Red-hot demand for new 99-year leasehold private homes

By Wong Siew Ying | Posted: 22 August 2012 2043 hrs

SINGAPORE: About three in four private residential projects launched in the past year are 99-year leasehold developments, according to some property analysts.

Demand for these units has been strong, and market watchers said home buyers should be aware of what they are buying into, as the capital value of leasehold properties depreciates progressively as the development ages.

Experts said the price premium for a freehold property could be as high as 40 per cent.

Demand for many new 99-year leasehold private homes has been red hot, partly driven by the large number of such projects in the market.

They account for about 77 per cent of new private homes placed for sale between June 2011 and June 2012, according to SLP International Property Consultants.

Analysts said there's also a mindset change among some home buyers now and they are highly mobile when it comes to housing.

For instance, some buyers may take a short-term view on their home purchase, opting to move to another property after five to 10 years, so it doesn't matter if the project is freehold or not.

For investors, market watchers said new leasehold units offer a better rental yield at 3.5 to 4.2 per cent, compared to about 2.5 to 3.5 per cent for freehold homes.

But those looking at wealth preservation or handing down their homes to their children will be better off with a freehold property.

Ku Swee Yong, CEO, International Property Advisor, said: "99-year leasehold is always considered with a little bit of discount. The theoretical treatment of a 99-year leasehold land should be a depreciation of about 1 per cent per year.

"So if you were to buy a property at S$1,000 psf, each year its value should depreciate by S$10 psf."

Nicholas Mak, executive director, SLP International Property Consultants, said: "For freehold properties, when the property is more than 20 years old and is ageing, and it is time for re-development perhaps through collective sale, the value of the land in a way is a bit more preserved because the developer would not need to pay the government a land premium to top-up the lease."

Analysts said a freehold property also commands a price premium over a comparable leasehold project.

This price premium could vary between 10 and 40 per cent.

Mr Mak said: "Let's say we have two identical projects... and the only difference is their land tenure - one freehold, the other a 99-year leasehold. The freehold will be priced higher than leasehold projects, anywhere from 10 to 30 per cent or even as much as 40 per cent."

Leasehold or freehold, comments gathered on Channel NewsAsia's Facebook page are mixed.

But most agree that location is still the most important factor.

- CNA/cc