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Advantages of buying a freehold or 999-year leasehold home
1. Loan Approval Only a handful of banks will grant housing loans for properties with less than 60 years of remaining lease, and it is on a case-by-case basis. The loan if granted may have a shorter tenure or lower quantum. Thus, if you purchase a freehold property it will save you from the disappointment of loan rejections, or unfavourable loan terms, because of the lease of the property. Further, you may have a easier time selling off the property since the potential buyer will have a higher probability of obtaining the necessary funding. 2. Use of CPF funds For freehold residential properties, you do not have to fret about not being able to dip into your CPF saving, or to do so at a lower withdrawal limit, for your purchase because of the property's expiring lease. This is because you are not allowed to use your CPF funds for the purchase of private houses with under 30 years of lease left. For houses with remaining lease between 30 and 60 years, the withdrawal amount is tied to the buyer's age and the remaining lease. Withdrawal Limit = (The remaining lease of flat or property when the youngest owner is 55 years old / The lease of the flat or property at the point of purchase) x Valuation Limit* Valuation Limit is the lower of the purchase price or the value of the flat/property at the time of purchase. (Source: CPF Ask Us, “What are these additional conditions to use CPF for flats/properties with remaining lease of at least 30 years but below 60 years?” ) These CPF withdrawal rules and the attendant limits will affect HDB flats from 1 July 2013. 3. En bloc sales Homeowners of freehold properties have higher chances of profiteering from collective sales. Developers may prefer to acquire freehold over 99-year leasehold properties because they do not have to incur a hefty land premium to top up the lease (of which the approval is not even guaranteed), which eats into their profit margins. Even if developers do acquire 99-year lease lands, they may offer a relatively lower price as they factor in the land premium they have to pay. 4. Long-term stability in value Leasehold housings nearing the end of their tenure will always fall steeply in value. But you will never have to face this problem with a freehold. However this is not saying a freehold property will not depreciate in value over time. This can also occur due to the decay of the building. When this happens, the redevelopment value of the land may exceed the value of the building; thus resulting in a collective sale.In summary
Generally, freehold residential properties cost more than leasehold ones. But less clear-cut is which category enjoys a higher rate of price appreciation. If you are considering residential real estate as an investment vehicle to reap capital gain, you should be looking at the rate of price appreciation. Another warning. If you are attracted to freehold because you are harbouring hopes of bequeathing the property to your descendants till perpetuity, you might want to perish that thought. En bloc sales could go through as long as there is a majority consent. Further, under the Land Acquisition Act, the State has the authority to acquire the freehold property “for public and certain other specified purposes”, with due compensation. This Act also applies to leasehold property. When all said and done, leasehold homes will still remain attractive to buyers due to their affordable prices and proximity to amenities.About Property Buyer http://www.PropertyBuyer.com.sg/mortgage We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) at http://www.icompareloan.com/consultant/ to serve our customers. Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement. SMS: (65) 9782 8606 Email: loans@PropertyBuyer.com.sg
