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http://www.straitstimes.com/archive/sunday/premium/invest/story/property-buyers-mind-lease-20120909
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Property buyers, mind that lease
Leasehold tenures may offer better yields, but tread cautiously
Published on Sep 09, 2012
By Lee Su Shyan Money Editor
When investing in private property, I hold the notion that freehold is best and 99-year leasehold is to be avoided, but this view has been tested in recent years.
Values for many leasehold properties are holding up well and some are even outstripping that of similar freehold developments, so the old certainties do not always apply.
Freehold is not a universal concept either. Residential land in China is typically sold with tenure of 70 years and only 50 years in some cases in Hong Kong.
Australian property is mostly freehold while in Britain, it can vary from freehold to leasehold.
I often pore through advertisements for British property and when what seems like a bargain stands out, the fly in the ointment is often the lease term - of as little as 20 years sometimes.
Having a longer tenure means freehold commands a premium to leasehold. On that score, since rents would not differ that much, the higher yields for a leasehold property are one factor in its favour.
But leasehold properties here have also kept their value well in recent years.
For example, the leasehold project The Sail sells for around $2,000 per sq ft (psf). Recent transactions at Caribbean at Keppel Bay show that units were going at around $1,500 psf, with some going for even higher prices like $1,800 psf.
Contrast that to the more than 900-year leasehold properties in the prime River Valley area where transactions for Valley Park and Aspen Heights hover around the $1,500 psf range too.
Of course, no two projects are alike. The latter two I cited are older but they are large plots of land, offering a range of facilities for residents. They are even candidates for collective sales, something that should help to prop up their value.
In recent years, it has been proximity to MRT stations that gives a fillip to values, even if they are leasehold projects. Around the Redhill MRT station for example, transactions at the leasehold Metropolitan, Tanglin View and Tanglin Regency are all comfortably within the $1,200 to $1,400 psf range.
Last week, the Government launched a residential site for sale where developers have an option to bid for a 30-, 45- or 60-year lease period. The site offers the option of building retirement housing.
With developers expected to bid less than what they would for a 99-year lease, the obvious result is that buyers can expect more attractive pricing.
Singapore as a vibrant property market should offer a variety of sizes, locations, designs or land tenures to cater to the different needs of various buyers.
However, as home buyers are familiar only with tenures that are 99 years, freehold or 999 years leasehold, there would be less clarity about the pricing of projects with other lease periods.
Applying straight line depreciation, the value of land erodes by about 1 per cent a year for a 99-year leasehold site and 1.7 per cent a year for a 60-year lease.
After 20 years, the difference is starker. The land value would have depreciated by 20 per cent for the 99-year site and 34 per cent for the 60-year site.
In any case, with a project's pricing subject to many factors such as location and design, it is not clear if that full difference will eventually be reflected in the selling price. All it takes is for developers to price their projects just a tad lower and property agents to trumpet the attractive yield before investors may jump on the bandwagon.
As Singapore is a relatively young country, there are fewer precedents of lease renewal and top-ups to guide buyers in their decisions.
With different lease tenures, it will take time before buyers get to grips with how to evaluate if a property is worth buying or not.
That is why my money is still on freehold, if only because it is likely to entail fewer problems in passing the property to the next generation.
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Wild Falcon
11-09-12, 11:22
Good point except for the following:-
1) Depreciation is not straight line - it increases as the property ages. See formula at SLA
2) He names a very good point where 20 year lease property in London are going for dirt cheap prices
3) He forgot the main reason why 99Lh are holding up is due to land intensification. If one unit can be enbloced to entail 2 units for the future developer (i.e. double the plot ratio), even if PSF goes down, the fact that u have double the space to sell means, u still make a handsome profit, like in the case of Thomson View. The PSFPPR is unimpressive but the intensification of the GFA means everyone makes 30% premium, despite the lease depreciation (esp when a large part of proceeds goes to govt for lease topup). This means if your condo has maxed out the GFA, the chance of enbloc of a 99LH is close to nil. Those 99LH that manage to enbloc are those with the plot ratio intensified.
