Is it worth buying a leasehold landed property in Singapore?

Aug 16, 2021

In a recent turn of events, an HDB terrace house in Whampoa sold for a record $1.286 million. One of the issues that stood out to market watchers was the advanced lease decay – there was only 49 years left on the lease. This has led to many to ask why anyone purchases leasehold landed properties; or if they’re worth buying. In the course of these conversations, I have encountered many misconceptions and exagerrations. Yes, there is a big difference between freehold and leasehold landed – but it’s important to understand the facts. This is why it’s sometimes worth buying leasehold landed, and why it’s someties not:

 

How do leasehold landed properties perform, versus freehold?

 

Let’s start with the most direct truth: in terms of investment assets, freehold landed is the clear winner. Freehold landed prices have appreciated from an average of $965 psf, to $1,464 psf today; an increase of over 51 per cent.

In the same time, leasehold landed has only grown from $869 to $1,003 psf; an increase of about 15.4 per cent.

(In case you’re curious, private non-landed properties appreciated 40.6 per cent in the same 10 years; so even condos outperform leasehold landed homes).

So if this is the case, why would anyone want to buy a leasehold landed property?

  • Affordability rather than investment, for home owners
  • Lifestyle needs and requirements
  • You need the space, and a condo might cost about the same
  • No need for property in legacy planning

1. Affordability rather than investment, for home owners

If you look beyond purely financial advantages – such as inheritance (see below), resale gains, rental, etc., what is the difference between a freehold and leasehold landed?

For pure home owners, the practical differences may well be negligible. The only concern would be the lease decay, and whether you will be sheltered for the remainder of your life. Consider the buyers of the HDB terrace house: if they are already in their forties, then a remaining least of 49 years is likely to be sufficient to last till the end.

In the meantime, they can enjoy the space and privacy of a landed home – features which would be comparable in many ways to a freehold landed property.

In fact, the leasehold landed home can enhance this aspect. Consider that a 2,000 sq. ft., freehold landed unit would be around $3 million, whereas its leasehold counterpart would barely be above $2 million. This allows for a much more comfortable retirement, on top of having a landed home.

So one common option is to purchase a leasehold landed home for the lifestyle benefits, and use the savings to ensure a longer lasting retirement fund (you can also invest it in something besides property, if the landed home is the end-point of your asset progression journey).

2. Lifestyle needs and requirements

Sometimes, a freehold property just has the wrong location, or upkeep requirements. For example, some buyers pick cluster housing, which is a generally unpopular form of landed property (it is basically like a condo, with common facilities, except units are landed).

However, some buyers are happy to do this, because they don’t have the time or means to maintain the façade, or their own pool, gym, garden, etc. (it is quite challenging for an elderly couple to clean up the roof balconies, prune the garden shrubs, clean windows on the upper floors, etc.)

Likewise, some leasehold landed properties are located close to amenities like MRT stations. In the Bayshore area, for example, there are some leasehold landed homes that are just four minutes’ walk from the Bedok South MRT station.

While we often assume that those who own landed properties can drive, this is not always the case; and not everyone likes the hassle of parking, maintaining a car, etc.

Keep in mind that most freehold landed enclaves tend to be very far from everyday amenities. The whole point is exclusivity, so often there’s no nearby supermarket, mall, eateries, etc (although there are some exceptions, like Siglap).

Not everyone appreciates this inconvenience though; so sometimes the best option is a leasehold landed home that’s near busier areas.

3. You need the space, and a condo might cost about the same

It is possible to find a leasehold landed property, for around $2 million (perhaps even less, if you are willing to accept greater lease decay; some leasehold properties are even under $1 million, although I wouldn’t recommend those!)

The average price of a new launch condo today is about $1,700 psf. So if you were to purchase a 1,100 sq. ft. condo, or a typical four-bedder, you are looking at around $1.87 million.

Buyers who emphasise space may decide – quite reasonably – that they may as well fork out a bit more, and purchase the leasehold landed home. After all, the initial cash outlay and monthly loan repayments will not be too far apart.

But again I should point out: in such a scenario, the condo may appreciate better than the leasehold landed. So such a decision is about lifestyle needs, rather than financial gain.

4. No need for property in legacy planning

The fact is, around 90 per cent of Singaporeans are home owners. Most of our children do not need to inherit a property, landed or otherwise. If you can see that your children are well to do, and have homes of their own, then there may be no need to pay the premium for freehold status.

You could enjoy a more luxurious or secure retirement, by opting for leasehold landed. You can also consider that, if you pass on before the lease is up, your children still have some benefit – they can still rent out the property, for example, for a number of years.

In a true windfall, the leasehold landed may even go en-bloc at around the time your children are ready to inherit it (but this is never something we can / should plan for!)

So if you are a genuine home buyer, don’t be too caught up in the frenzy over freehold landed

Pure investors will definitely opt for freehold; but home buyers don’t have to go with the crowd. Focus on what makes you comfortable and secure. In many cases, this might mean picking a leasehold property that better fits your budget, without compromising quality of life.

For a deeper look based on your situation, do contact me directly. You can also follow me on Ron Chong Property.sg. for more insights, on the Singapore private property market.

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