Imagine this: You have finally found your dream home – the house has all the features you’ve ever wanted, is located in a great neighborhood, and perfectly fits your lifestyle. There’s just one thing: it comes with a freehold title.
And as you wonder whether you should take the plunge and make the investment, the hefty price tag that comes along with it looms large in your mind. Why is freehold more expensive, and is it worth the added expense?
In this blog post, we will dive into the world of freehold properties, unpacking the reasons behind their higher prices and helping you decide whether investing in a freehold home is the right decision for you.
2 / 2
|Property Tenure Types||Pros||Cons|
|Freehold/999-year leasehold||– Ability to serve as a generational asset. |
– Higher en bloc prices.
– Scarcity value, resulting in more robust and resilient prices.
|– Higher initial premium compared to leasehold properties. |
– Depreciation based on age and wear-and-tear.
|99-year leasehold||– Significantly cheaper compared to freehold properties. |
– Higher rental yield.
– Appreciating investment potential.
|– Finite ownership with the value eventually going to zero. |
– Potential loan and CPF usage restrictions.
– Concentration in specific locations.
– Lease decay as the property ages.
The Singapore property market offers two main types of property tenures – freehold/999-year leasehold and 99-year leasehold. Freehold properties offer the ability to serve as a generational asset, higher en bloc prices, and scarcity value resulting in more robust and resilient prices. However, they come with a higher initial premium compared to leasehold properties and can depreciate based on age and wear-and-tear.
On the other hand, 99-year leasehold properties are significantly cheaper compared to freehold properties, offer higher rental yield, and have appreciating investment potential. However, they have finite ownership with the value eventually going to zero, potential loan and CPF usage restrictions, concentration in specific locations, and lease decay as the property ages.
When deciding between leasehold and freehold properties, it is crucial to consider individual property attributes and market conditions.
Why is freehold more expensive?
Freehold properties in Singapore are more expensive for several reasons:
Permanence of Ownership: Freehold properties grant owners perpetual ownership of the land, whereas leasehold properties come with a fixed term (usually 99 years). As the lease gets shorter, the value of leasehold properties decreases. Freehold property owners, on the other hand, do not have to worry about this issue.
Scarcity: Due to limited land availability and higher demand, the Singapore government mostly issues leasehold titles for public housing and some private residential projects. Consequently, freehold properties become more scarce and highly sought after, driving up their prices.
Investment Value: Investors often consider freehold properties as better long-term investments due to their perpetual nature compared to depreciating leaseholds. This perception pushes up demand and, subsequently, the price of freehold properties.
Prestige Factor: Owning a freehold property is considered prestigious in Singapore due to its inherent advantages and scarcity. This prestige factor contributes to its higher pricing as well.
Future Redevelopment Potential: Freehold properties have more potential for redevelopment in the future because they don’t have a time limit on land use rights. Developers may be more inclined to purchase these lands at a premium for new projects or en-bloc sales.
These factors combined contribute to the higher prices associated with freehold properties in Singapore compared to their leasehold counterparts.
Lentor Gardens Residences
Freehold properties offer perpetual ownership
Freehold properties are often more expensive than leasehold properties due to the perpetual ownership they provide to the owner. When an individual purchases a freehold property, they not only acquire the property itself but also the land it is built upon. This is a crucial aspect in determining its value, as owning the land guarantees that the property owner will not have to worry about the tenure of their ownership expiring or having to request permission from another entity to make changes to the property.
One key advantage of owning a freehold property is that it can be passed down to subsequent generations, ensuring that family members can continue to benefit from its value and avoid any complications related to the end of lease agreements. Additionally, freehold properties give the owner the right to make modifications, extensions, or demolitions to the property without needing to secure consent from a landlord or other entity.
Another significant factor contributing to the higher cost of freehold properties is the ease of securing financing from banks and other financial institutions. Since freehold properties do not come with restrictions such as lease durations, they are considered less risky investments, making it more likely for a potential buyer to qualify for a loan.
