While most property buyers in Singapore may prefer freehold, whether for investment or for their own use, there is a scarcity of freehold land.
According to Urban Redevelopment Authority data on historical land sales, there has been no freehold site sold in the past 24 years. Currently, if there is a freehold condo being launched, then the site is “recycled” or an en bloc site.
Both the freehold and leasehold properties do not have much difference in price gains over their first few years after completion. However, as the lease duration reduces for the leasehold property, things are not in their favor.
Nevertheless, a buyer can find a number of bargains in the market if the property if for own use and not for speculation. For instance, Neptune Court whose remaining lease is about 58 years has been selling at $660 psf average price in the past half year. Its unit’s sizes range from 1,270 to 1,636 square feet and therefore one may find a good deal with less than S$1million. The property is conveniently located near an upcoming MRT station, which makes it an attractive option to East Coast lovers. It is also convenient for parents who intend to enroll their children to Tao Nan Primary.
However, many reasons cause such dated properties to command lower prices in comparison to their newer counterparts. Among them being the reluctance of banks to grant loans to properties whose total tenure is below 60%. The financial institutions consider them high risk and worry about recovering their money in the event of repossession. Although considered on a case-by-case basis, even those granted the loan get shorter loan tenure and a lower loan amount in terms of the ratio of loan-to-value.
Also, financing the property using CPF savings is restricted. One requirement is that the property must have the remaining lease of at least 30 years. A property with 30 to 60 years of lease remaining needs to have the sum of the lease remaining and the age of the buyer to be at least 80 years. There is also a limit to the CPF savings that can be used on such properties. Such financing problems shrink the pool of buyers and demand which consequently declines or stagnates the prices.
In addition, en bloc sales of leasehold properties are not attractive to developers due to the high cost of topping up the lease to 99 years, a request that may not be granted.
Due to this, developers prefer acquiring Government Land Sales sites. However, exceptions exist such as the sale of Raintree Gardens and Shunfu Ville en bloc sale where developers can redevelop the sites.
Not to say that leasehold properties should not be purchased. On the contrary, a new property on a 99-year lease can have great potential and value in the first 20 years tenure.
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