99 years Leasehold or Freehold?
Mayfair Gardens new launch is a 99 years leasehold development. While considering to purchase this new condo that situated along Rifle Range Road and off Bukit Timah Road, no doubt there will be comparison with other nearby development which are Freehold.
There has always been much debate about which is better – FREEHOLD or 99 LEASEHOLD. Generally it may seems like FREEHOLD would be better for Capital Appreciation. Is this always true? What about Rental Yield?
We have done some analysis on this and let get into it!
What is FREEHOLD Property?
Freehold simply means “free from hold“. Owner of a freehold property entitle to its property with no exact expiry. Freehold property generally has higher perceived value.
What is 99 LEASEHOLD Property?
Leasehold, as the word explained, means that ownership of the leasehold property will ends when the lease term is reached. Some people would even describe this leasehold arrangement as “Renting the property for 99 years”.
Whether is it 99 leasehold or freehold, when we are considering the purchase of Mayfair Gardens New Launch, we want to look at 2 factor:
- Capital Appreciation
- Rental Yields
1. Mayfair Gardens New Condo – Capital Appreciation
Let’s now do a comparison on property price between FH and 99 years leasehold development. We shall use The Blossomvale and Gardenvista as case study.
Think about it this way.
One of the common reasons in choosing a FH development over a 99 years leasehold development, is that “when crisis hits, the value of a FH condominium will be more stable as compared to a 99 years leasehold.”
Or is it?
If we were to refer to Singapore Property Index (URA website), we will know that Singapore property price downturn in the year of 2008 and 2013. Referring to the chart below, we will notice that both developments increased and decreased along with the market.
Mayfair Gardens Review – Property Pricing Chart from URA
That’s when it hit me!
We do not see FH property avoid price correction as compared to a 99 years leasehold.
In today’s market, we do not see many “fire sales” as compared to few years back. The main reason could be because of the numerous cooling measures introduced by government since 2010.
Sellers will be subjected to Seller Stamp Duty if property is purchased and sold within 3 or 4 years (depending on date of purchase). At the same time, buyers with more than 1 property loan will be subjected to lower Loan-To-Value Limit.
And you’d be right.
When it comes to crisis, we do not see panics sales that will affect property prices in today’s market, whether for FH or 99 years leasehold development.
2. Mayfair Gardens New Condo – Rental Yields
Does the Rental really differ a lot from a Freehold development and a 99 Leasehold development?
While there are various schools of thoughts, I would like to continue using the immediate 2 condominiums beside Mayfair Gardens: The Blossomvale and Gardenvista.
We shall use a 2 bedroom as a comparison,
The Blossomvale, FH (840 sq ft, transacted $1622psf)
Purchase Price: $1,362,480 ($1622psf)
Rental ($2300 – $2700): Assume we take $2300
Rental Yield: 2.02%
Gardenvista, 99 Leasehold (947 sq ft, transacted $1362psf)
Purchase Price: $1,289,814
Rental ($2800 – $3500): Assume we take $2800
Rental Yield: 2.6%
From the case study above, we are able to observe the following,
- Entry price for 99 years leasehold (Gardenvista) is lower as compared to FH (The Blossomvale)
- For this instance, rental yield of a 99 years leasehold is better than a FH
Wham!
We are unable to conclude that a FH development is able to command a high rental return. From an investor point of view, lower entry price and higher returns will be a more attractive option. If the case study is using the higher limits of the rental, Gardenvista rental yield will cross 3%.
You’ve got it!
Other than comparing FH vs 99, there are other factors that will affect the rental returns. A few factors include age of the development, the unit facing (swimming pool view, unblock view etc), condition of the unit, partial or full furnish, asking price etc.
One of the key differences we notice in today’s market is that, tenants tend to prefer newer development as they will expect lesser maintenance issues as compared to an older development.
Conclusion
If you are looking at capital appreciation, I guess there are quite a few more equally important factors that will affect your decision, such as location, amenities, developers etc. Looking at URA Master plan could be also one of it. Savvy property investors always suggest to “focus on the key principle”. Type of leasehold may have a smaller influence on capital appreciation than you think.
If you are looking at home stay, as much as we may think that we will eventually pass down the property to our children or even grand children, many thing don’t turn out as expected. Family members, especially children, will move out, be it migrate or prefer to shift to other part of the country. Or could be due to other reasons, property will be sold. You may favor paying more for a freehold property to own it ‘forever’. But you don’t really need forever. You just need it long enough.
So, is it therefore still wise to buy a 99 years leasehold property for own stay or investment? In my opinion, it all depends on your holding period. What should be your entry and exit strategy for a 99 years leasehold property? Is Mayfair Gardens new launch worth considering?
Mayfair Gardens 