Freehold vs Leasehold in Singapore – 3 Advice Uncovers The Winner

Ever wondered why leasehold properties are beaten down when compared to freehold properties?

The question you always hear is; is freehold vs leasehold, which is better?

While these terms may not be new to you; to identify which is better, you need to be clear on the differences between freehold and leasehold.

To let you understand it better, we have broken it down, and here’s the comparison.

When it comes to buying a property, one of the key deliberations is knowing whether the property is freehold vs leasehold.

Freehold Properties

Freehold properties can be held by the owner indefinitely.

A Freehold property means you own the property, which grants full ownership and complete control over the land indefinitely.

You can pass it on to future generations, without the worry of returning it to the government after the lease ends.

But that also depends if your property is an Estate in Perpetuity or an Estate in fee simple.

While both are considered freehold, Estate in Perpetuity means the state retains access, rights, and responsibilities to the contents underground.

The government may decide to reclaim the land for vital infrastructure and you will not be able to refute that.

If your house is in the way of a major highway, the fact that it is an Estate in Perpetuity property is not going to save it.

Sources state that for a property to be classified as Freehold, it needs to have these two characteristics:

• There must be immobility or the property has to be affixed to the land.
• There should also be an indeterminate duration or the property has no stated end to it. 

Leasehold Properties

A Leasehold property means you do not have full ownership and complete control over the land as opposed to Freehold Property.

99-year Leasehold properties revert to the state or landowner upon the expiry of its lease. 

You only own it for a fixed period which is usually 99 years (for most properties).

You can only pass it down to others interested in the property if there is a remaining lease.

If the lease is up, it will be returned to the owner. (usually the developer)  

For a property to be classified as Leasehold, the duration of the ownership has to be defined.

As a leaseholder, you can use the property for the duration of the fixed term of the lease.

So now we’ve understood clearly what these two terms mean, let’s move on to compare freehold vs leasehold.

When comparing properties, better value does not necessarily mean it costs more.

However, in this case of freehold vs leasehold, freehold property fetches better value due to its infinite ownership.

It is recognized to uphold its market value. Having a Freehold property is a valuable investment if you plan to retain it to hedge inflation. 

A Leasehold property will be priced lower near the end of its lease since, in a few decades, the property will be returned to its original owner.

Now let’s talk about location…

If a Leasehold and Freehold condominium is located in the same location, Freehold condos usually have a higher value of around 10-15% more.

But this applies only if the Leasehold property has less than 78 years left on the lease.

To put it another way, if the Leasehold property has more than 78 years left on the lease, its value is still comparable to a Freehold condo.

Its value will see a drop once the lease hits the 78-year mark. The difference will become more apparent when the lease hits its 40-year mark.

So when comparing freehold vs leasehold for property value, freehold properties do have the advantage.

What about the rental yields when comparing freehold vs leasehold?

Leasehold properties give better rental yields when compared with Freehold properties.

Why is that so?

The formula for rental yield is annual rental income divided by the total price of the property.

To facilitate this, a lower cost means a higher yield.

The more pricey the property, the lower the rental yield, assuming the same rental income.

From what we have discussed earlier, the cost of Freehold property is around 10-15% higher than Leasehold property in the location.

Despite that, the rental costs are usually the same because tenants do not bother about the lease of the property. 

Therefore, the rental yield for Freehold property is usually lower.

If you are someone who wants to invest, opting for a Leasehold property may be a better option due to its higher rental yield.

The question of freehold vs leasehold is challenging as it is difficult to isolate individual cases of property valuation.

For example, a Leasehold condominium with 70 years left on its lease, but is located in the Central Business District (CBD), will probably still be worth more than a Freehold condominium on the outskirts of Punggol.

This is all due to the location as the CBD is a prime area and with a much higher value if we compare it with Punggol.

Likewise, if a Freehold condominium is situated closer to an MRT station, it can be tough to tell how much or easier it is to sell.

Is it due to its freehold nature, or is it because of its accessibility?

So in terms of which transacts quicker when it’s freehold vs leasehold, there’s no clear winner as it’s subject to circumstances.

One more thing to consider when deliberating on freehold vs leasehold properties.

Freehold transactions are more straightforward as there are fewer documents to be processed as opposed to getting a Leasehold property.

Leasehold properties generally take longer to sell than Freehold properties as there is more legal work to be done.

While this is not something the buyer/seller will stress about, it does impact you.

This will extend the timeframe of the process to sell and run the risk of the deal falling through.

For someone buying a leasehold property, it will often take around three weeks longer as opposed to a Freehold property.

Freehold property sales take around 6-10 weeks while Leasehold property sales take around 8-12 weeks to be completed.

Choosing to opt for Freehold vs Leasehold property in Singapore can be tough.

Ultimately, the choice is still yours to make.

But remember that there are many other factors to consider when it comes to location, financial budget, long-term objectives, and many more.

If property cost is a restriction, choose a Leasehold property that is better located and close to an MRT station or that the government has marked for future development.

Leasehold properties also get higher rental yields which result in more value for money.

With Leasehold Properties, you can maximize income generation with a lower capital cost.

If money is not a restriction and you want a long-term investment, then getting a Freehold condominium will be a better option.

It can also be passed down to the next generation and you are also not restricted and have the freedom to do what you please with your property. 

However, do take note that family dynamics and things change.

Family members migrate, children who got married will likely move out to build their own home and you may want a change of scenery.

There are also situations whereby home buyers opt for a Freehold property and then end up moving out after 40 years as their children have already moved out and they chose to downgrade.

In such a situation, you could have saved remarkably more for retirement with a leasehold property.