Relooking At Buying A Leasehold Landed Property
Conventionally, most Singaporeans would not give leasehold landed property any serious consideration. To even suggest it is preposterous.
However, increasingly I am finding more and more home buyers are giving leasehold landed houses a second thought. This change of heart is partly due to the escalating cost of landed properties where aspiration cannot catch up with affordability.
I recently helped the Leongs recently to sell their 3-bedroom apartment for $3m. The 1755sf home has outgrown their needs, with five children added to the family over the years. On top of that, their aged parents stayed with them, and the need for more space was acute.
After selling their apartment, the Leongs wanted to buy a 5-bedroom or a very spacious 4-bedroom condo. To their dismay, they could not find anything suitable within their budget.
An older leasehold landed property is one viable option.
For sure if one can afford it, buying a freehold landed property is a no-brainer. With the growing affluence of Singaporeans, that’s the dream home of many.
Landed Property Prices Hitting All-Time High
In 2021, we saw a total of 936 houses changing hand, of which 60 are Good Class Bungalows (GCB), a rare breed of landed property. The total transacted value was a record high of $8.9b. Overall prices climbed 13.1 per cent in 2021, the fastest growth since 2010.
In 2020, a Nassim Road GCB was sold for a whopping $128.8m or $4,005psf. Not long after, another GCB in Cluny Hill was sold at a new record price of $4,291psf.
So it is clear that Singaporeans have a love for landed property.
The number one concern for leasehold landed property is the lease decay concern which ties with the lack of prospects for capital appreciation.
FH vs LH Price Trend
The number one concern for leasehold landed property is lease decay and the lack of prospects for capital appreciation.
Is it always true that leasehold landed property prices will depreciate over time?
Let’s look at some statistics.
Looking at the historical trends, they quickly dispel the misconceptions that leasehold landed properties will always depreciate in value over time. As a matter of fact, leasehold houses do appreciate in value albeit not no as much as freehold houses.
That is not to say that leasehold properties will not depreciate as the lease decays. If we use the Bala’s Table as a guide, we recognise that they will reach a critical point when a steep downward trend occurs.
Generally, a 99-year leasehold house can hold up its value well for the first 15 to 20 years when it is still relatively new and well maintained.
The most critical year is when it has only 30 years left because that is when the bank would not loan money to buyers.
If you think of selling your leasehold house, it will become increasingly challenging with each passing year beyond the 20-30 year mark.
In the light of lease decay concern, is a leasehold landed house worth considering at all?
There are no absolute yes or no, and a few factors to consider may affect your decision.
AFFORDABILITY VS ASPIRATION
The number one consideration is budget.
If you can afford to buy your dream house with no budget constraints, then I would say go for freehold.
On the other hand, a financial constraint may make you relook at leasehold. Our affordability may fall short of our aspirations.
The escalating prices of landed property have made it increasingly out of reach for those who aspire to own one.
Today, many home buyers buy freehold landed properties because they want to rebuild or do major A&A works to configure the house to meet their needs. To rebuild, you would be looking at a ballpark figure of around $300 to $400psf. If the new house has a built-up area of 5,000sf, that would add up to $1.5 to $2m.
Freehold land cost on average can be between $1,500psf to $2,500psf, depending on the location. A 2,500sf piece of land would translate from $3.75m to $6.25m. Leasehold land will bring your cost down by about 15% to 20% cheaper.
If you are lucky, you may still find a freehold house for around $3m, if you don’t mind the size, condition or location. $5m and above will give you a bit more options. Conversely, for less than $4m you can find some leasehold houses of decent sizes and conditions.
LIFESTYLE VS INVESTMENT
Not everyone is fixated on capital appreciation or the investment value of their property.
Why are people paying tens of millions to buy houses on Sentosa Cove though they come with 99-year leasehold status? While many of them are foreigners since it is the only place where they can buy landed houses with no restrictions, there are also wealthy Singaporeans who own them. These homes give them a lifestyle that is unique to Sentosa.
Have you heard of 99-year leasehold Good Class Bungalows (GCB)? The minimum land size for GCB is 15,000sf. It may sound unthinkable, but the former 752,000sf Caldecott Broadcast Centre site might soon become the first 99-year leasehold GCB site with 15 GCBs.
