99-year leasehold private homes not necessarily the best option

Demand for 99-year leasehold private homes has been strong with about three quarters of private residential projects launched in the past year falling into this category. Between June 2011 and June 2012, an estimated 77% of new private homes placed for sale were on 99-year leases. The sheer volume of such projects has led to continued strong demand.

A reason for the continued demand in 99-year leasehold private homes could be down to a mindset change among some home buyers. This could be due to the overall high property prices in Singapore, whereby it is now commonplace for even Housing and Development Board (HDB) flats to cost more than half a million Singapore dollars. In addition, these buyers are highly mobile when it comes to housing, opting to either upgrade to another property or cash in on capital gains after a few years. In addition, new leasehold units offer a better rental yield of at least 3.5%, as compared to a minimum of 2.5% for freehold homes.

Market watchers however have cautioned home-buyers that new 99-year leasehold private homes might not be suitable to all. Buyers to be aware that the capital value of leasehold properties depreciates progressively as the development ages.

These properties are thus not the best option for buyers with an eye for wealth preservation or handing down their homes to their children. With such objectives in mind, a freehold property might be more suitable. In addition, freehold properties command a price premium of at least 10% against comparable leasehold projects.