Do leasehold properties make money?

Do Singapore Leasehold Properties Make Money?

“CAN’T BUY LEASEHOLD PROPERTIES”

Recently, an old client, Mrs Teo (not her real name), reached out to me. I had sold her landed house a few years back.

Mrs Teo wanted to invest in a freehold property in Singapore and wanted my take on the property market.

Why specifically a freehold property?

My friends told me not to buy leasehold properties.

They said leasehold properties don’t make money.

Can’t buy.

Mrs Teo
Leasehold properties dont make money?
THE ALLURE OF FREEHOLD: PERPETUAL OWNERSHIP

Over the years, I’ve encountered many homebuyers & investors whose number one criterion for buying or investing in a private property is FREEHOLD.

Regardless of the reason they wanted to buy a property, they weren’t interested at all if the property wasn’t freehold.

There are a few common reasons for this.

Perception of Long-Term Value / Resale Potential

Many buyers believe that freehold properties will appreciate more in value over time compared to leasehold properties.

This perception is rooted in the idea that freehold properties offer perpetual ownership, while leasehold properties have a limited tenure that decreases over time.

Passing Down to Future Generations

The thought of passing down a freehold property to future generations can be appealing to certain buyers.

Lack of Understanding About Leasehold Properties

Some buyers may lack awareness or understanding of the potential profitability and benefits of buying or investing in leasehold properties.

The myth that leasehold properties don’t make money, as mentioned earlier, can influence buyers’ decisions.

Prestige & Status

In some cases, owning a freehold property may be associated with prestige & status, especially in prime locations. This psychological factor can drive buyers towards freehold properties.

Now, let’s circle back to Mrs Teo & her friends’ beliefs.

PRESENTING THE EVIDENCE

So, are leasehold properties untouchable? Do they make money?

I’ve compiled transaction data for five 99-year leasehold condos. The chosen time period provides the most current and relevant examples.

(a) These transactions involved sellers who:

  • bought between 2019 & 2021
  • subsequently sold in 2023 or 2024

(b) The profit shown doesn’t take into consideration:

  • buyer stamp duty
  • additional buyer stamp duty (if any)
  • legal fees
  • agent’s fee for selling.

The images below capture the top 20 most profitable deals in each of these condos.

Buy me a cup of tea & I’ll happily share the names of the condos with you 🍵😉

Transaction data involving condo A
Gross profits: $418k to $980k
Transaction data involving condo B
Gross profits: $501k to $842k
Transaction data involving condo C
Gross profits: $355k to $650k
Transaction data involving condo D
Gross profits: $512k to $860k
Transaction data involving condo E
Gross profits: $260k to $553k
THE PROOF IS IN THE PROFITS

(a) Substantial Returns

The images show that these sellers of 99-year leasehold condos reaped significant investment gains.

I used the words “investment gains” because these five condos are all new launches.

If these sellers had purchased the units using a bank loan, the returns on investment would have been substantial.

(b) Covid-19 Purchases

A number of purchases were made in 2020 and 2021 when covid-19 was rampant. Some of these units were purchased during the covid-19 circuit breaker which ran from 7 April 2020 to 1 June 2020 .

Let me sidetrack a bit and take you back to the past. In 2020, the developers had a lot of unsold condo units (more than 30,000).

There were essentially two groups of buyers then:

  • the group that took action
  • the group that didn’t

The group that took action felt that developers were already in panic mode with so much unsold stock. The units were priced to sell, making it the perfect time to enter and choose the best units.

The group that didn’t take action felt that with covid-19 and a huge unsold supply, there wasn’t any urgency to buy. They could wait and take their time to shop. They expected the developers to cut prices over time. The opposite happened instead. These buyers ultimately ended up paying higher or sidelined from the market.

I’m glad my clients took my advice and entered the market then.

Did you happen to take action then?

CONCLUSION

As the transaction data from the five condos demonstrate, leasehold properties can generate substantial profits for investors who make well-informed decisions.

I encourage you to keep an open mind and consider both leasehold & freehold properties as viable investment options, depending on your circumstances. Do your homework and due diligence.

If you have any questions or would like further assistance in your property investment journey, please don’t hesitate to reach out to me.

Contact Jack Sheo

WHAT BRINGS YOU HERE TODAY?

Are you wondering what to do in today’s market?

Perhaps you already have a clear mind of what you want to do?

In my blog, I often share stories of the challenges, triumphs, and lessons learned in my work as a real estate agent in Singapore.

Regardless of your situation, you can use me as a sounding board. I’ll provide perspective and clarity from my experience.

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