Everyone has an opinion about freehold and leasehold condo, and different purchasing options suit different individuals. If you’ve been warned against leaseholds or are unsure whether freehold is right for you, weigh the benefits and drawbacks of each.
Advantages of Freehold Condo
They are well-known for their ability to maintain their market value. Although they appreciate in value slowly, their stability makes them an excellent long-term investment.
They are uncommon, and their leases never expire, allowing you to keep your property for as long as you want. In comparison to leasehold, they have a greater chance of En-Bloc and owners can set their own sale price.
Long term gain
Possessing a freehold property is analogous to owning a plot of land. Land is a valuable asset in a land-scarce country like Singapore. Leasehold properties expire at the end of their term. The reality is that after 99 years, you will no longer own the asset and will be unable to transfer it.
As the country continues to develop and attracts more foreign investors, the value of freehold properties is certain to appreciate.
Gift for kids (Legacy)
If you intend to pass the property on to your children, grandchildren, or other descendants, a freehold is the better option. A strategy for property longevity and wealth is to set up a trust and place the condo in the trust with the intend to supply descendants with monthly rental income.
Advantages of Leasehold Condo
Better Rental Yields
Rental yield is calculated as annual rental income divided by the property’s total cost. This means that if the rental income remains constant, the more expensive the property, the lower the rental yield.
Higher Capital gain in the short term
The value of your unit is determined more by its location than by its tenure. A leasehold condo in a prime location will almost certainly yield a higher yield than a freehold condo located further out.
We now know that the initial sale price of freehold condominiums in the area is approximately 10% to 20% higher than the initial sale price of leasehold condominiums. However, because tenants are unconcerned about the length of the lease, rental rates are typically the same. As a result, the rental yield on freehold condominiums is typically lower.
More Choices in better Location
The majority of leasehold properties are located in prime districts within walking distance of financial centers, tourist attractions, MRT stations, schools, public transportation, and shopping centers.
With 80-90 percent of land being sold on a leasehold basis, home buyers have more options over the location, size, and budget of their home.
The advantages of purchasing a new condominium
New facilities and features
The primary allure of a new launch is its novelty. You can rest assured that it will not deteriorate with use and that everything will remain bright and shiny. This does have an effect on rentability: many tenants prefer a condo with a new and clean pool, pearly white walls, and top-of-the-line new gym equipment, and so forth.
Additionally, newer condominiums include features that older ones do not. For instance, some condos are now smart homes, allowing residents to control elements such as lighting and air conditioning remotely and view the house’s interior via remote.
Cost savings on maintenance
The older a condominium building becomes, the higher the maintenance costs typically are. This is true both within your condo unit and in the common areas.
Within your unit, older resale condos are more likely to have issues such as clogged plumbing, yellowing walls, damp ceilings (typically caused by air-conditioner leaks), or failing water heaters. New launch condominiums have fewer of these issues, and if you do find one, the majority of developers offer a one-year defect-free period. That means they’re obligated to repair it for free if you discover it within a year of purchase.
Developers frequently offer early-bird discounts during the early stages of a launch. These typically total around 10%, but this may not be universal. For instance, the most desirable units in terms of their orientation, floor, and size may not be discounted at all; your advantage is simply having the first pick. These reductions are additional in the second phase and so forth.
Apart from discounts during the initial launch, there are instances when buyers are offered discounts because of the Additional Buyers Stamp Duty (ABSD) that they are required to pay. Developers must complete and sell each unit within five years. Years, or else they will be subject to a 30% stamp duty on the land price.
A broader selection of unit types
With resale condos, you must choose from available units. With new launches, you typically have the first pick of the team you desire (depending on your ballot’s luck and/or how early you purchase). Allowing you to choose enables you to select units that you know will be easier to rent. For instance, you can choose units that have a better view or have easier access to the car park or pool than others. Assuming you have a firm grasp on your tenant demographic, you can select units that will appeal to them.
The advantages of purchasing a resale condominium
You can immediately begin renting out the space
This is the most common reason for investing in a resale property. A new development may take two years to complete, whereas tenants can immediately move into a resale unit. Indeed, a resale condo may already have tenants when you purchase it (if you buy from another landlord).
The majority of investors wish to avoid paying their mortgages entirely by generating sufficient rental income to cover repayments (or at least subsidise it). As a result, it’s understandable that some investors will consider only resale units.
Larger unit size
While resale condominiums are not brand new, they do cover a greater area in terms of unit size than newly launched units. Due to the increasing cost of construction in terms of manpower, resources, and land space, developers are required to design a layout that maximizes the amount of available space. However, older units are unquestionably more spacious, as costs were not as high as they are today.
A larger unit offers a plethora of advantages. For starters, it is likely to attract a greater number of prospective buyers. If individuals, particularly families, are paying to rent an apartment, they will be more satisfied if they can host housewarming parties for their friends and family. Second, your customer base will expand from individuals to families as the apartment can accommodate more people, alleviating the burden of finding prospective tenants.
Additionally, you are free to mix and match the furnishings as you see fit, without worrying about whether there is enough space for that seven-seater couch or that brand new home theater you’ve been eyeing. Again, this increases the likelihood of an interested customer expressing an interest in living in the apartment. The benefits of additional space are limitless, and condominiums that have been around for a while are more likely to be able to provide that perk.
Renting resale condominiums provides a more predictable income stream.
In comparison to a new condo, the rental income from a resale condo is significantly more predictable. By analyzing current and historical rental data on websites such as URA and Square Foot, you can gain an understanding of rental trends and determine whether the condo is a good investment.
Prior to going in-depth into the freehold vs leasehold debate, it’s worth noting that Singapore has three types of condominium tenures: freehold, 99-year leasehold, and 999-year leasehold. In essence, the 999-year leasehold developments are freehold properties.
The general perception is that freehold properties can be retained indefinitely by the purchaser, whereas 99-year leasehold properties revert to the state at the end of the tenure. Additionally, the 999-year leasehold properties technically revert to the state when the tenure expires.
However, when the 999-year leasehold tenure is precluded, how do the freehold and 99-year leasehold tenures compare
The common conclusion is as follows:
A freehold property is more valuable. Leasehold properties are cheap condo and generate higher rental yields. The freehold system has theoretical rather than practical advantages.
These are the most frequently reached conclusions by property buyers after conducting research on the benefits and drawbacks of leasehold and freehold properties in Singapore. Let us continue our exploration.
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