Furthermore, when it comes to transferring ownership or selling the property, the process is generally more straightforward and comes with fewer legal complications compared to leasehold properties, which often require obtaining permission from the state or relevant authorities.
It is a premium form of property ownership
Freehold property is often considered a premium form of ownership in the real estate market, and as a result, it is generally more expensive than leasehold property. There are several reasons why freehold ownership comes at a higher cost, with the primary reason being that it provides complete control and ownership of both the property and the land it stands on, in perpetuity.
Firstly, when purchasing a freehold property, the buyer is not only securing ownership rights to the building itself, but also to the land that the building occupies. This means that, in contrast to leasehold properties where the land is still owned by a separate party, the buyer of a freehold property has full rights to use and develop the land in accordance with local regulations. This added value naturally makes the property more expensive.
Another reason for the higher cost is the lack of ongoing payments associated with freehold properties. Unlike leasehold, freehold ownership does not involve ground rent, service charges or other annual fees. Consequently, the initial cost may be higher, but in the long run, the owner avoids paying any recurring fees.
Freehold properties also offer more flexibility when it comes to renovation, extensions, or even selling the property in the future. This added freedom and unrestricted use increase desirability, thus driving up the price. Furthermore, freehold properties are often seen as more attractive investment assets, with the potential for better capital appreciation compared to leasehold properties.
Freehold status is becoming a rare commodity in land-scarce Singapore
In recent years, freehold properties have become highly sought-after and expensive in Singapore due to their scarcity. As a small island nation with a growing population and limited land resources, Singapore has to strategically balance its urban development and land use to meet the diverse needs of its residents. As a result, the supply of freehold land has diminished, making it a rare commodity in the real estate market.
The Singapore government has ceased issuing freehold titles in the Government Land Sales (GLS) programme, with new land launches by the government being mostly leasehold in nature. This has contributed to the premium pricing of existing freehold properties, as buyers seek the stability and potential for higher capital appreciation that comes with owning a freehold property.
Moreover, freehold properties provide owners with greater autonomy and control over their land, without being subjected to lease decay. This means that the value of a freehold property is less likely to depreciate over time compared to leasehold properties that have a finite lease period, making it an attractive investment option for buyers.
However, it is important to note that owning a freehold property does not grant absolute ownership rights, as there are still instances where the government can acquire freehold land for public purposes under the Land Acquisition Act. Despite this, the scarcity and desirability of freehold properties in Singapore continue to drive their prices upwards, with many property buyers considering them as a valuable long-term investment.
Possibility of government reacquisition in case of public infrastructure development
The question of whether freehold property is more expensive than leasehold property often arises among potential property buyers. One key factor that differentiates the two types of ownership is the possibility of government reacquisition for public infrastructure development. While this factor contributes to the higher cost of freehold property, it also offers greater security and peace of mind for the owner.
When it comes to freehold property, the owner has complete control over the land and the building, without any limitations in time or restrictions on usage. Therefore, the owner has the right to use, rent, sell or develop the property according to their preferences and in compliance with local regulations. This unrestricted ownership generally results in higher costs for the property, but it also means that the property is a more stable and secure investment.
On the other hand, leasehold properties have a fixed term of ownership, usually ranging from 99 years and above. Once the lease term expires, the ownership of the property and land may be uncertain, and the government has the right to reacquire the land for public infrastructure development or other purposes. This possibility may result in lower costs for leasehold properties, but it also entails a greater degree of risk and uncertainty for the owner.
In conclusion, freehold properties are more expensive due to their unrestricted ownership and lower risk of government reacquisition. While leasehold properties may be more affordable, they carry the inherent risk of an uncertain future once the lease expires. Ultimately, potential property buyers must weigh the pros and cons of each type of ownership before making a decision that best meets their financial and personal needs.
Possibility of collective sale leading to loss of ownership
The notion of owning a freehold property is often associated with complete control and long-term stability, which is one of the main reasons it is more expensive compared to leasehold property. While freehold properties do provide their homeowners with a higher degree of freedom and flexibility, there is a possibility of a collective sale that could lead to the loss of ownership for some.