The chairman of the developer, Kuok Khoon Hong, will be taking the largest plot for his own extended family. He is ranked as Singapore’s 12th richest person in 2021.
Why would someone as wealthy as Mr Kuok be willing to pump in so much money for a massive leasehold GCB, where there is likely a cap on its future value? Here is a lifestyle choice that takes precedence over investment value since there is nowhere else in Singapore where you can find a big plot of land, freehold or leasehold.
Is your primary goal to live in a landed property with a garage, garden, pool, roof terrace, and plenty of rooms for a multi-generational family? In that case, it does not really matter whether it is 99-year or freehold, and the lease tenure makes no difference to the lifestyle you desire.
HERE-AND-NOW VS LEGACY PLANNING
Most Singaporeans only want freehold landed properties because they want to leave them for future generations. Estate in Perpetuity or freehold estate means the owner can own it forever, which means the house can pass down to many generations.
This begs the question: is it always prudent to pay a premium for a house so that you can pass it on to your loved ones?
As a parent myself, I know we always think about giving the best to our children. Parents are often known for parsimony so that children can enjoy a better life. As a result, we ourselves miss out on the good things in life.
If you have missed out on living in a landed house you wanted so much because you can’t afford a freehold one, you might want to consider a leasehold house for both you and your children to enjoy the here-and-now. After all, a 99-year leasehold house will outlast most of us.
The parental responsibility is to provide the children with the education they need to live an independent life. To leave behind for them great wealth and properties are not necessarily in their best interest. We have seen too many family conflicts over inheritance. Or children squander the inherited wealth because they don’t value what they don’t work for.
Paying more for a freehold house may also mean we have to be contented with a smaller, older, or less-than-ideal location house.
That leads us to the next factor.
SPACE VS VALUE
If you have a large family with four children and elderly parents, you would need a home with five to six bedrooms to meet your space needs (of course, in the past, it was not unusual for a family of 10 to squeeze into a 3-room HDB flat).
Is it easy to find condos with so many rooms? Your choices would be minimal. If you do find one, you may have to break the bank to buy one.
A leasehold landed home may be a viable option if you have a budget constraint. They are easier to find, and the price can be lower than condos in terms of $psf.
We know that we usually look at the $psf based on the land size for landed homes. But if you were to base the cost on the built-up area, the $psf can be $800psf to $1,200psf for leasehold landed properties, depending on the age and location. It can even go lower than that.
I did a quick survey on Propertyguru, and I found a leasehold renovated 6-bedroom semi-detached house in the East with a built-up area of 4,300sf, asking for $3.5m. It works out to $1,173psf. It still has a balance lease of about 70 years. A condo of the same age in the vicinity has an asking price of $1,246psf.
We need a paradigm shift when buying a landed property. Today, more and more Singaporeans are receptive to the idea of leasehold landed properties.
Ultimately, if a leasehold landed home can offer a lifestyle you yearn for and the space you need, don’t write off the idea. The money you save from paying for a higher price freehold landed home can be used for your enjoyment, retirement, investments or legacy planning.
If you need to discuss this topic further, do drop me a note or book a consultation time slot with me through the Calendy below.
Danny Han is a licensed property agent since 2005.
As a kampong (village) boy growing up in Holland Village, he has so many fond memories. He grew up with pigsty (yuk!), cemetery, swamp and communal-living (with 10 families under one roof). His childhood games were gasing (spinning top), marbles, kites, spider-fighting and tree-climbing. An open-air cinema was his source of entertainment. 7th-month Hungry Ghost wayang (Chinese opera) and getai (concert) was a once-a-year event that brought the entire village together.
What Danny is passionate about is not just about showing clients properties around Holland Village, but also enjoys sharing anecdotes and nuggets of information that are part of his growing up years.
Danny is an avid hiker and passionate foodie. He has covered most of the nature trails in Singapore, including some that are off the beaten track. Living up to his motto, “walk to eat,” he enjoys going out with his wife, a retired academician, on a food hunt across the island. He also has some foodie kakis who mix work with food. They then share their gastronomic experiences through food blogs. So do watch out, because every time he shows you a property, he will tell you what is the best food nearby!
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