Plot ratio will move up eventually. Even if going underground.
phantom_opera
11-09-12, 11:36
anybody knows why Kovan Regency can have high rise 99LH building in the middle of low rise landed properties?!
moral of the story, be very careful with non-prime 99LH that is super-crammed with no land intensification potential, a few recent projects come to mind
phantom_opera
11-09-12, 11:51
one word. Connections?
guess they allow it due to proximity to Kovan MRT
Wild Falcon
11-09-12, 11:57
I think those near MRT stations got higher chance of increase in plot ratio. But not guaranteed.
anybody knows why Kovan Regency can have high rise 99LH building in the middle of low rise landed properties?!
moral of the story, be very careful with non-prime 99LH that is super-crammed with no land intensification potential, a few recent projects come to mind
Good point except for the following:-
1) Depreciation is not straight line - it increases as the property ages. See formula at SLA
2) He names a very good point where 20 year lease property in London are going for dirt cheap prices
3) He forgot the main reason why 99Lh are holding up is due to land intensification. If one unit can be enbloced to entail 2 units for the future developer (i.e. double the plot ratio), even if PSF goes down, the fact that u have double the space to sell means, u still make a handsome profit, like in the case of Thomson View. The PSFPPR is unimpressive but the intensification of the GFA means everyone makes 30% premium, despite the lease depreciation (esp when a large part of proceeds goes to govt for lease topup). This means if your condo has maxed out the GFA, the chance of enbloc of a 99LH is close to nil. Those 99LH that manage to enbloc are those with the plot ratio intensified.
good points but I think I should sound a strong caveat. With the govt piloting 60yrs or less LH plots, the chances of enblocing/land intensification may lessen somewhat especially if the public becomes more 'accepting' of 60yrs LH plots.
I may be wrong but if 60yrs LH plots takes off, the trend for govt to approve 99yr lease extensions will diminish. More and more plots will be converted to 60yrs LH as and when they become due. This will happen to HDB too to increase affordability.
Why? because shorter leasehold terms give the govt more flexibility in urban planning and MORE importantly, faster turnover to increase land sale revenues. 99yrs LH plots may become a thing of the past but with that said, I will probably not see it in my lifetime as a lot of the 99yr LH plots have yet to come due.
good points but I think I should sound a strong caveat. With the govt piloting 60yrs or less LH plots, the chances of enblocing/land intensification may lessen somewhat especially if the public becomes more 'accepting' of 60yrs LH plots.
I may be wrong but if 60yrs LH plots takes off, the trend for govt to approve 99yr lease extensions will diminish. More and more plots will be converted to 60yrs LH as and when they become due. This will happen to HDB too to increase affordability.
Why? because shorter leasehold terms give the govt more flexibility in urban planning and MORE importantly, faster turnover to increase land sale revenues. 99yrs LH plots may become a thing of the past but with that said, I will probably not see it in my lifetime as a lot of the 99yr LH plots have yet to come due.
Bro agree... my theory on plot ratio increase is
1. Govt do not want to see some old building spoiling the facade and increasing plot ratio allows rejuvenation to the area.
2. plot ratio increase will take place around mrt to take advantage of higher ridership.
when 60 yr lease available, i will buy to stay and rent out my existing unit. or even buy it and rent it out.
good points but I think I should sound a strong caveat. With the govt piloting 60yrs or less LH plots, the chances of enblocing/land intensification may lessen somewhat especially if the public becomes more 'accepting' of 60yrs LH plots.
I may be wrong but if 60yrs LH plots takes off, the trend for govt to approve 99yr lease extensions will diminish. More and more plots will be converted to 60yrs LH as and when they become due. This will happen to HDB too to increase affordability.
Why? because shorter leasehold terms give the govt more flexibility in urban planning and MORE importantly, faster turnover to increase land sale revenues. 99yrs LH plots may become a thing of the past but with that said, I will probably not see it in my lifetime as a lot of the 99yr LH plots have yet to come due.
if this is the trend going fwd, then how do we take advantage...buy & hold 999/f'hold only since it will become even more valauble if 99yrs LH plots disappears? anyway, like u said, probly only my grandchildren/great grandchildren will benefit.
phantom_opera
11-09-12, 12:35
I think garmen is not yet serious about 60LH being the norm yet ... if anything to go they should start with HDB isn't it?
Shit!!! then us existing landlords will be stuck with 99 or FH cant compete with 60LH low asking rents!
I seriously doubt owners of 60yr LH will ask for lower rentals. Just look at the 99LH rental is as high, if not higher than some FH projects. Rental is usually independent of FH/LH. Amenities and MRT accessibility is more commanding... ;)
yep, agree with ysyap. Its not as if they are gonna release a slew of new 60yrs LH plots. It just that existing 99yrs LH plots will gradually be converted to 60yrs. The GLS will continue but no more 99yrs LH plots will be offered for sale in time to come.
