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The age-old debate between freehold and leasehold condos in Singapore. While freehold properties are often seen as the gold standard, leasehold condos offer a compelling alternative to give freehold a run for its money. Here’s why.
In the past 10 years, the price difference between freehold and leasehold condos has become much smaller. In 2013, freehold condos cost about 20% more than leasehold condos. By 2023, this difference had dropped to just 4.7%. This means that leasehold condos are now almost as expensive as freehold condos.
Why is this happening?
One reason is that leasehold condos have increased in value by 51.3%, much higher than the 32% increase for freehold condos. This indicates that buyers are still willing to pay a premium for freehold condos in these prime areas. However, there’s an exception. The price difference between freehold and leasehold condos has increased in some desirable areas, like the Core Central Region. This means people are still willing to pay more for freehold condos in these prime locations.
Affordability, Higher Short-Term Investment Yields
Leasehold condos tend to be more within reach for most property buyers compared to their freehold counterparts. This is particularly significant for new launches, where the price difference can be substantial. For instance, a leasehold condo might offer 20% more living space for the same price as a freehold condo in the same neighbourhood. This makes leasehold properties attractive for those who want to enjoy a comfortable living space without breaking the bank.
Leasehold condos are also often strategically located in prime areas with great connectivity, making them highly desirable. Developers are increasingly positioning leasehold projects in the heart of the city, offering easy access to all parts of Singapore. This is particularly important for those who value convenience and proximity to amenities.
Despite seeming counterintuitive, leasehold condos can offer higher rental yields. The initial purchase price is lower and the rental income can provide a higher return on investment. Tenants generally prioritise location, price, and comfort over property tenure, meaning that leasehold condos in desirable areas can command similar rental prices to their freehold counterparts, thus providing a better return on investments. So, if you are looking for a property investment versus a home, leasehold properties for shorter-term gains might be interesting.
Freehold Does Not Mean Being Immune to En Bloc Sales, & May Require More Maintenance
While it’s true that leasehold properties are subject to lease decay, the decline in value is often less drastic than perceived. Leasehold properties in prime areas like the CCR — where the price gap has risen to 19.5 from 13.7 percent (2013 to 2023) — and those well-maintained can still appreciate significantly. Additionally, the Singapore government has measures to help owners extend their leases, reducing the impact of lease decay.
Freehold properties, especially older ones, require significant maintenance and repairs over time, which can be costly. Leasehold condos, particularly newer developments, often feature modern facilities and are managed by property management companies, reducing the maintenance burden on individual owners.
Moreover, the belief that freehold properties are immune to en bloc sales is inaccurate. Revised rules from 2007 allow for the collective sale of private residential properties, including freehold ones, if a certain percentage of owners agree. Leasehold properties often present a higher potential for redevelopment due to their lower purchase price and the possibility of extending the lease, or redeveloping the land. This redevelopment potential can make leasehold properties more appealing to developers and investors, increasing the chances of a successful en bloc sale.
Developers are increasingly adopting innovative pricing strategies for leasehold properties, such as the Deferred Payment Schemes (DPS) and offering discounts during the launch phase. This approach allows developers to sell all units within 5 years, enabling them to receive an upfront remission of Additional Buyers Stamp Duty (ABSD). These financial perks can significantly reduce the initial financial burden for buyers, making leasehold condos more accessible.
While freehold properties offer perpetual ownership and stability, leasehold condos provide a compelling alternative. With their often more affordable prices, prime locations, better rental yields, and innovative pricing strategies, leasehold condos are attractive for those who want to enjoy a comfortable living space without sacrificing too much.
So, don’t write off leasehold condos just yet – they might be the perfect choice for you.
Our Top Picks for Leasehold Condos in 2024
If you’re looking for a leasehold property, here are our top recommendations to consider:
