Invest in THE SHORE residence and Greenwood terrace

Singapore Property Buyer

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www.propertyBUYER.com.sg Singapore Mortgage Consultants

In view of the recent few launches such as that of “The Shore residence” and the “Greenwood terraces”, both of which are bought as Free hold land, redeveloped and sold as 103 years lease hold strata title. These are 2 Far East developments which have been launched recently.

Singapore government can release land in various forms, but more likely than not, most land parcels being released are 99 years leasehold land, while very few are freehold or 999 lease hold land. This means that the supply of perpetual land (FH, 999 lease hold) are diminishing all the time.

In land scarce Singapore, this means that in the coming years, Freehold land may become even more scarce.

The recent developments where developers who bought Free Hold land, develop and then subsequently sell it as 99 years lease hold could further accelerate the depletion of Free Hold land to the public.

We look at the implications of such developments

IMPLICATIONS OF DEVELOPERS RETAINING A REVERSIONARY LEASE

Developers may now bid for many Freehold land parcels or take over existing free hold property through en-bloc sales. The Singapore economy is still weak, if you look at the salary census, Singapore’s salary growth has been slower than that of growth of property prices.

In other words, affordability is an issue. Say for instance a couple earning a combined income of $10,000 a month with no financial commitment on a 30 years loan repayment tenure can only afford a $987,000 Singapore property loan with a threshold interest rate of 4.5%.

At 20% downpayment, and a loan of $987,000, the property price that such a property buyer can afford is $1,233,750.

If the property developer who wants to market his property at $1300 psf for a 1,100 sq feet property, the Singapore property developer would need to either reduce prices or reduce size to meet that affordability figure.

Singapore property developer's goal

The developer’s goal is always to maximize profit (There is nothing wrong with it).

Trend of Smaller singapore condominium units

In this scenario, the property developer can choose to reduce the size of unit, thereby meeting the affordability price quantum and achieve superior price per sq feet per plot ratio (psfppr). This could lead to a trend of smaller size condominium units in the future.

FH land becomes Leasehold 99 years land

In another scenario, the property developer opt to maintain the size of the unit, but converts the Free hold land to a 99 years leasehold land. The developer owns the Free Hold land title. This could lead to the gradual disappearance of the Free Hold land titles available to the public.


Overtime, if the law permits, developers could even sell properties on 70 years lease, 50 years and lesser.

Singapore hands power over to the large property developers?

If developers are allowed to hold on to the free hold land titles while developing properties and selling it as a 99 years lease, then this will over a period of time dilute the effectiveness of Singapore Land authority to regulate the market.


Say for instance when the building is 20 years old and run down, the residents opt for selling en-bloc, they can sell en-bloc for the remaining lease of 79 years. Whoever buys this piece of land en-bloc would find it hard to redevelop and sell it again as there is not much lease remaining.

Supposedly in any potential en-bloc deals, the residents are only selling the remainder 79 years lease of the land to another developer.

In order to make this development attractive, a top up of the lease by 20 to 30 years would be required. In the case of topping up of this lease, the property developer that owns the land has the final say on setting the rates. (Not SLA’s Development charge).


So whether you can en-bloc or not depends solely on the goodwill of the property developer. If the property developer sets a high price for the top-up, then that would mean that no other developer would want to bid for it, leading to lower market value for that property.


The final rights then remains in the hands of the developer who owns the master title of the free hold land.

In this case, Far east wold retain the rights and option to develop the land should the residents want to go en-bloc. Far East having a right to set development charges or extract additional fees, will have the first right of refusal in any land parcel development.


As more and more developers do this in the near future, the authority of Singapore land authority could become eroded. There is always a worry that such developers will eventually wield too much power.

DEPRECIATION OF THE CONDOMINIUM BUILDING

Let’s say the building is poorly maintained, the condition becomes worse, over time the value of the building drops. So in such a scenario, even if Far east makes an offer for the land that is giving only a slight premium, the residents will have no choice but to accept the offer and sell back the remaining lease to the developer and lose any potential upside.

WHAT IS PROPERTYBUYER.com.sg STAND ON THIS?

PropertyBuyer.com.sg is a Singapore mortgage consultants that is research focused, so what we do are to merely to inform the public of these matters. Whether such deals are good deals or not, it is a matter between the buyer and seller. We only state it as it is, the way we understand it.

We have already got in touch with Singapore land authority to enquire about under what circumstances are developers allowed to buy Free Hold land and release it back as 99 years lease hold land.

We are not against property developers maximizing profit. Ultimately it is a matter of buyer power versus seller power. If the seller has the pricing power, it is very obvious that buyers will have to do so on the seller’s terms and the reverse is true as well. Ultimately all profit seeking enterprises are there to make money, and rightly so.

What does this mean for you if you own a FREE HOLD properties?

We are checking with SLA under what statute or circumstances are such arrangements allowed. If this is allowed, wouldn’t you then be able to offer your Free Hold landed property for sale at a slight discount as a 99 years lease hold property?


Imagine, this is really a unique way of passing money and assets to the next generation while retaining a vested option in the land value of the property.
I would say, it has all the UPSIDE and none of the downside.


Stay tuned while we wait for a reply from Singapore land Authority.