I think garmen is not yet serious about 60LH being the norm yet ... if anything to go they should start with HDB isn't it?
Therein lies the beauty of their strategy..if they can succeed, they will effectively bring down the price of the private property sector without pissing off HDB owners or affecting HDB prices. Right now, our ppi doesn't differentiate between FH/LH transactions.
they can then say with a straight face that ppi has come down x% just like they say that EP rejects have increased by 30%....
Frankly speaking, I doubt the price will drop much with 60yrs LH. As long as the project is in a good location with good amenities and transport, people will still buy and developers can still sell at high price. Looking at current, many 99 years command higher psf than freehold. Price is dependent on supply and demand. All these will only benefit the govt and developers. Developers will still bid high land price for good location and sell high.
Therein lies the beauty of their strategy..if they can succeed, they will effectively bring down the price of the private property sector without pissing off HDB owners or affecting HDB prices. Right now, our ppi doesn't differentiate between FH/LH transactions.
they can then say with a straight face that ppi has come down x% just like they say that EP rejects have increased by 30%....
Only during bad times, when there is a surplus of stocks, then freehold becomes the treasure. During good times, who cares 99 or freehold.
Regulators
11-09-12, 14:59
I think old leasehold properties with 80+ years left will become more attractive to buyers when 60 yr leases become a norm in the coming years. If we are moving in the direction of allowing lease top ups for old projects like hk, then price depreciation of leasehold property will not be serious issue. For densely n highly populated old condos that have maximised plot ratio with the building in good condition, it would stand a better chance for lease top ups compared to old projects with few units that are better off to go the path of en bloc. If you guys are investing with the hope of increased plot ratio, best bet has to be the stretch of bukit timah condos where the downtown line runs through.
If 40% cheaper than similar 99LH... My bullet is loaded and ready to fire.
Regulators
11-09-12, 15:13
If it takes 1/4 to 1/3 the time of the lease to break even from rental, yes, even a 60yr LH is investable.
If 40% cheaper than similar 99LH... My bullet is loaded and ready to fire.
If they sell 40% cheaper the yield would be incredible. If 99LH is 4%, the 60LH could double that (8%). In 12-15 years you would be breaking even.
wonder if after the 60 lh starts to take off (maybe in next 1 or 2 decades), will garmen start to find reasons to do forced land acquisition for all existing FHs so they can GLS it as 60lh parcels... scary thought.
wonder if after the 60 lh starts to take off (maybe in next 1 or 2 decades), will garmen start to find reasons to do forced land acquisition for all existing FHs so they can GLS it as 60lh parcels... scary thought.
Everything is possible, but now adays, the people are smarter and govt needs to compensate at market rate.
Everything is possible, but now adays, the people are smarter and govt needs to compensate at market rate.
market rate may not be exactly market... just look at pearl centre.. most of them kbkb. :banghead:
market rate may not be exactly market... just look at pearl centre.. most of them kbkb. :banghead:
They suay because they were going for enbloc... this is the first time... but you are right. if there were very no transactions in the past 2 year, then price based on most recent transaction, so knock wall..
wonder if after the 60 lh starts to take off (maybe in next 1 or 2 decades), will garmen start to find reasons to do forced land acquisition for all existing FHs so they can GLS it as 60lh parcels... scary thought.
wont one.... all the ministers staying in FH GCBs....:D
If they sell 40% cheaper the yield would be incredible. If 99LH is 4%, the 60LH could double that (8%). In 12-15 years you would be breaking even.
If they sell 40%, i will also buy. But you think they will? ..lol..
maybe give you 1% spread.
No matter what, it will have to be priced cheaper as long as there are comparable 99yrs LH in the vicinity. All things being equal, you would never pay the same price for a unit with a shorter leaselife.
In short, a price ceiling is already there. Hence, if so many of you are already waiting on the sidelines to snap up the units, big bro would have achieve his objective of bringing down the property price index....
obi wan has won his clone wars without even using his jedi mind trick!
Let's say u buy 1000sqft 2 bed for 600K for 60LH. U pay 30% downpayment for 30 years loan. Monthly u pay 1500 repayment. U rent it for 3000, u are on positive gearing for 1500 a month.
