|
Freehold
vs leasehold: a narrow divide
The bias for 'forever' freehold over 99-year leasehold may be
unfounded with the recent developments in the property market
The catchy tagline of an
advertising campaign for The Calrose condominium by MCL Land goes, 'Freehold
is Forever'. Accompanied by images of newlyweds and kids, the message is
presumably that a 'freehold' property would last generations.
One has to wonder why the developer felt the need to state the obvious.
After all, 'freehold' property is a concept everyone understands and does
not even require elaboration here. However, after the tagline sinks in, it
becomes clear that what is questioned is not what 'freehold' means, but what
property that is not freehold - leasehold - implies today. And, more than
ever, the line between the two is increasingly blurred.
More a psychological factor than a physical one, the fear in the past was
simply that after 99 years, the property would no longer be yours.
A more compelling reason for the difference in perceived value, however,
would be that the Central Provident Fund (CPF) does not allow its members to
use savings to buy properties with leases with less than 60 years remaining.
But this may soon change. It is understood that CPF may be reviewing this
60-year cap. The first time a review was done was in 1992 when the cap was
75 years.
Another recent development that may make leasehold properties even more
attractive is the Singapore Land Authority's (SLA) granting of its first
in-principle approval for the topping-up of the lease on Eng Cheong Tower.
The mixed development has 65 years left on its lease and is in the process
of a collective en-bloc sale. Indeed, Colin Tan, associate director at
Chesterton International, believes that SLA's in-principle approval is more
a formality. 'Long term prospects for 99-year leasehold properties now look
much better with the precedent set by Eng Cheong Tower,' he says.
'Buyers' acceptance for leasehold property is better now than it has
been, even for foreigners. The success of Sentosa Cove shows foreigners have
no qualms about paying high prices for 99-year properties. When it comes
down to it, property is still about location. Tenure is important but still
secondary.'
Other successful leasehold developments include The Sail
@
Marina, The Berth @ Sentosa Cove and 8 @
Mount Sophia.
These projects also did well because they were ostensibly investment
properties that would probably be rented out. As Jacqueline Wong, associate
director/residential at Jones Lang LaSalle, notes: 'Tenants in general do
not differentiate nor do they consider the tenure of the property as a
deciding factor when they want to lease a property. For buyers that purchase
leasehold properties for investment, price and location is a main
consideration, apart from other factors such as proximity to public
transport and amenities.'
The attractiveness of niche products supersedes concerns buyers may have
about leasehold developments but is the situation the same in the mass
market? Joseph Tan, director, residential, at CB Richard Ellis, believes
that there are actually more unsold freehold units than leasehold ones. But
he attributes this to developers of freehold projects having the luxury of
being able to wait longer when determining an appropriate time to launch a
residential development. 'Ninety-nine-year leasehold projects face more
pressure to be placed on to the market as soon as possible in order to
maximise the tenure,' he said.
In this light, there may be good buys in the 99-year leasehold market
now, especially if these developers feel increasing pressure to offload
units. Competition from new freehold developments will not help them either.
According to Knight Frank's research team, of the 14 new residential
properties it expects to be launched in the next three to six months, only
four are leasehold. And of the four, two are niche developments in Sentosa
and so do not really compete in the same arena.
Bonvest, developer of The Trumps in Kembangan, has felt some of this
heat. The developer bought a leasehold Kembangan site in 2000 for $75.3
million and launched it as the The Trumps in 2001. Designed by W Architects,
the same firm that designed Paterson Edge, the Trumps was launched at about
$640 psf. The development, which has already obtained its temporary
occupation permit, was relaunched this year at about $530 this year - a
discount of about 17 per cent.
Other 99-year leasehold bargains include Costa Del Sol, which sits on a
prime East Coast site. It was launched in 2000 at $765 psf. In May of this
year the price dropped to $650 and it is understood that further discounts
are being offered now.
In reality, the bias for freehold over leasehold may be unfounded. JLL's
Tan Keng Chiam, national director, head of valuation advisory services
(capital markets), does not believe that there is a significant difference
in the values of freehold over leasehold. He says: 'In general, as a
property ages, whether it is leasehold or freehold, and assuming a stable
market, the value decreases against new properties. Physical and functional
obsolescence are more important factors that set in to depreciate the value
or price.' He added that 'empirical evidence' showed that leasehold
properties moved in tandem with the market despite the shorter tenure.
- by Arthur Sim SINGAPORE
BUSINESS TIMES 30 June 2005
|
