Top 5 Factors : Why Not All Properties Appreciate Steadily
Real estate has long been considered a lucrative investment option, with the potential for significant returns. However, not all properties...
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TLDR
In Singapore’s property market (2014-2024), leasehold condos often outperform freehold in short-term holding (around 10 years) due to lower prices and stronger gains. Freehold properties show better returns mainly over longer periods, especially for older buildings. Newer freeholds are more volatile and don’t guarantee quick profits. Leasehold leads in new-to-resale sales, while older freeholds do better in resale-to-resale deals. The belief that freehold is always better is outdated; choice depends on holding period, price, and market cycle. For short-term gains, leasehold is usually better; for long-term value, freehold may win. Expert advice is recommended for personalized strategies.
The conventional wisdom in Singapore’s property market dictates that “freehold is superior.” However, this adage often overlooks the crucial element of time. A 99-year lease is a substantial duration, and the perceived benefits of freehold status may take many decades to materialize. For those who plan to sell their property within a relatively short timeframe, such as the first ten years, the freehold premium might even become a disadvantage. This analysis examines ten years of data (2014-2024) to determine at what point freehold properties begin to outperform their leasehold counterparts and when leasehold still holds the advantage.
Comparative Performance: Freehold vs. Leasehold (2014-2024)
Analyzing the price growth of freehold (including 999-year leasehold) and 99-year leasehold condos reveals nuanced trends. Properties built from 2015 were excluded to avoid skewing the data, as newer developments are predominantly leasehold due to government land sales policies.
Over the past decade, the price per square foot (psf) gap between freehold and leasehold properties has widened slightly. However, in terms of annualized percentage growth, leasehold properties appear to have a marginal edge. This can be attributed to the freehold premium, which typically translates to a 15-20% higher initial cost for freehold properties. This higher starting point allows leasehold properties more room for appreciation.
Leasehold condos experienced their most significant gains during the post-pandemic period (2022-2023), with annualized growth nearing or exceeding 10%. Freehold/999-year condos saw slightly lower gains during this period. The price surge in leasehold properties was likely driven by a housing supply shortage, making them a more accessible option for buyers.
In 2016, leasehold properties saw an exceptional 13.99% price growth compared to a mere 0.98% for freehold properties.
Interestingly, the price difference in psf between leasehold and freehold condos in 2024 (20.47%) is almost identical to the level seen in 2016 (19.15%).
Key Observations from the Data:
Age Matters: Freehold status becomes more advantageous as properties age. Analyzing cohorts by building age (2010-2014, 2000-2009, 1990-1999, 1980-1989) shows that the performance gap between freehold and leasehold widens significantly for older properties. However, it takes a considerable amount of time for freehold to demonstrate a real difference in performance. Considering that many condos don’t surpass 30 years of age, the value of the freehold premium for shorter holding periods is questionable.
Resale-to-Resale Transactions: Examining properties bought and sold between 2014/15 and 2019 onwards (excluding distress sales) reinforces the age factor. Older freehold properties consistently show higher annualized returns compared to their leasehold counterparts. This is particularly evident in the 1990s cohort, where the gain difference was around 12%.
Volatility in Newer Freehold Properties: Newer freehold condos (2010-2019) have exhibited more volatility in their earlier years, mirroring the performance of 99-year leasehold condos from the same era. This suggests that freehold status doesn’t guarantee strong short-term gains and can even be riskier due to higher launch prices.
Absolute Dollar Gains: Despite percentage growth variations, older freehold properties often outperform in absolute dollar terms.
New-to-Resale Transactions: Leasehold Takes the Lead
Analyzing properties bought as new launches in 2014/15 and sold from 2019 onwards reveals a different trend. Leasehold condos consistently showed higher average returns and quantum gains every year compared to their freehold equivalents.
Conclusion: It Depends on Your Strategy
The data challenges the notion that “freehold is always better,” particularly for shorter holding periods. While freehold properties offer perceived long-term security, leasehold condos, especially new launches, have consistently delivered stronger short-term gains, sometimes by over 20%. This outperformance is particularly evident during market upturns when affordability drives demand.
A data-driven approach that considers entry price, market cycle, and holding period is crucial for identifying profitable opportunities, regardless of tenure.
For those seeking a deeper understanding of market dynamics and counter-intuitive strategies, consulting with real estate professionals who leverage data is highly recommended.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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