Freehold or leasehold new launch property?
Freehold New Launch Landed. Belgravia Ace
A lot of people know what is freehold and leasehold property in Singapore.
Still, there are 3 types of tenure holding of property in Singapore.
1. Freehold
Freehold enable you to hold the property for life. Unless the government needs the piece of land for other development. You will need to return to the State in the following act.
There is a law under land acquisition act as follows:
“The revised act fixed the compensation amount for acquired land at the market value as at 30 November 1973 or at the date of gazette notification, whichever was lower. The Land Acquisition Act expedited the process of land possession by the government for public purposes.”
It doesn’t matter if your property is leasehold or freehold. if the government needs the piece of land for the better future development of Singapore. Your property will acquire for that purpose.
2. 99 years leasehold
You will be the legal owner of property for 99 years. Once the 99 years is up, it will return back to the State.
3. 999 years leasehold
Well, you will be the legal owner of the property for 999 years. It is as good as freehold. Thus, the value of the property for 999 years lease is very much comparable to the freehold property.
What are the things to consider whether to get a freehold or leasehold property?
1. Considering for staying?
2. Considering for investment?
The value of freehold property is around 10 to 15% higher than leasehold in the same vicinity. Thus, rental yield will be higher if you are buying for leasehold property.
If you are purchasing the property for investment. It is more advisable to get a leasehold property.
The equation for calculating the rental yield is
Annual rental income/total cost of the property.
As we all know that the tenant will not look at the tenure when renting a property. Thus, the lower the total cost of the property, your rental yield will be higher.
If you are aiming for staying and jolly well consider to pass the property to your next generation. You may get a freehold property. But of course, this is not all about it. Because choosing a freehold property giving you more options.
What I mean is this. Imaging you are getting a leasehold property. Intended to create a retirement nest by the sale of your private property. There are few things you may need to consider.
1. When are you planning to sell your property?
2. Are you buying your next property a private one or HDB?
You need to ask yourself the above questions because of the following reasons.
According to research. The value of leasehold property will start to decline once they hit the 21 years old mark. Meaning the golden time to sell the property will be the first 20 years. Thereafter, the value of the property will start to decline.
You will get some money for retirement if you sell the private property. Now, you need to consider if you are going to get a HDB or another private property.
Know that the cost of the new private development is about 40% more at the same size and same location. Thus you might not left much money for even a smaller size unit. Unless you go for the old and smaller size development. Else, it will eat into your retirement nest.
It might make more sense to get a HDB flat if reserving more cash for retirement nest is important to you.
With the above scenario. May be getting a freehold property is a better choice. Freehold property gives you more options. For example you don’t need to force sell your property for fear of the declining value in certain time frame.
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Part of the reason is that freehold property will not be subject to loan restriction.
If a property lease left 40 year, banks will restrict financing the sale of the property. If the property left 30 years, buyers cannot use their CPF for the purchase of the property. Depending on the age of the buyer.
Freehold property giving you the option to stay put in the same property for a longer period. Without having to fear that the value may decline.
The value of the freehold property will still hold well even after 20 years. So, it may allows you to have the longer window of period to sell your property.
You may even be able to buy a new but smaller unit of 99 years lease private property. Considering you have more cash in hand.
So, to start up with having to pay another 10 or 15% higher for freehold may not be a bad idea in that sense.
So, to start up with having to pay another 10 or 15% higher for freehold may not be a bad idea in that sense.
The timing of when to sell your property is important. It could be one of the key consideration for buying either a leasehold or freehold property. According to the past data. Leasehold property appreciate better between the decade from 2009 to 2019. It appreciate a warping high of 86.7% compare to the freehold property appreciation of 60.8%.
The main reason may be because of the quantum of the property. Leasehold are more affordable comparing to freehold property. Bear in mind of the extra of 10 to 15% in prices.
But, freehold property outperformed leasehold property when hits the 21 to 30 years old of the property. According to the data. Freehold property appreciated 32.9% in prices. Whereas, leasehold property only appreciated 19% for the same period of time.
Conclusion:
You might want to ask yourself the following questions before deciding to buy a new launch leasehold or freehold property.
1. Is this property for stay or investment?
2. When do you intend to sell your property?
3. Do you intend to use your property to fund for your retirement if its for stay?
4. Do you want to buy a HDB or private property after selling the it?
Buying a leasehold property may be a better bet if you intend to sell within 20 years mark or before the property past 20 years (if the past data apply in the future.)