Buying a Residence in Singapore?
Understand Tenure Rules First.

Buying a Residence in Singapore Understand Tenure Rules First

Singapore property market is enjoying a great time after facing disheartening low for the past 15 quarters. It went on its high-point in 2017 and the trend continued steadfast in 2018 as well.

Well, you can say that Singapore aims to become the world’s first smart city. Constructing architectural marvels is one of our main strategies to achieve it. The “Lion City” has become one of the hottest property hubs for investment.

Another major fact to notice here is that the city is experiencing a high surge in the sale of residential property. It seems people take interest on dwelling in this technologically advanced city and her various sophisticated living options. The fact can be easily verified with a report by Morgan Stanley where the market research company has predicted that the Singapore property market will double up the prices of all the properties by the year 2030.

Isn’t astonishing?

What other investment option can give you such high ROI(Return Of Investment)? Seeing all these facts, we could easily say that this is indeed the best time to invest in the residential properties in Singapore.

Along with these facts, if you are also planning to buy a residential property, then we must let you know that it is critically important to have comprehensive understanding about tenure rule beforehand. The land tenure rule plays a crucial role in the ownership of the property leverage easy possession and property rights to the owner.

Why do you need to understand land tenure rule

Every land comes with a land tenure rule. The best practice is to understand them well in advance so when you think over buying a property:

  • They help you to identify the best investment options for you.
  • They have a high influence over the price you pay for the particular property. If you don’t understand them thoroughly, you might lose the chance for high ROI.
  • They play an important role in deciding your home rental yields and capital appreciation.

As far as investments are concerned, there are basically three types of land tenure rules.

  1. 99-years leasehold tenure rule

  2. Freehold tenure rule

  3. 999-leasehold tenure rule

Both of these rules are different in various aspects and affect the value of your property.
Here, we will give a detailed explanation on the grounds over which these two tenure rules differ.

The basic differences

  • 99-years leasehold tenure

    In a 99-years leasehold tenure period, the property owner has the all-inclusive right over the purchased land or residential property for continuous 99 years. Once the tenure gets over, ownership of the property gets transferred to the state authority automatically.

  • Freehold tenure

    If a property owner purchased the residential property with a freehold tenure then he/she will have its all-inclusive rights over it for the lifetime. If we have a close insight into the tenures of the available properties in Singapore then we will get to know that freehold tenures are the most common in the Singapore property market.

  • 999-leasehold tenure rule

    999-leasehold tenure is, with all intent and purposes, referred similarly to the freehold tenure only owing to its long tenure period.

The impact of the tenure of the sale and purchase of the residential property

In general, a freehold tenure property will cost you 10-15% more compared to the 99-leasehold tenure property. But the freehold tenure property fetches a good price during the en-bloc process theoretically.

An en-bloc process is highly influenced by certain factors like near-by amenities, gross floor area, the zone of the property, cost of maintaining the development and market condition at that time. As these factors can’t be determined in prior, it is said that the benefits of a free-hold property are closer to the theoretical ground rather than practical ground.

Another major factor to keep in the mind while buying any residential property is the financing part. If you are going to finance your residential property, there are no issues. However, if you are seeking help from bank to finance a part of whole payment, you should be considered the age of the property in the case of a leasehold property.

In leasehold property, the banks are not going to give you financial aid when you are buying a property whose lease are over 40-years. On the same note, if you are trying to buy a property with over 30-years lease, you can’t use your CPF. This case, however, differs from freehold property.

The impact of the tenure of the sale and purchase of the residential property

The nature of the property tenure also plays an important role to decide for which purpose the property is going to get used. If you are buying a residential property just for the rent, we would suggest you go for the leasehold tenure over freehold tenure. The reason being the owner will get a fairly economical deal when purchasing a property with leasehold tenure.

In addition, the leasehold properties are likely to outperform the freehold properties in terms of rental yields. However, the majority of the people choose a freehold property when they want to use it for their own purpose. They think that it will provide shelter for their upcoming generation. But that is an assumption because your children might find solace in some other place and get settled somewhere else.

To summarize, we can say that a leasehold property is your best bet for renting purpose and seeking an economical buy. However, a freehold property gives you various en-bloc benefits which are not in the case of a leasehold property.

If you buy a residential property, it is further based on various other factors. Make yourself educate with them all before the final purchase.

James Yang

Associate Division Director at Huttons Asia Pte Ltd
James identifies the latest property trends to bring the most relevant advice to his clients.
James Yang