HomeReal EstateAre Leasehold Landed Homes A Secure Or Risky Buy?
Is A Leasehold Landed Home A Secure Or Risky Buy?

Are Leasehold Landed Homes A Secure Or Risky Buy?

Landed homes in Singapore can be classified into 3 main tenures: freehold, 999-year leasehold and 99-year leasehold.

Freehold and 999-year leasehold landed properties allow the owners to pass on their assets to future generations and such land can only be acquired from the resale market. These qualities contribute to the intrinsic value of freehold land, making it a sought-after asset in the real estate market.

Is Buying A Leasehold Landed Property Worth It?

The decision to buy a leasehold landed home involves weighing various factors that can affect its long-term security and value. A leasehold landed property affords the space for family expansion and at the same time will be easier on the wallet for HDB and condo upgraders. Currently a 99-year leasehold inter terrace is in the price range of $1.8m to $2.5m whereas a similar freehold or 999-year leasehold landed home costs $3.5m to $3.9m, a price difference of more than $1m.

You have to answer these questions in order to determine which route to pursue. Is your aspiration to pass on a freehold property as a legacy to your future generations? Or do you need more space to fulfil your current requirements and create beautiful memories with your family? 

In the event that you are getting a leasehold landed home, our advice is that you should not overspend on addition & alteration (A&A) works or renovations as that would drive up your purchase quantum and make it more difficult for you to exit in future. 

In general, it would be more worthwhile to buy a freehold landed property as compared to a leasehold landed property for greater financial security.

leasehold vs freehold landed property performance
Image: Freehold (blue) vs Leasehold (orange) Landed Property Performance (source: EdgeProp)

The Implications Of A Leasehold Landed Property

1. Lack of home improvement works – Typically large families live in landed homes but as the children grow up and shift out, the owners become empty nesters and are contented with the original condition of the house. As most of these properties do not have a home lift, they may find it taxing to climb the stairs and maintain the house on a regular basis. Hence some may choose to rent out the landed and stay with their children or stay in a rented HDB or condo unit.

2. Financing constraints – The value of the property declines in tandem with the depreciating lease. There is also a limitation to the amount of CPF OA funds that can be used as the remaining lease of the property should cover the youngest owner who is using CPF savings up to 95 years of age. For bank loans, when the remaining lease is 60 years or shorter, the banks will lower the loan to value ratio and shorten the loan tenure accordingly. And if the balance lease is 20 years or lesser, no CPF savings can be used towards the property while banks would require a minimum balance lease of 30 years upon maturity of the loan.

3. Land reverts back to the State – Upon lease expiry, the land will be vested in the State and you will not receive any compensation. However you can try to sell it in the resale market to buyers who may be willing to take it on a shorter term basis. 

Exit Options For Leasehold Landed Property

1. Lease Top-Up – In general, the Government’s policy is to allow leases to expire without extension. It will however consider applications on a case-by-case basis if the top-up is in line with planning, economic and social objectives. For non-strata developments, if the lots within the development site are owned by more than 1 owner, the application for lease-top up must be jointly submitted by all owners to the Singapore Land Authority (SLA). 

In May 2011, it was reported that the owners of the 164-unit The Arcadia had failed in their attempt to get their lease topped up to a fresh 99 years without going through a collective sale. This was despite securing full consent among the owners, who were willing to foot the bill had permission been granted. It is likely that permission was not granted as there is a lack of land use intensification.

2. Collective Sale (En-Bloc) – This option is definitely the more popular of the 2 as a collective sale to developers have the financial muscle and the know how to obtain approval for a lease top-up to 99 years leasehold. It also gives the owners an opportunity to unlock funds from their properties and right-size to newer properties with longer leases. 

A recent collective sale was Chuan Park right beside Lorong Chuan MRT Station. Based on the guide price of $938 million, the land rate works out to $1,256 psf per plot ratio after taking into consideration the differential premium of $192.62 million to top up the lease to a fresh 99-years.

3. Resale Market – If you wish to avoid uncertainty, this is your best option as you can look towards the open market to seek buyers looking for lower priced landed housing and do not mind taking the shorter lease. 

Are There Precedent Cases Of Leasehold Properties With Expired Leases Reverted Back To The State?

Yes, the Singapore Land Authority (SLA) announced in June 2017 that the land occupied by the 191 terrace houses at Geylang Lorong 3 would be returned to the State when the leases expired. This is the first time a residential plot of land in independent Singapore has reached the end of its lease.

Out of the 191 units on 60-year leasehold tenure, 40 were owner-occupied, 135 were used for foreign workers’ accommodation and 16 units were used for religious purposes. The land will be used to build BTO flats and launched for sale in 2024. 

The 70-year-old leasehold private houses in Jalan Chempaka Kuning and Jalan Chempaka Puteh, near Tanah Merah MRT station, are next in line to reach expiry in 2034.