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

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Originally Posted by reporter2

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

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anybody has any idea how his points brought out can lead to the above conclusion?

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Originally Posted by hopeful

anybody has any idea how his points brought out can lead to the above conclusion?

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As we all know all else is never equal.

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Originally Posted by hopeful

anybody has any idea how his points brought out can lead to the above conclusion?

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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.

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Originally Posted by EBD

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.

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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.

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Originally Posted by Ringo33

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.

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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.

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.

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Originally Posted by EBD

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.

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they got en bloc eventually and that is not forever. you buy higher you sell higher.

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Originally Posted by elmo

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.

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Elmo - you are as close to 100% correct as a human being could be.

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Originally Posted by EBD

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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%.

the writer is definitely reading this forum

there was a thread on 99 vs FH last week ... and now this article ..

I think freehold can ask for more money during enbloc than a 'dying less than 99yrs' unit.

my fren is pondering if he sld sell or keep his Bayshore since its already more than 20yrs its 99yr lease. wait longer and u cant sell it good, wait for enbloc dunno when it will happen.

that's the problem u will face when u have a 99yo property that has like 80yrs or lesser to go.

There are some never-say-die LH which are still holding strong to their prices ... Both projects are 99 yrs lease commencing from 1982 ... more than 30yrs gone :scared-4:

BAYSHORE PARK 1,400,000 1,076 01 to 05 1,301psf Jan-13
MANDARIN GARDEN CONDOMINIUM 1,100,000 829 11 to 15 1,327psf Mar-13
MANDARIN GARDEN CONDOMINIUM 1,350,000 1,001 11 to 15 1,349psf Jun-13
MANDARIN GARDEN CONDOMINIUM 1,150,000 829 16 to 20 1,388psf Jul-13

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Originally Posted by zeamybro

There are some never-say-die LH which are still holding strong to their prices ... Both projects are 99 yrs lease commencing from 1982 ... more than 30yrs gone :scared-4:

BAYSHORE PARK 1,400,000 1,076 01 to 05 1,301psf Jan-13
MANDARIN GARDEN CONDOMINIUM 1,100,000 829 11 to 15 1,327psf Mar-13
MANDARIN GARDEN CONDOMINIUM 1,350,000 1,001 11 to 15 1,349psf Jun-13
MANDARIN GARDEN CONDOMINIUM 1,150,000 829 16 to 20 1,388psf Jul-13

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and that Horizontal Tower ...hehehe

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Originally Posted by zeamybro

There are some never-say-die LH which are still holding strong to their prices ... Both projects are 99 yrs lease commencing from 1982 ... more than 30yrs gone :scared-4:

BAYSHORE PARK 1,400,000 1,076 01 to 05 1,301psf Jan-13
MANDARIN GARDEN CONDOMINIUM 1,100,000 829 11 to 15 1,327psf Mar-13
MANDARIN GARDEN CONDOMINIUM 1,350,000 1,001 11 to 15 1,349psf Jun-13
MANDARIN GARDEN CONDOMINIUM 1,150,000 829 16 to 20 1,388psf Jul-13

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Let's see what happens when the market turns bear 3 years down the road.

imo, SG is small, FH and LH usually can't last till 50 years before it get re-development. eg. Payar Lebar will be re-developed, all the plot ratio in the region will be increase. enbloc chances on 99LH developments are high and thus the values can't depreciated much.

second, Gov seem to put in more effort to develop those LH places.

if FH and LH is side-by-side, and FH has <8% premium, i would think FH is the better choice.

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Originally Posted by NorthernStar

imo, SG is small, FH and LH usually can't last till 50 years before it get re-development. eg. Payar Lebar will be re-developed, all the plot ratio in the region will be increase. enbloc chances on 99LH developments are high and thus the values can't depreciated much.

second, Gov seem to put in more effort to develop those LH places.

if FH and LH is side-by-side, and FH has <8% premium, i would think FH is the better choice.

