Freehold or Leashold – again?

Every once in a while, someone would write an article making a comparison between leasehold and freehold properties. Of course, when we are referring to leasehold, very often, it is referring to the 99 year leasehold, the 999 year which is as good as it gets, though still leasehold is taken to be equivalent to freehold in our local market context.

An article was published in the Today newspaper discussing this issue, which I feel is a over discussed issue. But since they have raised some points and so lets look at it for the purpose of pure discussion. Read the article here –

My view is that why discuss it when objectives for own stay or investment differs, and each property is unique, each estate has different value/positive attributes, there is no apple to apple comparison, hence why compare at all? But still people like to compare to make themselves feel good that their purchase decision was right.

The writers of the article stated that:  ”We studied resale prices of freehold versus leasehold properties and found that the difference was between 10 and 15 per cent. ” This situation of the price gap narrowing has only occurred since 2009, since our latest bull run, prior to this, the price gap has been higher. With new property launches at higher prices, leasehold properties in the vicinity enjoy (on paper) value appreciation, owners wanting to sell naturally use new launch prices as a benchmark for their property as well, and they sell at marginally cheaper than new launched projects.

But I believe these studies done may not have taken into account that the comparison is going to be difficult as all properties are unique and the informed buyer of today takes this view to the fullest. Leasehold properties with very good amenities and connectivity to MRT has always maintained not only good rental yields, but consistent price value. In good times, its price appreciation will not fall behind freehold properties, in bad times, its depreciation will not be by too much, as compared to freehold properties in far flung locales.

The only point I strongly agree with the writer of the article is that:

“for leasehold properties – age is a factor. Once the tenure of a leasehold property goes below 30 years, its value declines sharply as prospective buyers will not be able to withdraw funds from their Central Provident Fund account or secure a loan for the property purchase. ”

When leasehold properties age, and as it is at the end of its life like a really old car without available spare parts, it doesn’t become and antique car, but something more suitable for the scrap heap, its intrinsic “scrap” value is quite low. But in all property investments, if you had gone in right at the beginning, you would have reaped the full benefit from the entire life of the property, even if it went for a song at the end of its life.

If you had a choice of a freehold property far away from MRT and a leasehold property walking distance to the MRT station, which would you choose if the price is similar, do share your views with us.

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