Want to get a Freehold Commercial Property?
One of the main factors considered for purchasing a commercial property is its tenure. In Singapore, there are generally four types; 30, year leasehold, 60 year leasehold, 99 year leasehold and freehold. Practically, the 999-year leasehold is considered as freehold as there are no much differences in the value of the property and the finance institutions treated them almost the same. On the pipeline, there are industrial sites going at 20-year lease or 45-year lease. Freehold title allows the owner to have a perpetual ownership of the property, whereas for leasehold, the title of the property will go back to the state when the lease expires. Main advantages of freehold properties are: 1. Higher en bloc potential 2. Depreciation is slower 3. Can pass on to many generations to come However, lending institutions will not likely finance properties with short leases. The discussion of Central Provident Fund (CPF) will be omitted here as the reference is for commercial properties that do not allow the use of CPF for purchase. So what is the impact of freehold versus leasehold properties?
Freehold properties have a premium, however it is not always constant and Is market driven. The discount enjoyed by leasehold properties represent the need to raise rental yield and the need to recoup the investment. However, there are many other factors that have an impact on the property’s return over time, such as the changes of land use, plot ratios, land use premiums, the future transformation of the surrounding areas and many other non-tenure factors. In Singapore, some buyers are not concerned whether the property is leasehold or freehold. Foreigners have widely accepted the concept of leasehold, be it whether they are from UK, Indonesia or China. Hence, these buyers are not deterred by the leasehold status of the properties. There are, of course, disadvantages in getting an old leasehold property especially those beyond 40 years old as this would after their resale potential. Lending institutions would want a healthy buffer. There is an argument on what do you want out of buying the properties. Are you mainly concerned about rental returns or capital appreciation? If the rental yields were the priority, then leasehold properties would be better choices. If the priority were for investment and capital appreciation, then freehold properties would be better choices. To make life more complex, the Ministry of Trade and Industry (MTI) has imposed a 30-year tenure for industrial sites under the government land sales. These are applied to larger sites, such as those in Woodlands Avenue 10, Ubi Avenue 4, Serangoon North Avenue 5 and Buroh Street. They are targeted for developers who may not be in the same band as seasoned industrialists. In July 2015, the government in a mission to provide more options for industrialists, they have placed only 20-year leasehold land parcels on its confirmed list of industrial sites for sale in the second half of 2015. Prices of industrial properties with longer land tenure which are limited in supply are expected to hold up better than those with shorter tenures. Look at your needs and requirements before getting a property and just go for it. Please feel free to click below on the type of commercial property category that you are keen in.