Freehold and leasehold differences
May 28th, 2007
In short, the more expensive may not be good, but the higher yield may not be better. When buying properties, you should at least consider the following factors and weigh your options:
- Price. Freehold properties are generally more expensive than leasehold properties, due to the fact that the land tenure for freehold properties lasts, well, forever (barring exceptional circumstances).
- Rental yield. Because the rental value usually depends on factors like location, amenities, how old/new it is, and even architectural design and interior design, but not on land tenure, rental yield is usually higher for leasehold properties. Say, a freehold property costs $1 million and fetches $4,000 in rental per month. Its rental yield is 4.8%. A similar property with a leasehold tenure might cost just $600k but fetch the same amount of rent. This gives you an 8% yield!
- Value. A simplistic rule of thumb is that a leasehold property’s value will decrease by 1.5% in value every year. Freehold properties generally appreciate in value over the years (which is probably why property tycoons get so rich). Note that you can now use CPF to fund your leasehold property purchase as long as it has a Minimum Lease Period of 30 years, subject to certain conditions (see CPF properties scheme for details). Prior to the CPF policy change, the minimum required was more restrictive, at 60 years.
. reasons are obvious if you scroll down this forum –...
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