Collective sale, also known as en bloc sale, is the process where a group of property owners collectively agree to sell their properties to a single buyer, usually a developer. This is typically done when the value of the combined properties is greater than the value of each property on its own. In most cases, the intention behind a collective sale is to capitalize on the rising property market or to make way for new developments in the area.
Although collective sales can result in significant financial gains for individual property owners, it also means that they will lose their ownership rights over their freehold property. Furthermore, the decision for a collective sale is not always unanimous, and a single owner may not have the power to prevent the sale from happening if the majority of property owners in the group have agreed to sell.
As such, while freehold properties are generally more expensive due to their perceived long-term stability and benefits, potential buyers should be aware of the uncertainties involved with collective sales that could affect their ownership rights in the future. It is essential for homeowners to carefully consider their options and weigh the advantages and risks associated with freehold ownership before making a purchase decision.
Freehold properties generally cost 15-20% more than leasehold counterparts
Freehold properties are highly sought after in the real estate market due to the numerous benefits they offer buyers. Typically, freehold properties tend to cost 15-20% more than their leasehold counterparts, and this premium is justified for several reasons.
Firstly, freehold properties provide owners with permanent ownership of both the land and the building, ensuring long-term security and stability. This can be a significant attraction to buyers as it eliminates concerns about lease expiry and the potential loss of property ownership. In contrast, leasehold properties only grant temporary tenure, often ranging from several decades to hundreds of years, after which the property reverts back to the freeholder.
Secondly, a freehold property owner has complete autonomy in managing and maintaining the property. They are free to make alterations or improvements without seeking permission from the freeholder, provided they adhere to local regulations and planning permissions. Leasehold property owners, on the other hand, may face restrictions and additional costs when making changes or undertaking maintenance, as they are bound by the terms of their lease agreement.
Moreover, the scarcity of freehold properties contributes to their higher value. As governments and land authorities around the world implement stricter regulations surrounding land tenure, freehold land becomes increasingly rare, driving up its price and making it a valuable investment.
Freehold properties have appreciated less than leasehold properties in recent years
In recent years, a notable trend in the real estate market has emerged: freehold properties have experienced less appreciation compared to their leasehold counterparts. This shift in market dynamics may come as a surprise to many investors, as freehold properties have traditionally been seen as more valuable and desirable due to the perceived certainty and stability they offer. However, there are several factors contributing to this change, with the most significant one being the changing preferences and needs of property buyers.
Firstly, the property market in many urban areas is becoming increasingly saturated, with developers focusing on building high-density projects to meet the demand for affordable housing. As a result, there is a limited supply of freehold land available for development, leading to a scarcity premium on existing freehold properties. As more people are willing to compromise on the type of tenure to secure a home within their budget, leasehold properties have emerged as attractive alternatives.
Secondly, there is a growing awareness among property buyers about the potential long-term implications of a leasehold versus a freehold purchase. For instance, the cost of maintaining a freehold property is typically higher, as the owner is responsible for all repair and maintenance fees. Over time, these additional expenses can offset any perceived benefits of owning a freehold property and lead to a slower rate of appreciation.
Thirdly, the government’s intervention in the property market has led to a more balanced playing field between freehold and leasehold properties, with measures such as cooling measures and restrictions on foreign ownership. These policies have leveled the demand for properties, regardless of their tenure type, resulting in a more equitable rate of appreciation for both freehold and leasehold properties.
Location and accessibility play a significant role in property valuation
Freehold properties are often more expensive than leasehold properties due to various factors that make them more attractive to potential buyers.
Firstly, purchasing a freehold property gives the buyer the freedom of owning the property and the land it stands on in perpetuity, without having to worry about the expiration of a lease. This sense of permanent ownership provides peace of mind, which is why buyers are willing to pay a premium for freehold properties.
Secondly, freehold properties offer more control to their owners. With a freehold property, the owner has the flexibility to make any alterations, developments or improvements to the property, subject to local regulations. This level of control is not usually available with leasehold properties, as they might require permission from the landowner in order to make significant changes.
