Freehold or 99-year leasehold

It seems freehold home prices have proved to be more resilient against troubling recent months than their 99-year leasehold counterparts, according to a recent report.

(Leasehold and Freehold markets are often tailored to specific property interests.)

Credo Real Estate has found that prices for freehold properties (both condominiums and landed) have been doing better than similar homes with 99-year leases since Q3 2010, a time marked by cooling measures and economic uncertainty.

Leasehold condo prices crawled less than 1% upwards each quarter in the 15 months leading to September 30, but freehold condos averaged quarterly hikes of 2.2%. Likewise as leasehold condos appreciated 48% in the past decade, freehold ones shot up 62% in the same period, reported Credo.

Similarly, the landed homes front saw prices of leasehold terraced properties dip 0.1% in the three months leading up to September 30 (the first decline in at least 15 months), while freehold landed homes jumped 4.9%. In the past 10 years, freehold terrace prices have soared 97% and leaseholds, 52%.

“Freehold or 999-year leasehold are the preferred tenure for many property buyers as many are concerned that the value of 99-year leasehold properties may not appreciate well when the duration of the leasehold reduces,” added the report. Indeed, freehold and 999-year homes proved popular, holding 61-69% of the new sales market from 2007 to 2009 – the result of a thriving 2006-2007 collective sales market that provided a strong supply in the years to follow.

The report further noted that both home segments have taken hits since July 2010, when two additional rounds of cooling measures were implemented. In addition, the recent financial market uncertainties that surround the euro zone crisis have put a damper on home buying sentiments.

The mere 3,000-unit supply of freehold or 999-year homes from sites sold en bloc last year – due to the collective sale market’s “modest recovery” could mean that prices will remain on a upward march.

The leasehold front, however, seems to be doing better in recent times: new 99-year leasehold homes (excluding executive condominiums) have contributed to the bulk of new sales, taking up 60% of the market share in the first three quarters of 2011. Last year they constituted 50%. As a result, prices have upped 18% in 2010, rising a further 6% within the first nine months of 2011.

Which should you choose?

The general rule seems to be: choose freehold if you are an investor, and 99-year leasehold if you are an upgrader.

Based on its track record, it is hardly a surprise for Credo’s research and consultancy head Ong Teck Hui to recommend freehold houses for buyers looking at property investment.

99-year leasehold homes, on the other hand, should be more suited to buyers looking to move into them, because of their relative price stability. “They still have a price advantage over freehold equivalents and many 99-year leasehold projects are located near amenities and transportation nodes,” said Ong. “These are crucial factors, especially for upgraders, for whom affordability and convenience rank high on their priorities. Such attributes can be found in sites in or near HDB estates which the Government puts out for tender on a regular basis under its land sales programme.”

With authorities pushing out a bumper supply of 99-year leasehold state land over the past year to meet demand, prices of 99-year leasehold homes should remain relatively stable for subsequent years. Some 16,000-17,000 of such homes can be expected from these sites.