Homes in Singapore come with different lease periods:
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Most housings in Singapore either fall into freehold or 99-year lease, with the latter making up the bulk.
A 999-year lease is almost equivalent to freehold.
While 30-year-lease HDB studio apartments come in short supply and are only meant for elderly residents.
Private developments with a 103-year lease period (the lease period is determined by the developer) on freehold land are few and far between. At the expiry of the lease, the non-governmental land owner has the right to re-acquire the land (i.e. reversionary right), sell the freehold tenure or extend the lease for a price.
Residential properties with 60-year lease are not available yet, but will be in a few years' time when development on the first 60-year leasehold residential land plot at Jalan Jurong Kechil is completed.
Homes in Singapore are predominantly 99-year leasehold because the government sells most lands on 99-year tenure due to land scarcity in this country. At the end of the lease period, the state can acquire the land without any compensation to the home owners. Currently, the government does not offer freehold land parcels for sales anymore, except for the sale of remnant State land to the adjoining landowner whose existing private land is already held under a freehold title.
However, topping up of the lease of leasehold private housings is allowed.
Lessees may apply for a renewal of the lease with the SLA (Singapore Land Authority). The granting of extension is on a case-by-case basis and will be considered if the development is in line with Government's planning intentions, supported by relevant agencies, and results in land use intensification, mitigation of property decay and preservation of community (SLA, “Waiver of Building Premium”). If the extension is approved, a land premium, decided by the Chief Valuer, will be charged. The new lease will not exceed the original, and it will be the shorter of the original or the lease in line with URA's planning intention.
In addition, near the end of the lease period the State may require the land to be returned in its original conditions. If so, demolition of buildings, land fillings, etc. will have to be borne by the current lessees.
For HDB flats, legally the flat will be returned to HDB at the end of the lease. HDB does not have to make any monetary compensation, or offer a replacement flat to the owners. The owners may also be required to remove any fixtures fitting.
Advantages of buying a freehold or 999-year leasehold home
1. Loan Approval
Only a handful of banks will grant housing loans for properties with less than 60 years of remaining lease, and it is on a case-by-case basis. The loan if granted may have a shorter tenure or lower quantum. Thus, if you purchase a freehold property it will save you from the disappointment of loan rejections, or unfavourable loan terms, because of the lease of the property.
Further, you may have a easier time selling off the property since the potential buyer will have a higher probability of obtaining the necessary funding.
2. Use of CPF funds
For freehold residential properties, you do not have to fret about not being able to dip into your CPF saving, or to do so at a lower withdrawal limit, for your purchase because of the property's expiring lease.
This is because you are not allowed to use your CPF funds for the purchase of private houses with under 30 years of lease left.
For houses with remaining lease between 30 and 60 years, the withdrawal amount is tied to the buyer's age and the remaining lease.
Withdrawal Limit
= (The remaining lease of flat or property when the youngest owner is 55 years old / The lease of the flat or property at the point of purchase) x Valuation Limit*
Valuation Limit is the lower of the purchase price or the value of the flat/property at the time of purchase.
(Source: CPF Ask Us, “What are these additional conditions to use CPF for flats/properties with remaining lease of at least 30 years but below 60 years?” )
These CPF withdrawal rules and the attendant limits will affect HDB flats from 1 July 2013.
3. En bloc sales
Homeowners of freehold properties have higher chances of profiteering from collective sales.
Developers may prefer to acquire freehold over 99-year leasehold properties because they do not have to incur a hefty land premium to top up the lease (of which the approval is not even guaranteed), which eats into their profit margins.
Even if developers do acquire 99-year lease lands, they may offer a relatively lower price as they factor in the land premium they have to pay.
4. Long-term stability in value
Leasehold housings nearing the end of their tenure will always fall steeply in value. But you will never have to face this problem with a freehold.
However this is not saying a freehold property will not depreciate in value over time. This can also occur due to the decay of the building. When this happens, the redevelopment value of the land may exceed the value of the building; thus resulting in a collective sale.
In summary
Generally, freehold residential properties cost more than leasehold ones. But less clear-cut is which category enjoys a higher rate of price appreciation. If you are considering residential real estate as an investment vehicle to reap capital gain, you should be looking at the rate of price appreciation.
Another warning. If you are attracted to freehold because you are harbouring hopes of bequeathing the property to your descendants till perpetuity, you might want to perish that thought. En bloc sales could go through as long as there is a majority consent. Further, under the Land Acquisition Act, the State has the authority to acquire the freehold property “for public and certain other specified purposes”, with due compensation. This Act also applies to leasehold property.
When all said and done, leasehold homes will still remain attractive to buyers due to their affordable prices and proximity to amenities.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
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