Freehold vs. 99-Year Lease
One of the cornerstones of society in Singapore is new property ownership. In fact, whether a Singapore condo or house dweller, 90 percent of Singapore residents own their own home. But when it comes time to sign a lease, Singaporeans are faced with two options: the Freehold lease and the 99-year lease.
This common lease decision can be based on any number of factors. While market considerations always play in for property investors, the typical homeowner may be more concerned with financial comfort and passing on their Singapore property to the next generation.
The typical attraction to a 99-year lease agreement is price. 99-year properties are often considerably cheaper than Freehold properties. According to AsiaOne Business, leasehold properties usually offer a higher rental yield for investors because of their lower capital cost. However, the higher yield merely compensates the owner for the decaying lease.
For quick-turn property investors, a 99-year lease could offer significant savings. If you plan to buy a property, do some repairs and immediately sell at a profit to other investors or homeowners, the savings you would incur on a 99-year lease can be hard to pass up. But depending on the market, this plan could backfire. A 99-year lease decays everyday, reducing property values. Depending on how long your buyers plan to stay in their new property, a decaying lease could be a deal-breaker.
A Freehold lease never expires, meaning the Singapore property you buy today could be in your family for generations. This is appealing to many Singapore residents as taking care of family in the home is one of the great joys of our nation. And with a Freehold lease, you can be sure your lease won’t count against your property value, regardless of how the market does. Not only will your lease terms not hurt you, your land value is likely to stay steady, as freehold land in Singapore is rare and usually holds its value very well. But for many homeowners, the significant cost difference is a deterrent.
In the end, this decision comes down to what you want out of your property. If you are looking strictly from an investment standpoint, a 99-year lease is better in the short term resale but a Freehold lease is better for long-term rental properties. For homeowners, if you are looking for a starter home or new condo, a 99-year lease may work better within your budget. If you are buying the home you will raise your children and grow old in, a Freehold lease may be the way to go.