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Thread: Is freehold property better than 99-year?

  1. #1

    Default Is freehold property better than 99-year?

    http://www.businesstimes.com.sg/spec...-year-20131017

    Published October 17, 2013

    Is freehold property better than 99-year?

    Well, it depends on whether one is buying a landed or non-landed property

    By christine li


    THERE are generally two types of property tenure in Singapore: 99-year leasehold and freehold. We consider 999-year leasehold to be the same as freehold, because their difference in value is negligible.

    Freehold properties hold a few advantages over their leasehold counterparts - higher en-bloc potential, slower pace of depreciation and no restrictions on the use of Central Provident Fund for home purchases.

    In recent years, new leasehold condominiums seem to have dominated the market. The proportions of new leasehold and freehold condominium sales stand at 95 per cent to 5 per cent respectively as of first half of 2013. In contrast, back in 2006 and 2007, around 70 per cent of new sales were freehold. This could be attributed to the ramp-up of the government land sales programme in recent years and the tightening of en- bloc rules in October 2007.

    Proponents of freehold properties might argue that the price appreciation of freehold properties always outstrips that of their leasehold counterparts. This is because leasehold properties will depreciate over the course of their lease.

    In order to find out how properties with different tenures but similar attributes perform over time, we picked Southaven I and Southaven II for illustration. Both projects were developed by the Ho Bee Group and share similar attributes such as location, product quality and facilities. Both projects were also launched for sale in 1995, but completed two years apart. The price gap between Southaven I and II seems to have widened from only 8 per cent at its launch in 1995 to 18 per cent in 2013. But this price trend alone is not conclusive due to uneven and thin transaction volumes. The attributes of units sold in the same year were also not comparable. But it gives a good glimpse of how two projects with different tenures located right next to each other fare over time.

    If we are to look at the broader market, freehold condominiums might not always enjoy superior price appreciation over their leasehold counterparts. Our analysis of the freehold and leasehold indices over the last three property cycles shows that out of the three upcycles, the freehold index only outperforms the leasehold index over one cycle between Q3 2006 and Q2 2008. This is the period just before the global financial crisis when the en-bloc frenzy reached all-time high in terms of number of deals and transaction values. During this upcycle, freehold properties moved up 54 per cent, outperforming leasehold properties which only appreciated 39 per cent. For the other two upcycles, en-bloc activities were fairly muted with fewer deals and much lower transaction values. We can thus infer that en-bloc potential plays a key role in determining the price performance of leasehold and freehold properties.

    Interestingly, during the subsequent downturn, freehold condominiums also lost 27 per cent of their value compared to 24 per cent for leasehold condominiums. Upon analysing the downcycles, we observed that regardless of tenure, the higher the price appreciation during the upturn, the greater the fall during the downturn. This was what happened to leasehold properties during the dotcom crash between Q3 2000 and Q2 2002. The prices of leasehold condominiums gained 46 per cent as compared to a milder 38 per cent for freehold condominiums. However, leasehold condominiums fell almost twice as much as their freehold counterparts when the general market went into a slump after the dotcom crash.

    In the landed segment, the performance of terrace houses seems to paint a different picture. Freehold terrace houses have outperformed the leasehold ones in all periods except for the downturn during dotcom crash. In good times, they perform better than leasehold ones and in downturns, they also seem more resilient. This could be because of the restrictions on foreigners owning landed properties in Singapore.

    So, which is better, freehold or leasehold? Based on the analysis, the answer depends on whether one is buying a landed or non- landed property. If buying a landed property, historical data shows that freehold might be a better choice. If one is buying a leasehold non-landed property in the current upcycle, given the challenging en-bloc market, leasehold could help to lock in more percentage gains if it is bought and sold at the right time.

    Indeed, property values are influenced by multiple factors. However, if we assume all else being equal, freehold properties will always command a premium over their leasehold counterparts.

    The writer is the head of research and consultancy at property firm OrangeTee

  2. #2

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    Quote Originally Posted by reporter2 View Post
    http://www.businesstimes.com.sg/spec...-year-20131017

    Published October 17, 2013
    ........
    Indeed, property values are influenced by multiple factors. However, if we assume all else being equal, freehold properties will always command a premium over their leasehold counterparts.

    The writer is the head of research and consultancy at property firm OrangeTee
    anybody has any idea how his points brought out can lead to the above conclusion?

  3. #3

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    Quote Originally Posted by hopeful View Post
    anybody has any idea how his points brought out can lead to the above conclusion?
    As we all know all else is never equal.
    "Never argue with an idiot, or he will drag you down to his level and beat you with experience."

  4. #4
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    Quote Originally Posted by hopeful View Post
    anybody has any idea how his points brought out can lead to the above conclusion?
    The 2nd Paragraph?



    "Freehold properties hold a few advantages over their leasehold counterparts - higher en-bloc potential, slower pace of depreciation and no restrictions on the use of Central Provident Fund for home purchases."


    Conclusion
    "Indeed, property values are influenced by multiple factors. However, if we assume all else being equal, freehold properties will always command a premium over their leasehold counterparts."


    If 2 lots are side by side - one FH and one 99yr

    Both build identical buildings - same design, same materials. Everything all same-same.

    Which is worth more? Lease remaining FH 99
    Which is worth more in 10 yrs. infinite 89
    Which is worth more in 50 yrs. infinite 49
    Which is worth more in 100 yrs. infinite -1


    If enbloc happens - all things being equal you will get more money from developer for FH as they won't get have to pay development charge to top the LH back up to 99 yrs.


