Interested in getting your new condo? If you’ve been doing your research or asking around, you would’ve known that condos are broadly classified as either: freehold or leasehold.
Before you look into locations, facilities, and nearby amenities, you should first consider whether you want to go for a leasehold or freehold condo property.
In general, most homeowners prefer to opt for freehold properties as it’s believed that these properties carry a higher value in the long term. Even if you don’t intend to sell off your condo property, you can hand it down to the next generation.
In this article, we’ll be discussing whether these commonly held beliefs are true and the key differences between freehold and leasehold condo units homeowners should know about.
Condo tenures you should know
Condo tenures have three broad categories: 99 years, 999 years, and freehold.
At the end of the tenure for condos with a 99 or 999-year leasehold, the lease for the condo units returned to the government.
On the other hand, buyers of freehold units have the right to retain their unit’s ownership for as long as they are financially able to.
To most of us, 999 years seem like a long time and don’t seem too different from freehold condos. Would it then make sense to get condos that have a 999-year leasehold instead of a freehold condo? Would that make a big difference?
Different property values
Perception makes a big difference. Although 999 years seem like a long time, perception causes freehold condos values to be much higher. The initial sale price of a freehold unit is generally around 10 – 15% higher than a leasehold unit in the same area.
Suppose you compare two condos with similar facilities: one that is freehold and one with a 999-year leasehold; you’d see that the freehold units tend to have a much higher value even if their offerings are pretty much the same.
Differences in prices for 99-year leasehold condos would be even more apparent when compared to freehold condo units. In general, freehold properties cost 10 – 15% more than leasehold properties.
Leasehold units tend to depreciate more rapidly at 21 years of age and 40 years of age as the tenure comes to an end. This, of course, assumes that all factors are equal — many aspects affect the value of a property, and freehold/leasehold is one area of consideration.
How long can you keep the property?
As mentioned, freehold condos allow homeowners to keep their properties as long as they are financially able to.
With 99 and 999-year leasehold condos, the government retains the right to take back your property once your tenure is up. This means that you’ll not be able to pass down your property to future generations or keep it as long as you may like.
While 999 years may seem like a long time, it’s better to get a freehold condo to have peace of mind if you intend to keep the condo unit for the long haul. It also serves as an investment in a property that your children and their children can keep.
En bloc prices
Some may argue that freehold condos do not guarantee that you get to keep your unit for as long as you wish.
In the case of an en bloc, you’ll still need to give up your unit if the majority of the residents agree to sell off their units. However, even in these scenarios, freehold condos are theorised to be better for en-bloc gains.
Leasehold units, especially 99-year leasehold condos, tend to be priced lower when they are nearing the end of their tenure. Supposing all variables are equal — location, amenities, zoning laws — freehold condos fetch a much better price during an en bloc.
If you’re not intending to rent out your unit, it’d make more sense to look for freehold units.
When it comes to rental, leasehold units tend to be more attractive to landlords and make more financial sense. Your tenant will not be concerned whether the rental condo unit is freehold or leasehold, and it wouldn’t make sense to get a freehold condo that is priced much higher.
On the other hand, if you’re thinking of getting a condo for your own home where you want to live in the long run, getting a freehold condo would make more sense. You can also treat it as an investment. The property, which will appreciate over time, can be passed on to your future generations.
Should you choose freehold or leasehold?
The debate for freehold vs leasehold units is a complex one because there are many factors you should consider when you’re getting your condo unit.
Before diving in to get a freehold or leasehold condo, you should first consider your priorities and what uses you intend for your new condo unit. Do you intend to rent it out? Is the length of tenure your main concern?
If tenure is not your main concern, you can check out upcoming 99-year leasehold condo developments like Uptown @ Farrer, The Florence Residences, and The Landmark as your new homes to be. These developments are located at the fringes of the city, making them convenient and accessible.