99yr versus 999yr/FH

[SET..]

Just wondering why there isn’t more of a price difference?

Right now we are looking to buy as part of our long term plan to live in Singapore.  I had been apposed to looking at 99yr developments to buy a flat as it felt this would always be a depreciating asset.

However as we look, the more it seems to be little difference in the prices between the two, and also there is a greater number of and far more availability of 99yr properties.

So my question is:  is buying a 99yr property such a bad deal?  If a property has 95yrs left on the lease and we then spend 5yr – 10 yrs there, would we really expect a massive price drop when selling on?  80yrs is still a very long time?

Not sure if this is just me stuck in a mindset? 

[my take.]

It depends on the area you are looking....If you are buying a 99yr property in the middle of a bunch of freehold properties, you can better your bottom dollar that the 99yr property will be cheaper on a PSF basis in 10 years than the freehold properties.  Most of this price difference will be based on market perception such as yours that these properties 'should' be worth less.

On the other hand, if you are buying a 99yr in the middle of a bunch of other 99 yr properties (ie. residential projects in the CBD or Sentosa) then i wouldn't worry about it because no property has a tenure advantage over any other property.  The Sail, MBR, Lumiere, One Shenton, Icon....all are 99yrs....as will all of the other residential development plots that come up in future.  

Just wondering why there isn’t more of a price difference?

Right now we are looking to buy as part of our long term plan to live in Singapore.  I had been apposed to looking at 99yr developments to buy a flat as it felt this would always be a depreciating asset.

However as we look, the more it seems to be little difference in the prices between the two, and also there is a greater number of and far more availability of 99yr properties.

So my question is:  is buying a 99yr property such a bad deal?  If a property has 95yrs left on the lease and we then spend 5yr – 10 yrs there, would we really expect a massive price drop when selling on?  80yrs is still a very long time?

Not sure if this is just me stuck in a mindset? 

[Vulcanl]

OP,

If you do a search here you will get several 'hits' as this topic has been covered before.

Generally speaking lease and free hold properties are priced similarly based on what I have seen.

Another point of interest: properties near MRT stations are always leasehold.  Such properties will tend to retain their value due to their proximity to this ubiquitious mode of public transport.

[actually]

OP,

If you do a search here you will get several 'hits' as this topic has been covered before.

Generally speaking lease and free hold properties are priced similarly based on what I have seen.

Another point of interest: properties near MRT stations are always leasehold.  Such properties will tend to retain their value due to their proximity to this ubiquitious mode of public transport.

actually, with the expansion of the MRT and more residential development occurring throughout the island, there are now some freehold plots which can be found very close to MRT stations.  Dhoby Ghaut, Lorong Chuan, and Holland Village are just a few of the MRT stations I can think of with freehold residential projects within 250 meters or so.  some hidden investment gems as PP is right that these are quite rare.

[my understanding]

my understanding, with some assumptions...do you'll agree?

a well located 99 year property, will be more in demand than a badly located freehold?

within the same location, i believe a 99y will go for appx 20% less than a freehold. So if for own stay, you get 20% more space for same budget. If for renting out, you get same rent as a free hold thereby improving your yield?

a new 99y also 20% less than new/old freehold or less disparity?

over time a 99y property starts depreciating, apprx 25% v/s its freehold value in first 50 yrs. But if property market is up after 50 years, market price after factoring this depreciation will still result in absolute capital gains. If prices are constant, then 99y will lose absolute 25% from buy price?

after 30 years bank finance becomes difficult so potential buyer has to come up with more cash, thereby reducing potential market if you want to sell?

generally, people would expect exit via enbloc well before 50y anyways. if that doesnt happen, i guess if own stay its like fixing your familys rental for 99y...which would be much lower than renting at market rates anyways.

Accurate?

[Malaysian Expat.]

The perception on 99 leasehold may be changing. Remember those lucky people at Farrer Court and the enbloc 'potential' of Bayshore Park and Laguna View? Rental yield is better than a freehold (typically cheaper, and nearer to MRT).

[changed perception]

The perception on 99 leasehold may be changing. Remember those lucky people at Farrer Court and the enbloc 'potential' of Bayshore Park and Laguna View? Rental yield is better than a freehold (typically cheaper, and nearer to MRT).

Everything in the CBD is 99yrs.   So is Sentosa.

Some very high end projects (Orchard Residences and Draycott are also firmly established in the $2400-2800 per sq.ft. category. 

The key is that 99years must also have some unique feature that will retain value over the long term (not just rental location).

Otherwise, most of the mass market suburban 99 year projects still have the stigma from buyers and will trade at a bigger discount.

[Poi]

When you buy a property look at the location first. Whether it is freehold or leasehold, it is of secondary importance. 

[JBA]

You may also want to look at the price. 

