Property Investing #Ep 1 - Freehold vs Leasehold

Hi Everyone,

Today I would like to talk about another of my favourite topic beside for Financial Matters & Tips and Stocks Investing; which is Property Investing.

As we all know, everyone in Singapore generally loves Property besides food because it is relatively a stable asset that can beat inflation, allows for capital gain and provides investment or rental yield. It is an asset which you can call Home but at the same time, can be used for investment or rental purposes due to shortage of land in Singapore with the increasing amount of population due to influx of foreign workers and PRs.

However there are often various interesting debate or perceptions between buyers, sellers and agents on different topics of property investing. Of course, there are no right or wrong answers hence let us examine more in the topic which I would like to discuss today: Buy Freehold Condo vs Leasehold Condo?

Often I would hear people mentioning "If I want to buy a condo, better to buy a Freehold one than Leasehold" or "I can leave a legacy to my kids in future". However I would flinch a little whenever I hear that because in my mind, I will be thinking "Is Freehold Condo always better than Leasehold?"

Having a freehold condo is good, however what is more important is the location (accessibility) and their surrounding amenities. The rest of the details would include the price, size and layout of the unit and whether the development is a large one compared to smaller development.

Often you would see smaller development having Freehold status, and this represents lesser amenities within the development and maybe higher maintenance fee due to smaller number of units in the development. Majority of them would be "Apartment" status instead of "Condominium" status (I will discuss about this topic in the next Episode). 

Some of the location are rather inconvenient and out of the way, otherwise why would the Government agree to sell Freehold land tenure to the developer if it is highly sought after?

Hence does freehold status condo or properties in Changi, Pasir Ris or Tampines fare better when compared to a Leasehold Condo in CCR or RCR (let's say Queenstown, Bugis or Boon Keng)? 

Which one would you choose to put your money into in terms of own stay or investment? 

I think alot of us would prefer the one in Queenstown or in Bugis even though its Leasehold. Don't forget that Leasehold Condo have the possibility to enbloc as well. 

From my personal opinion, the most important factor for a Property is always Location follow by property type then entry point. If given a choice, I would think that the leasehold Condo in a better location would be far safer compared to Freehold Condo in the outskirt. 

Another point to take note is whether you are getting value back by purchasing the Freehold Condo which is usually at a premium price compared to Leasehold Condo. If you are looking for investment, would the tenants pay you more just because its Freehold status? Probably not. In this case, your ROI would be higher if you buy a Leasehold Condo at a lower price. Most of us would either stay or hold on to a property for 10 to 20 years time horizon, after which we would sell or change location due to our needs at different timeline of our life. 

Let's say you want to leave a freehold property as legacy to your loves ones. Would your loved ones prefer to receive cash, liquid assets or an aging freehold property? And by the time you pass on maybe at 65 to 85, your kids or loved ones that are receiving this would probably be in their 45s to 50s plus with their own kids.

They would have their own place to stay and will they care about the Freehold status of the Condo or would a better location leasehold condo be more attractive to them? And would your Children fight over the Freehold condo if it is located in expensive prime locations like Orchard? Would it be better to sell the property and use the money for your retirement and the remaining to be distributed according to your will to your loved ones after your passing? How would the Property be split if you want to pass 50% each to your two kids for example?

As such, freehold condo is not so appealing unless you intend to hold on for legacy purposes.

Pros of Freehold:

1) Able to leave a legacy to your loved ones.
2) No worries of depreciating asset due to lesser years of lease.
3) Stable price generally.

4) Not many developments with freehold status (or as much as Leasehold).

Cons of Freehold:

1) Usually at premium prices.
2) Lower rental or investment yield due to higher entry price.
3) Location may not be prime area or slightly further away from MRT.
4) Some freehold condo are small developments with few amenities and facilities.

5) Maintenance fees higher if there are only less than few hundred units in the development

    to share the cost.

6) Don't have much advantage over Leasehold.

Pros of Leasehold:

1) Some of the locations are convenient and near to MRT station and shopping mall.
2) Bigger developments with more units and more facilities to enjoy.

3) Price is at acceptable range for the mass market.

Cons of Leasehold:

1) Depreciating value due to decaying lease.
2) More loan restrictions and harder to sell when the remaining lease reaches 40 years.
3) Too many of such developments out there.

4) Question of whether the development would be En-bloc.

Conclusion: 

In conclusion, many of us would choose Freehold Condo in Prime Locations like Orchard or in CBD area IF Money is not an issue. But in reality when it comes to Practicality, I would choose to buy a more affordable Leasehold Condo at RCR or OCR location which is relatively near to MRT so it will be more convenient when going to work.

Having a lower entry price means it will be easier to achieve capital gains on our properties upon TOP compared to those high end properties located in CBD area or prime districts. 

As I am a Dad of a boy, I would be looking at some developments which is situated within 1km radius to some reputable schools in my opinion. Focusing at some developments located within an area where the Government has big plans to develop is another option. GSW, Greater Southern Waterfront was just announced by the Government during this year's National Day rally and all the hype is about that area now with new launches coming up.

In this way, you can better safeguard or prevent the price of your property from dropping too drastically in times of economic crisis due to stable demand where there are more jobs opportunities for locals and foreigners (for rentability).

Good school and education for their kids is one of the most important indicator that Parents look at when buying a Property and price entry and capital gain would be the next important factor to consider when buying a property as well.



There are definitely more factors to look at beside for Freehold vs Leasehold and I will discuss these topics in time to come:

Episode 2 - New Launch vs Resale Condo
Episode 3 - Condominium vs Apartment Status

Regards,
SG Cashflow Investor

Disclaimer: This is my personal opinion and does not constitute any recommendation to buy any Leasehold or Freehold property. Do your own due diligence before making any purchase.