    And finally common sense. If you buy FH it's your's forever - 99 is definately gone in 99 yrs, you are in fact leasing your home.

  5. #5

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    Quote Originally Posted by EBD View Post
    The 2nd Paragraph?



    "Freehold properties hold a few advantages over their leasehold counterparts - higher en-bloc potential, slower pace of depreciation and no restrictions on the use of Central Provident Fund for home purchases."


    Conclusion
    "Indeed, property values are influenced by multiple factors. However, if we assume all else being equal, freehold properties will always command a premium over their leasehold counterparts."


    If 2 lots are side by side - one FH and one 99yr

    Both build identical buildings - same design, same materials. Everything all same-same.

    Which is worth more? Lease remaining FH 99
    Which is worth more in 10 yrs. infinite 89
    Which is worth more in 50 yrs. infinite 49
    Which is worth more in 100 yrs. infinite -1


    If enbloc happens - all things being equal you will get more money from developer for FH as they won't get have to pay development charge to top the LH back up to 99 yrs.


    And finally common sense. If you buy FH it's your's forever - 99 is definately gone in 99 yrs, you are in fact leasing your home.

    FH apartment is NOT yours forever. Eventually it will get en bloc, unless you are Peter Lim who own the entire apartment for his family own stay.
    "Never argue with an idiot, or he will drag you down to his level and beat you with experience."

  6. #6
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    Quote Originally Posted by Ringo33 View Post
    FH apartment is NOT yours forever. Eventually it will get en bloc, unless you are Peter Lim who own the entire apartment for his family own stay.
    Oh dear - look who has come out to play and bathe us in the shining light of his general ignorance.

    Take a look at what I wrote.
    I even explained what happens during enbloc process of FH vs 99

    Having gone through 2 enblocs myself, one FH and 1 99 forgive me for being so presumptive to think I may know a little more on the subject than - what did yo call yourself before? "a humble HDB dweller"

    That said - feel I must congratulate you for make an obvious & true statement earlier. "As we all know all else is never equal."

    Well done , throw away one liner - which is why both the author and I have tried to isolate the other variables that play into property value to show the effect of leasehold vs freehold.

    Maybe you could propose a different way of figuring these things out? Did you do well in science at school?

    He covers enbloc, so did I.
    He covers all things being equal - so did I.
    You can't read & process simple concepts? All your problem - I'm not going sit here all day spoon feeding you with the obvious.

    oh - sorry, I just read "your" sig and reminded myself not to waste my time.
    Besides, it never looks good to engage in a battle wits against an unarmed man.

  7. #7

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    Lets say we have another product, LH66 vs. LH99.

    Property price is now so super high that most people can only afford a LH66 vs a LH99. Again, some will say that 40 years later, sure enbloc and have to sell it anyway. So, might as well buy LH66 vs. LH99. E.g. LH66 are in better location, quantum is lower, things are never equal etc.

    The fact is most property buyers are limited financially. Once a buyer is limited financially, from his perspective, he will think LH99 is cheaper than Freehold, thus offer better value for his ability and he can deploy his spare cash elsewhere. Another buyer will see LH66 better than LH99 in the same manner. Both are compensated by the price difference.

    The fact of the matter is the longer the lease the better it is. However, it may not necessary make sense for the buyer.

  8. #8

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    Quote Originally Posted by EBD View Post
    Oh dear - look who has come out to play and bathe us in the shining light of his general ignorance.

    Take a look at what I wrote.
    I even explained what happens during enbloc process of FH vs 99

    Having gone through 2 enblocs myself, one FH and 1 99 forgive me for being so presumptive to think I may know a little more on the subject than - what did yo call yourself before? "a humble HDB dweller"

    That said - feel I must congratulate you for make an obvious & true statement earlier. "As we all know all else is never equal."

    Well done , throw away one liner - which is why both the author and I have tried to isolate the other variables that play into property value to show the effect of leasehold vs freehold.

    Maybe you could propose a different way of figuring these things out? Did you do well in science at school?

    He covers enbloc, so did I.
    He covers all things being equal - so did I.
    You can't read & process simple concepts? All your problem - I'm not going sit here all day spoon feeding you with the obvious.

    oh - sorry, I just read "your" sig and reminded myself not to waste my time.
    Besides, it never looks good to engage in a battle wits against an unarmed man.
    they got en bloc eventually and that is not forever. you buy higher you sell higher.
    "Never argue with an idiot, or he will drag you down to his level and beat you with experience."

  9. #9
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    Quote Originally Posted by elmo View Post
    Lets say we have another product, LH66 vs. LH99.

    Property price is now so super high that most people can only afford a LH66 vs a LH99. Again, some will say that 40 years later, sure enbloc and have to sell it anyway. So, might as well buy LH66 vs. LH99. E.g. LH66 are in better location, quantum is lower, things are never equal etc.

    The fact is most property buyers are limited financially. Once a buyer is limited financially, from his perspective, he will think LH99 is cheaper than Freehold, thus offer better value for his ability and he can deploy his spare cash elsewhere. Another buyer will see LH66 better than LH99 in the same manner. Both are compensated by the price difference.

    The fact of the matter is the longer the lease the better it is. However, it may not necessary make sense for the buyer.
    Elmo - you are as close to 100% correct as a human being could be.

  10. #10

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    Quote Originally Posted by EBD View Post
    ......
    thanks, i think the writer is using southaven 1 & 2 as comparison. based on that, he comes to conclusion that FH has premium over LH.

    but based on that article, i am surprise the premium at launch is only 8%.

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