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Should you buy a leasehold vs freehold landed property in Singapore?

The leasehold versus freehold dilemma is the ultimate showdown of the landed property segment in Singapore. The 99-year leasehold is designed for three generations, while the 999-year freehold is practically immortal. But with rare landed properties and soaring prices, is the freehold worth it on a tight budget? To tackle this quandary, I gathered my trusty comrades-in-arms from SRI, the formidable duo Jackie and Rama, to share their wisdom on a recent episode of our Property Roundtable podcast.



Leasehold vs freehold landed property


Step 1: Distinguish between needs and wants


Even with a whopping 50 years of combined industry experience, we won't dish out a definitive answer. Rama believes every landed property is worth a shot, while Jackie advises those eyeing capital appreciation to stick with a freehold landed property. After all, as an investor, the lease decay can be quite the bitter pill to swallow.

Jackie offers a different perspective: If your needs outweigh your wants, leasehold landed properties with at least 60 years left might just be the ticket. Sometimes life demands it. Perhaps you must stay close to your elderly parents, accommodate a large family within a fixed budget, or keep the kids near their school. In such cases, fulfilling your lifestyle needs with a leasehold landed property while satisfying your investment wants with a freehold condo might be a fair compromise.

Prioritising needs over wants is nothing new. Just look at the buyer who recently splurged a record S$1.5 million on a HDB flat with only 49 years left. Clearly, some buyers are all about fulfilling their needs and couldn't care less about resale gains.



Step 2: Check the location’s leasehold-to-freehold ratio


The leasehold versus freehold dilemma is more pronounced in the landed property realm compared to the HDB or condo domains. So, if you're planning to invest in a landed property with dreams of upgrading to your ultimate dream house, take a moment to size up the leasehold-to-freehold ratio in the neighbourhood you've set your sights on.


Here's the deal: In areas where leasehold landed properties reign supreme, the herd effect kicks in. People flock to these locations without much concern. But if you spot a leasehold landed gem amidst an abundance of freehold properties, that's when hesitation creeps in. We might blame the social comparison theory for this, but there's more to it. Remember the inventory-activity correlation? Well, if you're one of the ten leasehold landed homeowners in a sea of freehold properties, you're taking a risk. Because how much action will you realistically see there? (The Bidadari neighbourhood is testament to this phenomenon. Hundreds of HDB units attract high rental and sales activity, leading to upward price movements. Prices have already soared in the last five years, but let's not digress.) Bottom line: If a leasehold landed property isn't your forever home, timing your exit might not be entirely in your control. Brace yourself for the market to call the shots.


Step 3. Consider redeeming factors like proximity to schools


But there is another layer to this discussion. Let me share a personal anecdote: I once resided in a freehold landed property with a small group of leasehold landed properties across the street. Despite being in the same location, those leasehold homeowners entered the market at a much lower price point. Personally, I used to stay in a freehold landed property in a neighbourhood with a small group of leasehold landed properties. Even though we’re in the same location, the latter homeowners entered the market at a lower price. Fast forward six years, and my freehold had seen a nice price hike. But guess what? Not too long after, the leasehold properties followed suit. And let me tell you, their percentage gains weren't too shabby at all. The secret to their success was simple: Our homes sat cosily within a 1-kilometre radius of not one but two schools – Paya Lebar Methodist Girls' School and Maris Stella High School. Unless these schools relocate, there'll always be demand for homes in our neck of the woods. For cash-strapped folks eyeing a leasehold landed property, proximity to a school or two could very well be your saving grace.


Furthermore, your leasehold landed property can moonlight as an investment unit for a simple reason - tenants don't give a hoot about its tenure. Case in point, on the very street I resided, two families happily leased their homes for a whopping seven years, all to stay close to the school action.


Are leasehold landed properties performing?


Alright, let's get real here - capital appreciation is on everyone's mind, even if lifestyle needs take the front seat. And leasehold landed properties have performed extremely well in the last five years. If we’re talking percentage increase in price, they might have given freehold landed properties a run for their money and helped bump their value up. Take Rama's client, for example, who opted for a spacious leasehold in Holland Green over a smaller freehold alternative, all at a similar price point. By the books, it might have seemed crazy, right? But what they snagged at S$3.95 million is now worth S$5 million or more. No sweat if they decide to switch to a freehold property - the exit is a breeze, and they'll have the cash to spare. If he had held them back, he would’ve had to eat his words today.


Will interest in landed properties sustain?


Sure, some sceptics predict a plateau for this segment, but we beg to differ. Even if that scenario played out, the subsequent upturn would redefine price points for Singapore's landed properties. In simpler terms, it'd be a golden moment to cash out and ride the profit wave. You'd recover your initial investment with ease, even if inflation nibbles away at its value. From a psychological perspective, it'd be like living in your leasehold landed home for free. If you’re not convinced, we have the facts and figures to show for it. Reach out to me (Harvey Chia) for a non-obligatory chat at 9199 9141.


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