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When FH and LH are places side by side, FH will be more valuable for sure, but you will also have to pay a premium to acquire the FH project. So there is nothing surprising that FH project are sold higher than LH.

Sharing by xxx on handling objection on leasehold vs freehold.

I have one buyer who bought from me a freehold project 5 years ago during new launch. Today, 5 years down the road, the price of this freehold project is still about the same. In other words, there is not much appreciation. (Urban Residences)

On the other hand, I have another buyer who bought High Park which is a 99 years leasehold mega project, also at new launch. Today, 3 years down the road, even before it TOP, the value has gone up by $200k to $300k.

If you were my buyer, which one would you prefer to have bought? The freehold or the leasehold?

Many people I speak to cannot understand why leasehold properties appreciate faster than freehold properties. Let me explain using a simple illustration.

If you have a grenadehttps://upload.wikimedia.org/wikiped...px-MkII_07.JPG in one hand and a time-bomb https://media.istockphoto.com/photos...-IgipLUnM95Jk= in another, which will you want to throw first? Yes, of course you would throw the time-bomb first because you don’t know when it will go off. Whereas as for the grenade, it will not go off unless you trigger it. A 99 year leasehold property is just like the time bomb, and a freehold property is like the grenade. So many people who buy 99 yr leasehold project will dispose of the property.

Would you agree with me that most people who buy freehold want to hold it forever? In fact, based on the past Comparative Market Analysis, there may only be one transaction in a freehold development in a year or even in a few years. If this is the case, how will the price go up? On the other hand, for a leasehold property, most buyers buy with the intention to sell, just depending on when they will sell. So within one year, there are multiple transactions and so the price can inch up because every seller wants to close higher than the previous deal.

Perhaps you want to buy freehold property because you hope to leave it to your next generations. Your desire to leave a legacy for your children is admirable but the truth is would the younger generation really want to live in an old house together forever and ever? So am I right to say that in the end, they would choose to sell it and split the money? By the time they sell it, the potential upside of this freehold property may most likely be lower than a leasehold property. In fact, we just had a colleague who served a pair of siblings who had inherited a property from their parents. The brothers chose to sell the old property and bought 3 units in our development.

After listening to my sharing, do you still think freehold is better than leasehold?

If both hold for 99 years, the 99-years leasehold property has a value of $0!
While the freehold property would have increased with inflation!
How can 99-years leasehold property has higher value than freehold property by the time you sell, say 30 years later (let alone 99 years later)?!
If agent is going to admit that freehold property is better than 99-years leasehold, then they can go eat dust liao because very few people going to buy 99-years leasehold (which make up >95% of all properties in Singapore) and there will be NO TRANSACTION! And they have $0 COMMISSION! :grief:

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Originally Posted by Arcachon

Sharing by xxx on handling objection on leasehold vs freehold.

I have one buyer who bought from me a freehold project 5 years ago during new launch. Today, 5 years down the road, the price of this freehold project is still about the same. In other words, there is not much appreciation. (Urban Residences)

On the other hand, I have another buyer who bought High Park which is a 99 years leasehold mega project, also at new launch. Today, 3 years down the road, even before it TOP, the value has gone up by $200k to $300k.

If you were my buyer, which one would you prefer to have bought? The freehold or the leasehold?

Many people I speak to cannot understand why leasehold properties appreciate faster than freehold properties. Let me explain using a simple illustration.

If you have a grenadehttps://upload.wikimedia.org/wikiped...px-MkII_07.JPG in one hand and a time-bomb https://media.istockphoto.com/photos...-IgipLUnM95Jk= in another, which will you want to throw first? Yes, of course you would throw the time-bomb first because you don’t know when it will go off. Whereas as for the grenade, it will not go off unless you trigger it. A 99 year leasehold property is just like the time bomb, and a freehold property is like the grenade. So many people who buy 99 yr leasehold project will dispose of the property.