Another factor making freehold properties more expensive is their inheritability. Freehold properties can be readily passed down through generations, thus retaining their value for longer periods. In contrast, leasehold properties are tied to specific lease durations, which could impact their inheritability and long-term value.
Lastly, the ease of sale is an important factor contributing to the higher price of freehold properties. Freehold properties are generally easier to sell, as they do not require any consent from the state, and usually involve less paperwork than leasehold transactions.
Leasehold properties often offer better rental yields
One of the key advantages of investing in leasehold properties is that they often provide a better rental yield compared to freehold properties. This is mainly because leasehold properties generally have a lower entry cost, making them a more attractive proposition for investors seeking value for money. Additionally, such properties tend to be located in prime areas, well-equipped with facilities and features that appeal to potential tenants, further enhancing their rental potential.
Due to the nature of their tenure, leasehold properties are considered to be more competitively priced in the property market, attracting a larger pool of buyers and tenants. This can translate to a higher demand for leasehold rental properties, resulting in higher occupancy rates and more consistent rental income streams for property owners. Moreover, leasehold properties can appreciate in value over time, positively impacting the overall return on investment.
It is important to note, however, that while leasehold property investment may offer better rental yields, there are other factors to consider such as the remaining lease term, ongoing maintenance fees, and lease extension costs. These factors can significantly impact the profitability of the investment in the long run.
Historical origins of freehold vs leasehold form of ownership
The distinction between freehold and leasehold ownership can be traced back to the feudal system that emerged in England during the Middle Ages. Under this system, all land was owned by the monarch and granted to lords and knights in exchange for services or loyalty. This form of land tenure came to be known as freehold, with the nobility holding full ownership of their land, along with the right to use, control, and transfer it as they pleased.
On the other hand, leasehold ownership originated as a way for the common people to gain access to land. As the population grew and land became scarce, landowners began granting temporary rights to their land to tenants who agreed to rent the property for a fixed term, usually 99 years or longer, and pay an annual land rent. This enabled the tenant to use the land and any structures built on it while the landlord retained ultimate ownership rights.
Over time, these two forms of property ownership evolved and became more diverse, with the freehold structure often being favored by those seeking greater control and long-term stability over their property investments. Meanwhile, the leasehold structure became more prevalent in urban areas, where the higher density of buildings led to increased demand for land and the need to maximize its usage.
Today, both forms of ownership continue to exist, reflecting the historical origins and developments of land tenure rights throughout the centuries. Ultimately, the choice between the two depends on factors such as location, budget, and personal preferences, with each offering distinct advantages and disadvantages.
FAQ: Why is freehold more expensive?
Q: What is freehold property and why does it cost more?
A: A freehold property is a property where the owner owns both the building and the land it stands on in perpetuity, meaning they have complete ownership and control over the premises. The expense associated with freehold properties comes from the fact that both the land and the property are included in the overall purchase price. Freehold properties are also generally less complicated and require less paperwork, which contributes to their higher cost.
Q: How does freehold property compare to leasehold property when it comes to the cost?
A: Leasehold properties tend to be less expensive than freehold properties because the buyer only owns the property for a specified lease term and does not own the land it is built on. Leasehold owners have additional ongoing costs, such as ground rent and service charges, whereas freehold owners do not have these extra expenses.
Q: Are there any disadvantages to owning a freehold property?
A: The main disadvantage of owning a freehold property is its higher initial cost compared to leasehold properties. This may make purchasing a freehold property more challenging for individuals who are used to living in apartments or flats with lower costs.
Q: Do freehold properties have a higher capital appreciation than leasehold properties?
A: Yes, freehold properties generally experience higher capital appreciation compared to leasehold properties. This is because freehold ownership has no time limit and comes with fewer restrictions, making it more desirable in the market.
Q: Are freehold properties easier to finance with a bank loan?
A: Yes, banks generally find freehold properties more secure and appealing for loans due to the complete ownership and control by the property owner. This makes it easier to secure financing and refinancing for freehold properties compared to leasehold properties.