreciate more rapidly than their freehold counterparts. Factors such as new condominium developments or properties in prime locations can drive appreciation in the area. Leasehold properties situated in central or desirable areas with modern amenities may experience significant appreciation early on, potentially outperforming older freehold properties in the same locale.
Resale and Market Demand
While leasehold and freehold properties can do well in the property market for different reasons, leasehold properties can face challenges in the resale market particularly when the balance lease reduces. Properties with less than 60 to 70 years remaining on the lease may deter potential buyers due to concerns about lease decay. Aside from the remaining time of a lease, leasehold properties can do well because of other factors like affordability, rental demand, and location.
Leasehold properties that are in specific locations popular amongst students or expats might do well in the rental market. Properties located next to schools and a wide range of amenities may be an attractive option for families with children. Additionally, leasehold properties are typically priced lower compared to their freehold counterparts, making them a good option for homebuyers.
Freehold properties may command higher prices in the resale market as they don’t experience lease decay. Buyers may perceive them as more desirable as a result, and may still find freehold properties to be an appealing choice in the long run even during economic fluctuations and challenging market conditions. However, a factor that can impact the market demand for freehold properties is the location and age of these developments. For older freehold properties, maintenance of facilities becomes a concern that may influence buying decisions. Freehold properties, just like their leasehold counterparts, may see higher demand and better performance in prime areas – especially if they are newer properties.
Financing
Financing for leasehold properties can be more restrictive in comparison to financing freehold properties. This is especially the case for properties with shorter balance leases. In this scenario, lenders may impose stricter conditions or higher interest rates resulting from the perceived risks associated with a shorter lease. Banks are also a lot more hesitant with offering the Loan-to-Value (LTV) ratio of 75% for leasehold properties with less time remaining on the lease as they consider the depreciating value of these properties. Additionally, buyers are not able to utilise their CPF to fund their property purchase if the remaining lease is less than 30 years.
On the other hand, there are no further restrictions on the LTV ratio or CPF usage for freehold properties since there is no lease period.
Which is a Better Option for You?
When considering whether a leasehold or freehold property in Singapore is the better choice, several factors must be taken into consideration.
For buyers that are seeking long-term investment properties with a perpetual runway for appreciation, or legacy planning, freehold properties may be the more advantageous choice.
Homebuyers and investors looking to enjoy the flexibility and appreciate market volatility can consider leasehold properties, given that they may not hold the property for more than a few years.
The better option between a leasehold and a freehold property depends on your individual circumstances and your long-term financial goals as both tenure types offer several benefits and challenges that must be taken into consideration when purchasing a property.
Closing Thoughts
Both leasehold and freehold properties have distinct characteristics, benefits and challenges that set them apart from one another in Singapore’s property market. Ultimately, the better option for buyers hinges on individual preferences, needs, and financial goals. Having an understanding of the nuances of each tenure type and of their own needs can empower buyers to choose an option that best fits their unique circumstances.
Get In Touch With Us
Are you currently in the market for a property? Are you deciding between purchasing a leasehold or a freehold property? Feel free to reach out to our team of experienced real estate consultants for any questions or concerns you have on your property journey – whether you are looking to buy, sell, or rent, we are more than happy to assist you.
Until the next one, see you!
