Leasehold VS Freehold Property, Which is Better?
In the last 10 years of my career as a Professional Real Estate Consultant and Luxury Condo Advisor, one of the most discussed and asked questions I received is “Freehold VS Leasehold, Which is Better for Me?”
In this article I would like to discuss on freehold property in Singapore, and in subsequent blog I will highlight why leasehold might be more suitable for some buyers and investors instead.
There is a common misconception surrounding the debate over Freehold vs Leasehold property in Singapore. Many believe that Freehold properties tend to be more valuable, thus reaping a profit is almost guaranteed. Therefore, people prefer owning freehold properties as they believe such properties will bring them higher financial gains. However, this is absolutely NOT TRUE, as in many cases leasehold properties performed much better and generate more profits compare to freehold condos.
Freehold or leasehold is just one of the factors to consider, among several other factors to be considered when it comes to buying a property. It should be determined based on factual basis as opposed to making an emotional purchase. Doing your research or engaging a competent advisor goes a long way in making the right decision.
At the end of the day, deciding between freehold or leasehold all boils down to the entry price and this is actually the more important factor than the tenure itself.
3 Important Factors
when choosing a FH property:
- Legacy
- Location
- School
1. Why Legacy?
Diving into an example – a buyer takes out a 20-year loan, putting a down payment of 25%, eventually renting the property out. The rent collected from tenant goes towards paying off the mortgage, with the buyer topping up any shortfall.
The aforementioned approach is seen as a form of forced saving into the property. As you can see from the table below, any rental proceeds collected after the 20th year will be yours to keep for generations. That is why the affluent tend to choose to purchase freehold properties, with the intention of leaving it as a legacy for their next generation.
2. Location
The next factor to consider is about location. If you can find a freehold property that is near to an MRT station, that is a huge huge advantage – as freehold properties near MRT stations only make up 13% of properties in Singapore. Most freehold properties are not that near to MRT, which is one reason why many decided to buy a leasehold project that’s nearer to MRT. That is why freehold properties near an MRT station always hold its value and may even appreciate over time.
3. Near to Reputable/ Renowned Schools
If you are a parent or parent-to-be and reading this, imagine you could buy a property that is near to a reputable school that your children could get into easily. I am sure you would say “YES” because we all want the best for our children! What happens if this property that is near a reputable school happens to be FH as well, wouldn’t it be an additional plus point?
I have seen many times freehold properties near reputable schools enjoying high profit margins. Just take a look at the table below, one owner made a whopping $800,000 in profit!! It makes everyone wish that they own such properties. And we think to ourselves if working hard and saving up, will we ever be able to see such amount of cash in our bank accounts. Don’t just work hard, work smart too.
I hope this article has been informative and have helped you better understand the longstanding debate between FH & LH. I have concised this article to a shorter form to provide with you an overview on some important points when making your next property investment move.
If you are interested, I have another article that is on an EXTREMELY IMPORTANT topic – how to identify a property that is priced right. I will be analysing & breaking down a case study and teaching you how to use an important fundamental principle to determine the potential upside of the asset.
Just as some who are successful, like the example above, who has made an $800,000 profit, are also others who have chosen the wrong assets and ended up making little to no profit. Hence, having knowledge coupled with research would make your purchase a safer one (as can be seen from the table below).
As with every type of investment, we cannot guarantee a fixed amount of profit you will reap. But what I can guarantee you is that we can minimise your risk for your next property purchase.
Regards,
Jack Ooi
Your Trusted Advisor for Luxury Condo (Singapore)
Contact Us HERE
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