The 99 Year Lease: What’s the Deal?

[Ade]

I have been Googling, talking to Estate Agents and even searching on this forum but I still don’t get it. Perhaps some financially savvy chappie could give a few words of explanation on the 99 year lease.

Right now I own a freehold condo. The math is simple. After 10 years (in spite of a few booms and crashes) the value is almost certain to have increased considerably Meanwhile I have paid off most of my mortgage. So instead of paying rent, I have acquired an asset.

But what happens if I buy a 99 year lease? Obviously the price of the property would increase but after 10 years I would hold an 89 year lease. So would the value of my asset increase, decrease or stay roughly the same? Also I have never seen an 89 year lease for sale. Is there some way of paying to top them again to 99 years? Does it actually make more financial sense than renting?

Reason I ask is I am rather partial to Bayshore Park and now prices are decreasing and it looking less likely to go enblock, I am just toying with idea of buying a unit (but its 99 year lease).

[freehold]

We own 3 properties. 2 freehold and 1 999 yrs. My observation is that particularly for landed properties, if you hold a 99 yrs property, the value will drop after say 10 years. Meanwhile for 999 yrs or freehold, people will still likely buy the house for the land and rebuild,etc...

But for condo, I heard about the lending rules eg. banks will not lend if the property is less than x number of years. BTW, the 99 yrs doesn't start from the TOP. The developer could have owned the land for many years eg. 5 yrs, then spend another 3 years developing the land so by the time you stay, it's a good 8 yrs gone. You need to look at the docs. All HDB are 99 years and people are still buying. I feel it's probably a mindset thingy. We are not likely to buy any property that is 99 yrs.

Eg. the landed we bought which is 999 yrs. We thot oh the houses were build in 1970 so it's only 38 yrs old. But to our surprised, it started in 1860's so 100 over years have passed!

[Blurblur]

But what happens if I buy a 99 year lease? Obviously the price of the property would increase but after 10 years I would hold an 89 year lease. So would the value of my asset increase, decrease or stay roughly the same?

Value of the property will increase or decrease in tandem with  market conditions. Example, if you have bought a 99 leasehold property for say $300k back in 1985, today you may be able to sell for $900k depending location and condition of the property but generally the value would have appreciated in line with inflation and real growth adjusting also for the amortisation of the leaselife. The catch is when dealing in leasehold property try to ensure that there is a reasonable "balance of lease-life" as banks does not support loans if the balance lease life is less than 65 years (you please validate this yourself) hence resulting in lesser prospective buyer and lower value. For example a terrace house with lease life balance of 10 years may fetch only $400k (again I am just guessing here).

Also I have never seen an 89 year lease for sale. Is there some way of paying to top them again to 99 years?

When you see an advertisement stating "99 years leasehold" it is simply stating the original leaselife, your question to the agent should be "what's the balance lease life /" or "in which year does
the 99 years lease commences ?". Adverts here rarely tells you the life balance of the lease.  

Does it actually make more financial sense than renting?

It all depends on your own plan, how long you plan to stay here, how much investment, where, etc. Bayshore Park - my understanding is that the price is high due to the expected en-bloc (status ?) so again it depends what price are you paying and what if the enbloc does not go through and market prices comes down ? Your decision.

[In trouble]

Eg. the landed we bought which is 999 yrs. We thot oh the houses were build in 1970 so it's only 38 yrs old. But to our surprised, it started in 1860's so 100 over years have passed!

Hmm...so you are in deep trouble if you manage to get the elixir of life and then suddenly realize 800 years from now that you will be kicked out of your house.

Just kidding...thank you for the early morning smile 

[cmdsea]

Two (hypothetical) identical condo's side by side, one freehold and the other 99 years. Definately the 99yrs one will be cheaper but not fully discounted for the fact you are basically purchasing a long term rental rather than owning it in perpetuity.!

Rule of thumb, if you are only planning to stay 2 or 3 years then either is Ok (as the leashold wont depreciate too markedly in that timeframe) but if its a long term investment then definately buy Freehold to preserve its long term value.

[Blaze]

I don't think any condo has a chance to reach even close to 99 years. The thing is that a 25 year old condo here is considered extremely old and it will go for en-bloc. So the value of property will naturally shoot up before potential en-bloc. It is also possible to top up a fresh 99 years, but I don't know if any condo will be around long enough for that.

Instead of lease time, you should be looking for infrastructure like MRT, expressways, shopping centres, casinos (this is not a joke) etc in the proximity of the condo. Those developements are more likely to en-bloc than others.

[Depreciation]

Leased Hold vs Freehold after 10 yrs will leave the Leased hold with approximately 10% off the Freehold value assuming every other things remain constant.

The slope of depreciation increases with each new decade.

Hence if property price were to increase across the board after 10 yrs. Your % gain should effective be the same as Freehold, but minus depreciation of being leased hold. You could still make a tidy sum.

[Depreciation]

Another way to look at it.

If you buy for own stay go for Freehold. For rental go for Leased hold.

For rental, while Leased hold does depreciate in capital value. The extra yield of approximately 2% more than Freehold means you could recoup more than the amount lost with depreciation. While you gain the extra rental yield in real time, capital value can only be realised when property is sold, which can be 10 yrs later.

For own stay the above does not applied and hence Freehold would be more appealing.

[MrHttp]

Considering the quality of housing here in Singapore 99 years is a loooong time...   

[so what]

If you buy 99 years then the house will still be there when you die.
If you buy 999 years you stand a chance to make profit...then you die.
If you buy freehold you are certain to make profit...and then you die.

[leasehold]

Leasehold may not see you through your lifetime. If you're 30 yrs old and buy something that is already say 50 years lease left Value of leasehold will start crashing after it hit like 30 years. That is why those LH condos along East Coast are always fighting for enblocs, e.g. Bayshore, Laguna, Mandarin and some will stoop so low as to vandalise other people's car to make sure they enbloc before the value crash.

[hk...]

someone once told me that in Hong Kong all property is leasehold to 2047, so just 39 years left... anyone knows if this is true?

[Where...]

Leasehold may not see you through your lifetime. If you're 30 yrs old and buy something that is already say 50 years lease left Value of leasehold will start crashing after it hit like 30 years. That is why those LH condos along East Coast are always fighting for enblocs, e.g. Bayshore, Laguna, Mandarin and some will stoop so low as to vandalise other people's car to make sure they enbloc before the value crash.

can you find any condo in Singapore with only 50 years lease left??

[hty]

someone once told me that in Hong Kong all property is leasehold to 2047, so just 39 years left... anyone knows if this is true?

Yes I think so.  I heard it also.   I wouldnt put any money into HK or China.  Getting it back out may be a whole different matter.

[AIYAH]

hahahahahahaha. what about tsunami, earthquake, rising sea level, war, diseases, marry and no children, children become a criminal and a crook, grandchildren could not care less for grand parents, put money in stock and get wiped out, corrupt government take over, you get knocked down dead by a car tomorrow, you get killed in a robbery, children go overseas amd leave you, aiyah so many scenarios lah so why why why worry whtr 55 or 99 or 999 or 9999 years. if u like the property just buy it and stay and dont think too far and too much and worry yourself sick about value appreciation and to pass on the property to your children or your grandchildren when your wealth can disappear overnite and you are long gone dead to bother about it all. hv you not heard about the grand old lady who once live a luxurious life now staying in a 3 room hdb flt. take it easy man.

If you buy 99 years then the house will still be there when you die.
If you buy 999 years you stand a chance to make profit...then you die.
If you buy freehold you are certain to make profit...and then you die.