I suspect the discount won't be huge. Maybe a 20-25% discount only. People are willing to pay more for new apartments. Even though land is cheaper, development and marketing costs are the same.
Buyers end up none the wiser and a new solution to escalating prices will have arrived.
I suspect the discount won't be huge. Maybe a 20-25% discount only. People are willing to pay more for new apartments. Even though land is cheaper, development and marketing costs are the same.
Buyers end up none the wiser and a new solution to escalating prices will have arrived.
I heard somebody said " no 50% discount, no buy"
I heard somebody said " no 50% discount, no buy"
First discount is on lease, second discount on size, third discount on price.
I am sure it all adds up to more than 50%.
blackjack21trader
12-09-12, 13:15
what brothers here said are good logic. but one thing abt freehold, some freehold lands are kena marked and will never be enbloced, ever....good luck. choose ur freehold purchases wisely.
blackjack21trader
12-09-12, 14:30
what brothers here said are good logic. but one thing abt freehold, some freehold lands are kena marked and will never be enbloced, ever....good luck. choose ur freehold purchases wisely.
How a project is marked:
1) Many rejected previous bids, owners asking for sky high prices after every enbloc attempt.
2) Some very very very stubborn owners living within the estate.
Developer brothers will know who these people are.
3) Owners have very unrealistic expectation of the market.
The choice is yours, you should be smart enough to see this kinda project when viewing.
blackjack21trader
12-09-12, 14:55
Therefore, to play safe, look for such enbloc pointers:
1) look within CCR And RCR districts for freehold projects.Most OCR lands are now sold by government, so no point unless the density is low and land size big.
2) In CCR, look for low density ( 50 to 150 units ), age more than 10 years and less than 30 years projects. best if never enbloc before.
3) look for good location with MRT and other amenity nearby.
4) best to go for single block to 2 blocks projects.
5) More tenants than owners or 50-50 percentage.
6) Near main road or beside 2 lanes road is best.
7) look for height restriction and plot ratio build.
Good Luck. Happy enblocking !
blackjack21trader
12-09-12, 20:53
Now, since many brothers here pretended not to see my post, I shall repeat again:
The developer brothers r now also looking to take over as many freehold lands as possible, so that they can substain future business developments for their next generations also. they wanna do the same as you also, buy freehold so that the land can be recycled later la. How so ?
Well, after buying from you freehold land, they can sell the lease to you for 60-90 years . Freehold projects ( NOT LANDED HOR unless your land is like 100,000 sqft) are the only ones that you can sell a part of the lease and recycle the land after every certain tenure.
I know, you are fearful that many might see this and start to rush before you. Dun worry lah.. you know why ? Because as I mentioned, not every freehold land can be enblocked, or are in demand by developers hor.
WOAHAHAHHHEHEHEHHEHEHEHEHEHHEHEHEH
blackjack21trader
12-09-12, 21:02
Now, since many brothers here pretended not to see my post, I shall repeat again:
The developer brothers r now also looking to take over as many freehold lands as possible, so that they can substain future business developments for their next generations also. they wanna do the same as you also, buy freehold so that the land can be recycled later la. How so ?
Well, after buying from you freehold land, they can sell the lease to you for 60-90 years . Freehold projects ( NOT LANDED HOR unless your land is like 100,000 sqft) are the only ones that you can sell a part of the lease and recycle the land after every certain tenure.
I know, you are fearful that many might see this and start to rush before you. Dun worry lah.. you know why ? Because as I mentioned, not every freehold land can be enblocked, or are in demand by developers hor.
WOAHAHAHHHEHEHEHHEHEHEHEHEHHEHEHEH
Of cos I cannot pinpoint the exact projects for you...But I can reveal a little skirt for you after 25 December 2012 hor....
Allthepies
12-09-12, 21:19
Of cos I cannot pinpoint the exact projects for you...But I can reveal a little skirt for you after 25 December 2012 hor....
Aiyo always tempt us :D :D :D
I think this is a cleaver strategy by the government to take back land whose lease are expiring.
I think all the 99 year property owners think that government will always let them enbloc or renew their lease so no worries.
I think there might be some political backlash if government forces people out of their houses when the lease runs out.
By giving out land with 30 year land, one can hardly complains when it is time to move out.
By creating a few examples of extremely short lease (30 years?) property and showing the people what happens when the lease runs out, it will prepare those 99 year property owners for what will happen when their lease runs out.
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