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Freehold or Leasehold Condo? Here Are the Differences

Freehold or Leasehold Condo? Here Are the Differences

Getting the right condo in Singapore depends on several considerations. The size and the location are obviously two of the biggest essentials. You will also have to examine the condo tenure format. Currently, two options are available – freehold and leasehold. Which one is better?

A universal answer doesn’t exist. To make up your mind, you’ll need to examine the pros and cons of both. Aligning those with your goals and preferences will enable you to identify the residential option that’s just right.

Condo Tenures in Singapore

Singapore has the following condo tenure options – freehold, a 99-year leasehold and a 999-year leasehold.

As the name suggests, a freehold property can be held by the owner indefinitely. In the other two scenarios, an expiry is set on the lease. After the specific term finishes (either 99 or 999 years), the property reverts back to the state.

Freehold properties are also called estate in perpetuity. The perpetual ownership gets many people drawn to this option but needless to say, it doesn’t come without its shortcomings.

It’s general knowledge that the initial price of freehold units tends to be higher in comparison to leasehold options for the same area (the increase can be anywhere between 10 and 15 per cent).

Freehold: Biggest Pros and Cons

Is a freehold flat in Singapore the right choice for you?

Freehold condominiums are a lot rarer than leased ones and that’s a natural development. Currently, 80 per cent of properties in Singapore are available via a 99-year leasehold format.

A freehold condo is considered somewhat of a luxury item because of the higher cost. There’s one more important thing to keep in mind – its status can be changed.

Many people are drawn to the perpetual ownership clause. If the government comes up with an infrastructure plan that has to utilise land in the respective area, the status of the plot will be changed and the owner will lose the freehold condo.

Freehold properties are also prone to en-bloc sales after the 30 or 40-year ownership mark. While the en block compensation for a freehold property will be higher than the one for a leasehold condo, you’ll still have to go back to square one and do apartment hunting.

To sum it up, a freehold property carries a higher value than a comparable leasehold condo. Still, it is more expensive to acquire and the certainty you’ll be looking forward to isn’t necessarily going to be there in the long run.

Leasehold: When Is It a Better Option?

A 999-year leasehold is very similar to a freehold condo due to the length of the term. Such leasehold formats, however, are exceptionally rare. When speaking of this arrangement, a 99-year leasehold format is referenced most of the time.

As already explained, the majority of residential properties on the marked are available under the 99-year leasehold scheme.

The lease is one of the factors that affect the value of the property. A leasehold condo that has 70 or more years left on its lease, for example, will approximate a freehold property (of similar dimensions and in a similar location) when it comes to the price.

The lease, however, is just one of the factors that impact the value. Very often, it will be impossible to isolate its prominence and determine the extent of its effect. Other key factors that play a role include the location, the nearby infrastructure, how new the building is and its size.

In theory, freehold properties bring a better en bloc price but this doesn’t have to be the case. This, however, is the case for properties that are nearing the end of the lease. Insignificant differences will be observed earlier than that.

Leaseholds are typically considered a better choice for rental yields.

To calculate the returns, divide the annual rental income by the total cost of the property. A lower property cost will result in higher returns. If this is your purpose, a leasehold option makes more financial sense.

Which Option to Choose?

Looking for residential property in Singapore? You may still feel somewhat confused.

The differences between freehold and leasehold condos are not that many. For a start, freehold apartments tend to be more expensive. They produce better returns in comparison to leasehold condos that have a few years left on the lease. A leasehold property, however, is a better choice if you’re looking forward to generating rental income.

Freehold properties can be more difficult to find due the size of the Singapore residential real estate market. Hence, you may have to spend more time attempting to discover the one condo that’s just right for you.

The choice is up to you but understand that the tenure format is just one of the criteria to examine.

A central location is going to be much more important if you want an apartment that will maintain its value through the years and even appreciate. It may also be a good idea to check the government’s plans for the region. Will there be a school construction? Will a part appear nearby? Such projects can contribute to a much higher appreciation than the selection of a freehold condo, for example.

The upgrades, home renovations and work you do on the property will also impact its appreciation through the years.

Experienced Singapore interior design companies and HDB-certified contractors can give you a better idea about the improvement potential and the appreciation you could expect as a result of modernising the respective property.

Whether you’ve just purchased a condo or you intend to do so, it may be a good idea to consult home interior design professionals about the potential of the property.

Home Guide has extensive residential real estate experience. We’ve carried out dozens of projects in HDB properties, giving the owners more comfort and also increasing the value of the condo. Check out our residential portfolio to find out more or contact us today to explore the best ways to become a condo owner and to make the most of it.

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