The general notion is that the owner will hold freehold property indefinitely while the 99-year leasehold assets return to the state after the tenure expires. In general, freehold units have a higher value (10-15 per cent premium) and have theoretical benefits (such as “permanence”), whereas leasehold units have been shown to offer better rental yields. Because the remaining lease period is getting shorter, bank loans may also be more difficult to get accepted, and CPF money cannot be used to purchase a home with less than 30 years remaining.
To complicate matters, numerous long-held myths and assumptions cloud this freehold vs leasehold comparison. To stop those, what boils down to is the buyer’s goal. Use freehold if you plan to live long term on the property; while leasehold makes rental income more sense.
Many old school thoughts are that freehold properties will hold their value better in the long term. That may not necessarily be true in today’s context. Freehold has it’s own merits as compared to leasehold properties. We do know and understand that leasehold is better for rental yield as compared to freehold, this is because that freehold is usually priced higher but your tenants are just not concerned with the tenure. We do notice a trend as well when the rental yield is higher, this tends to increase the pricing of the property as money will always chase after yield. When you have a leasehold that yields a good return, be prepared that the pricing will increase along the way. But the increase may just match up with the freehold that is next door. This will then eventually set you thinking on whether you should still be getting a leasehold.
Leasehold properties may actually be good if you are looking at shorter-term investment horizon timing. Freehold, as mentioned earlier, may actually be a better option if permanence is the objective and intention to pass down to generations later. But please take note that the property may not actually be at its best after 50 years old. Properties at that age should be ready for enbloc harvesting? Well, it all depends. Some owners in freehold properties will prefer to still continue to hang on to the property whereas the leasehold property owners may be more motivated to agree to the enbloc sale in view of the shorter lease.