[OP]

is just another agent lurking and trying to talk up the market!

[99YRS condo]

The price differential is minimal because people assume that all properties will be enbloced somewhat. Singapore is a young country with only 40 years of independence. Nobody has seen what happens when a 99 year lease term condo runs out. Therefore, no one is spooked yet. But technically, it means you can be thrown out of your house unless you "top up" your 99 year lease which means you buy the land all over again from the government based on prevalent mkt price which is a HUGE sum of money (land is ex). Please note during enbloc, the purchaser actually pays for the top up which means the owners do not see the cash-out but it is implicit in the net price. In short, if the 99 year lease is running out and there is no enbloc in sight, then the wise thing to pay $$ for the top up. There are some landed properties which are 99LH with 15 years left or so. These will only sell for $70k in today's market. I know of many who bought 99LH condo first, but will upgrade to a FH condo at some point in time. Also, locals who buy 99LH in "good" locations e.g. The Sail mainly only intend to use those are investment to generate rental yield and capital gains. Chance are they will sell the property after 10 years or so before it gets old. 

[butbutbut]

Even if you assume a property will be enblocked, the shorter the lease te higher the top up cost for the buyer (to restore to 99 yrs again) and the lower the payment to existing owners. So there is still no getting away from the fact that leasholds depreciate with time and that a leashold property is worth less than a freehold, assuming al other aspects are the same.

[Vulcanl]

99YRS condo,

Yours is the most concrete explanation yet re: 99 yrs leasehold that I have come across.  Can you please elaborate on the following:

"...it means you can be thrown out of your house unless you "top up" your 99 year lease which means you buy the land all over again from the government based on prevalent mkt price which is a HUGE sum of money (land is ex)..."

Is this written in the Singapore code of law?  Where can I see this?

"...Please note during enbloc, the purchaser actually pays for the top up which means the owners do not see the cash-out but it is implicit in the net price. In short, if the 99 year lease is running out and there is no enbloc in sight, then the wise thing to pay $$ for the top up..."

Does this apply to HDB leasehold as well?  Again, what resource can I tap to get more information?

"...There are some landed properties which are 99LH with 15 years left or so..."

As you mentioned, Singapore is only 50 or so years old.  How is it then possible to have a property in existence with such little life left in the lease (my question is sincere, pls do not interpret as needling)?

Thanks in advance!

[99yr issues]

SLA governs leasehold top-ups (the top up charge is based on the prevailing development charge (DC) rate in effect at the time of application for top-up.  Therefore a developer would apply to SLA to top up to a fresh 99 years when they wish to buy an older property en bloc.  While it is possible for this application to be rejected, it is very rare and only in cases where the land in question has been rezoned under URA Master Plan for other uses.

Roughly speaking, based on approximate DCs, the rate of depreciation for 99yr land is 1.5% per 10 years (for the first 2 decades), and 4-5% per 10 years for the next 2 decades.  Again, depends on the district of the property. Pretty much unheard of for a property not to be redeveloped within 40 years, so these numbers are what you should focus on. 

However there is often additional discounts priced in based on 'market perception' of 99 year leasehold therefore, if you are an investor, you could capitalize on this perception and arbitrage the difference between the market price and the actual expected lease top-up charge for a given project if you feel it is likely to be redeveloped.  Takes some knowledge of the market and predictive guesswork but can definitely be done...

This does not really apply to HDBs, as SERS schemes will kick in at some point so the government will effectively just pay the owners an arbitrary amount or offer them relocation options when they wish to redevelop a given HDB estate.  This may or may not reflect a market value for the location.  So, leasehold tenure for HDBs (particularly shophouses) should be a concern and you should always check whether any SERS plans are in the works before you buy re-sale.

99YRS condo,

Yours is the most concrete explanation yet re: 99 yrs leasehold that I have come across.  Can you please elaborate on the following:

"...it means you can be thrown out of your house unless you "top up" your 99 year lease which means you buy the land all over again from the government based on prevalent mkt price which is a HUGE sum of money (land is ex)..."

Is this written in the Singapore code of law?  Where can I see this?

"...Please note during enbloc, the purchaser actually pays for the top up which means the owners do not see the cash-out but it is implicit in the net price. In short, if the 99 year lease is running out and there is no enbloc in sight, then the wise thing to pay $$ for the top up..."

Does this apply to HDB leasehold as well?  Again, what resource can I tap to get more information?

"...There are some landed properties which are 99LH with 15 years left or so..."

As you mentioned, Singapore is only 50 or so years old.  How is it then possible to have a property in existence with such little life left in the lease (my question is sincere, pls do not interpret as needling)?

Thanks in advance!

[Vulcanl]

Great stuff, Thanks for that.  I will check the SLA site as well.