Learning about property can be daunting when you’re just starting out, especially when you’re confronted with unfamiliar terms like freehold and leasehold from the get-go. But understanding what these terms mean and how they affect your long term investment horizon will be crucial in helping you make an informed property purchase decision.
Are freehold condos worth more?
If you buy a freehold condo, you’ll own it forever, in theory. Freehold condos do not suffer from the expiring lease problem. This means that you’ll be able to hold onto your property for as long as you like until you’re ready to let it go. However, the government can still seize back the land on which freehold property is built for development purposes according to the Land Acquisition Act (LAA). Of course, homeowners will be given market level compensation, although this is usually less ideal than being able to sell on your own terms.
Another way freehold condo owners can lose their property before they originally planned to is through collective en-bloc sales. This happens when a property developer attempts to buy off your estate’s land by offering homeowners an attractive resale price. While this can only happen if 80% of homeowners agree, the amount of money offered can be too much to resist.
Due to the longevity of their value, freehold condos tend to be regarded as better investment deals and thus fetch higher prices than comparable leasehold condos. Of course, the investment will only be worthwhile if you can afford it. It doesn’t make sense to bleed your bank dry just for a chance to make profit decades down the road.
Benefits of owning a freehold condo
All that said, the benefits of owning a freehold condo cannot be understated. There’s possibly no better feeling than paying off your final month of mortgage or housing loan, knowing that the home you’ve bought is yours to keep forever. The road to property ownership will be tough, but the rewards may just be that little bit better.
1. Freehold condos are easier to pass on to future generations
Barring the enactment of LAA, or an en bloc sale your home will be around long after you’ve passed on. This means that you’ll be able to provide your children or grandchildren with a roof over their head, easing them into homeownership while they save up for a place of their own. Unlike other forms of investment, a home will always have practical value, so freehold properties are definitely something you can consider if you’re looking to settle down for good.
2. Freehold condos pay off in the long run
Freehold condos may be more expensive, but they can also command higher resale and en bloc sale prices. Unlike leasehold condos which depreciate as the years go by, the value of freehold condos can continue to rise long after the initial purchase date. You may even decide to sell off your condo when you’re well into retirement so that you can enjoy a bounty of liquid funds for recreation, medical expenses, or your children’s tuition fees.
3. Freehold condos have lesser CPF restrictions
Don’t give up hope of owning a freehold condo if there are insufficient funds in your bank account, because your Central Provident Fund (CPF) savings can be used to purchase freehold condos, too. Depending on how much you have saved up, your CPF savings might allow you to foot a significant portion of the initial down payment, or even reduce your monthly mortgage to a more manageable amount.
On the flipside, buyers of leasehold property may end up paying more out of pocket. This is because CPF savings can only be used to buy homes that have at least 20 years of remaining lease that must also cover the youngest buyer until they are 95 years of age. This is a safety measure the government has put in place to prevent the elderly from losing their homes when their lease expires while they are in retirement. But guess what, you won’t have to worry about that when you’re the owner of a freehold property!
The decision of whether to buy a leasehold or freehold condo is a personal one that you should make based on your circumstances and risk appetite. For some, the prospect of owning a home indefinitely is worth the higher premiums. Others would prefer to spend less on their homes so that they have more liquid cash available for other aspects of their lives. Only you can decide which is worth more at the end of the day.
Are HDB flats freehold or leasehold?
Housing Development Board (HDB) flats mostly comprise 99-year leasehold properties that function in a similar manner to leasehold condos as far as property ownership is concerned. Since HDB flats are public housing units designed to be affordable to the majority of Singapore’s population, buyers will be entitled to a wider range of government grants and subsidies if they opt for an HDB flat compared to a leasehold condo.
If you liked this article, we recommend What Do You Need to Know About A Leasehold Condo?
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