Would you agree with me that most people who buy freehold want to hold it forever? In fact, based on the past Comparative Market Analysis, there may only be one transaction in a freehold development in a year or even in a few years. If this is the case, how will the price go up? On the other hand, for a leasehold property, most buyers buy with the intention to sell, just depending on when they will sell. So within one year, there are multiple transactions and so the price can inch up because every seller wants to close higher than the previous deal.

Perhaps you want to buy freehold property because you hope to leave it to your next generations. Your desire to leave a legacy for your children is admirable but the truth is would the younger generation really want to live in an old house together forever and ever? So am I right to say that in the end, they would choose to sell it and split the money? By the time they sell it, the potential upside of this freehold property may most likely be lower than a leasehold property. In fact, we just had a colleague who served a pair of siblings who had inherited a property from their parents. The brothers chose to sell the old property and bought 3 units in our development.

After listening to my sharing, do you still think freehold is better than leasehold?

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Originally Posted by teddybear

If both hold for 99 years, the 99-years leasehold property has a value of $0!
While the freehold property would have increased with inflation!
How can 99-years leasehold property has higher value than freehold property by the time you sell, say 30 years later (let alone 99 years later)?!
If agent is going to admit that freehold property is better than 99-years leasehold, then they can go eat dust liao because very few people going to buy 99-years leasehold (which make up >95% of all properties in Singapore) and there will be NO TRANSACTION! And they have $0 COMMISSION! :grief:

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You are right, regardless of what others tell you. If you own a 99-year leasehold property, you are just a lessee, not an owner. If you stay in an HDB apartment, you are not even a lessee. You are just a renter. Back in 2010, a whole bunch of 99-year leasehold condos were launched in the west coast area at $1300-$1400 psf, including the vision, which was LKS's pet project. Now all these projects are underwater, while those with 999-year tenure are selling at $200 psf or more higher.

It is just dumb for some to say leasehold properties are equally good. They can be used by only one generation, while freehold properties can be used by hundreds of generations.

It is incorrect to say Singapore has the highest home ownership in the world. What most Singaporeans have is not ownership, but rather the right to use the property for a limited amount of time, 99 years. That is leasehold.

I have very old 99 and freehold projects, both near Orchard road( less than 10 mins walk). Both 50 years old, in 1995, the first owner bought the 99LH @ 850k and the freehold cost around 500k. Now both going for enbloc, the enbloc value of the freehold is 3.48M while the 99LH is only 1.89M. In resale market, the freehold cost 1.9M while the LH cost 1.5-1.6M. If possible, go for freehold.

Just for your info.

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Originally Posted by oldfreehold

I have very old 99 and freehold projects, both near Orchard road( less than 10 mins walk). Both 50 years old, in 1995, the first owner bought the 99LH @ 850k and the freehold cost around 500k. Now both going for enbloc, the enbloc value of the freehold is 3.48M while the 99LH is only 1.89M. In resale market, the freehold cost 1.9M while the LH cost 1.5-1.6M. If possible, go for freehold.

Just for your info.

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Thanks for sharing.

https://www.youtube.com/watch?v=9n2tmNWn1ec

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Originally Posted by oldfreehold

I have very old 99 and freehold projects, both near Orchard road( less than 10 mins walk). Both 50 years old, in 1995, the first owner bought the 99LH @ 850k and the freehold cost around 500k. Now both going for enbloc, the enbloc value of the freehold is 3.48M while the 99LH is only 1.89M. In resale market, the freehold cost 1.9M while the LH cost 1.5-1.6M. If possible, go for freehold.

Just for your info.

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Why was it that 20 years ago (when both properties were about 30 years old), the FH cost much less than the LH? Location attributes?

In this example, surely buying the lower priced property made more sense. Supposing in 1995, the LH costed 500K and the FH costed 850K, it may still make sense to opt for the LH? In this case of course, the FH wins hands down.