Leasehold or Freehold Singapore Property

Did you just start a family and are looking forward to purchasing your new home? Or looking to buy a property for investment purposes? One of the most important questions that you would be asking would be whether to buy a leasehold or a freehold property. The answer depends if you are planning to buy the property to stay in or to invest in.

Freehold is not really freehold

Even for investment, many people will prefer freehold properties. Most Singaporeans believe that this means that they can own the property forever. However, in Singapore, there is the Land Acquisition Act, which means that even a supposed freehold property can be taken by the government. This is usually done in the name of public interest such as to build MRT or expressways. Indeed, you may technically hold a freehold estate forever. However, the building itself will need constant upgrading and renovations at some point. This is to prevent it from falling apart and this will eat into your expenses if you are not mindful. Next, freehold estates usually cost 10% to 15% more than a leasehold estate that is similar in size. This higher capital outlay that will result in higher monthly repayments.

High Initial Capital Outlay = Lower Rental Yield

Moreover, if you’re intending to rent out the property, tenants don’t care if the property is leasehold or freehold. They are more likely to care about the location or the amenities available in the area. Because of higher capital outlay for freehold property, it follows that the rental yield will be lower for freehold properties. This is in comparison to leasehold properties in the same location. As such, capital appreciation of leasehold property in central region of Singapore tends to be even higher than the capital appreciation of a freehold property outside of central region, like say in Yishun or in Pasir Ris.

Advantage of freehold properties

On the other hand, freehold properties hold an advantage when it comes to taking loans/using CPF. There are many restrictions put in place when taking loans for leasehold properties. This is especially so for older leasehold properties that freehold properties are not subjected to.

It all boils down to what you need

In summary, leasehold properties may be the better option for investment purposes. If you want to buy the property to stay in, both options are viable depending on your needs. We need to always ask ourselves what our purpose is, then make an informed decision from there. That’s it for today! This is Isaac, keeping property real!

Not sure if you should even be buying a property for long term investment? Check out our analysis on the long term outlook for property market!

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