• Joshua Loo

Leasehold Landed Properties, Are They Worth the Purchase?



Buying a Leasehold Property.


These are words that will strike fear into the average consumer. After all, why should you pay to “rent” rather than own an actual property! It definitely sounds like heresy, and an outright sin to even consider purchasing a property with a leasehold tenure.


In that case, purchasing a leasehold landed property will definitely not even be considered!


However, are leasehold landed properties really not worth the dollar investment? We take a closer look at these forms of properties.

Poor Response from The General Public


The limited supply of landed properties usually means that freehold/999 year landed properties will be an incredible buy, should you be able to afford one.


When it comes to the best investments that a property investor can make, most will usually think of the freehold tenure as a concrete way of obtaining good returns through capital appreciation.


Leasehold properties do not have this advantage as its valuation is linked to its remaining lease. This is not to say that there will be no capital appreciation, but lease decay will be a sticking point.


Although lease tenure plays an important role, focusing only on it is a mistake to be avoided. For landed properties, other factors such as build-up, facing, location, and legal restrictions are equally important as well.

A Chance to Live in a Landed Property, At a Significant Discount



Regardless of the land tenure, freehold/999 year and leasehold properties will always move in tandem to market cycles. However, the degree of capital appreciation will differ. From the chart above, it shows that the PSF for leasehold landed properties are at S$895 PSF. This is almost $500 PSF cheaper!


For a semi-detached sized land (2,160 sqft), the difference in land tenure can save you almost S$1.08 million!


Singaporeans still generally favor freehold properties over leasehold properties. This is evident in the volume of sale transactions. There is definitely time pressure on the sellers to release their leasehold landed properties, and this might work in your favor in obtaining a further discount from a property that you really like.


However, do take note that when you are in the position of the seller in the future, the challenges that are mentioned will now be applicable to you.


For property seekers looking for a retirement home, this is the most ideal choice.

Rental Opportunities?



The difference in land tenure seldom has an effect on transacted rental prices. Strangely for 2020, leasehold rental transaction and prices have held their prices against freehold/999 year landed properties.


I do not have an answer for this, I believe that this can be due to a suppressed private residential sale and purchase prices.


Most Probable Explanation


The fall in freehold rental transactions could possibly mean that these tenants might have taken the opportunity to purchase their own homes as prices are suppressed in recent times due to the COVID 19 circuit breaker. My argument is supported by the quick market recovery sales volume to pre COVID-19 numbers.

That being said, freehold landed estates are more plentiful as compared to leasehold landed estates. This might result in tenants who were previously renting a freehold rental property, taking this opportunity to purchase a freehold property within their neighborhood.

Ignore the data in September 2020 for now as the information is incomplete at this point.


Least Probable Explanation


Leasehold landed property owners are investors with the mindset of obtaining good rental yield. This explanation might be unlikely as private condominiums offer a stronger rental yield due to its price quantum.


Purchasing a landed property for rental is not a popular choice in recent years.

Summary


Leasehold landed properties will definitely not be Singaporeans first choice when they are looking to purchase a landed property. However, it also depends on which stage of your life are you in.


If pursuing a landed-living lifestyle at an affordable cost appeals to you. This will definitely be an easy choice.


However, if you are looking to accumulate your assets for the long term for the next generation, freehold properties will still be the most suited choice.




Need further help deciding which are the best investment properties for you? Contact me (Joshua) at +65 96329840 or send your queries to estatemagnates@gmail.com! My consultations do not have a charge, and it is a service outreach! I will not be pushing any products. Let us discuss the steps that you can take to achieve your property investment goals.

The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.

 

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