Prices of leasehold landed properties rarely go up?
July 10, 2011
The founder of a Singapore housing loan consulting firm has an interesting comment in the book Secrets of Singapore Property Gurus,
“From my observation, the worst property investment is buying 99 year leasehold Landed Property as the value rarely goes up. In fact the value might go down if the property is over 15 years old.”
In April 2007, I happened to find a 99-year leasehold terrace house in a neighborhood district.
Since it’s for own stay, instead of my usual rule of buying at 15% discount, it was bought at the market price of $735,000. I thought it’s a reasonable price for a 7-year-old house with more than 3,000 sq ft in floor area. (Now, help me understand why an HDB’s DBSS 5-room flat can market at $880,000!)
I just checked the last transacted price. It is now close to $1.6 million. That’s more than 115% increase in just 4 years!
Now this collection of terrace houses is so popular that I have property agents calling every other night to ask for any intention to sell.
I don’t know how this housing loan ‘expert’ did his observation. Or should I count this good luck or the reward of my diligent research?
The morale of this story is: there is no such thing as ‘conventional wisdom’. It’s only people’s believes that are getting in the way of their imaginations.
Jim Rogers said in his book A Gift to My Children: A Father’s Lessons for Life and Investing,
Most perceived wisdom is a misconception and wildly inaccurate.
Rely on your own intelligence … Do not let others do your thinking for you.
During my search for landed residential properties in 2006 and 2007, I came across some 99-leasehold houses with 20 to 40 years left in their lease. Well-situated at the heart of Bedok and Upper Bukit Timah, they were only selling from $200,000 to $400,000 (lower than the price of HDB 3-room flats).
Bank mortgages were approved on a case-by-case basis.
Many were bought by retirees to enjoy gardening in their retirement . Some investors renovated these terrace or semi-detached houses, and rented them to expatriates from a few thousand to over $10,000 per month.
Do you see the selling points of such properties here? People looking for value-for-money landed living get what they want while niche investors enjoy their returns.
The prices of these short-lease houses have also increased since then.
Seeing things not for what they are but for what they might be creates opportunities. (Carolyn Kepcher, Carolyn 101: Business Lessons from The Apprentice’s Straight Shooter)
Foreigners see 99-year a very long and reasonable tenure. In Hong Kong, 60-year leasehold private properties are the common norm while properties in China usually come with a 70-year lease.
Afterall, how many of us can live up to 99 years? And you won’t start buying until you are close to 30, right?
How long will you stay in the same flat? 20 years? 30 years?
Afterall, you definitely need a major upgrade for a property over 30 years, regardless of its tenure, isn’t it?
Freehold or leasehold? (cont’d)
July 10, 2011
3) It’s more than tenure when it comes to borrowing.
For financing, besides looking at the remaining years of the property, banks also look at the borrower’s income, credit history, past property investment, ability to repay the loan, etc.
Some banks also use a formula to calculate the tenure of the mortgage depending on the borrower’s age. The younger you are, the longer you can repay your housing mortgage.
The exception is commercial properties, especially for short leases (e.g. 30-year leasehold) or properties left with less than 15 years in its tenure.
4) Only the government or developers can decide the fate of freehold and leasehold sites.
We can’t deny the fact that all land in Singapore, regardless of freehold or leasehold, belongs to the government.
The government sets the rules of the game and has the right to change them at any time.
Even if your property is in a freehold site, for defense, redevelopment or whatever valid reason, the Singapore government has absolute right to confiscate the land and compensate you “at market value”.
Developers can also decide on the fate of the tenure. Far East Organization sells Shore Residences on a 103-year lease on a freehold site.
In 2005, Singapore Land Authority (SLA) initiated the first case to top up the 99 years’ lease of Eng Cheong Tower at Beach Road. The site area became the first leasehold collective sale completed in Singapore land history.
From now on, it doesn’t matter how many years left on the leasehold of 99-year property. Before any collective sale, all you have to do is to apply for in-principle approval to top up the site’s lease to 99 years. SLA will consider on a case-by-case basis.
And there are many successful examples: Grangeford (now Twin Peaks), Ong Building (now 76 Shenton), HMC building (now Lumiere) …
