The landed residential sector has been a consistent star performer over the last year or so. It is a sector that has powered on even after the Government exercised round after round of property market cooling measures. The optimism was also evident in the keen interest from developers in the recent government-released landed housing plots for Phase 3 of Sembawang Greenvale.

Within this premium landed segment, there is significant difference in the price performance between freehold and leasehold properties. This article focuses on two districts, 10 and 16, where there are good and comparable freehold and leasehold landed residential properties. It is based on the analysis of caveats lodged in the Urban Redevelopment Authority’s Realis system since 2000 for terrace, semi-detached and detached houses comparable in size and age.

For the purposes of this article, freehold and 999-year leasehold properties have been combined under the same category. The practical definition adopted for freehold properties is one where the owners have the right to own the properties in perpetuity: The tenure is of an indeterminate duration. Leasehold properties of 999-year tenure effectively function like freehold properties, although from a legal perspective, they are still leasehold properties. Lastly, leasehold residential properties are those whose land reverts back to the State at the end of the tenure, typically a 99-year term.

The premium of freehold landed properties over 99-year leasehold landed properties is typically about 15 to 20 per cent. However, this can widen during a hot market, when there is added interest in freehold landed housing. This trend was observed in the districts analysed. During the mid-2000s, the rate of capital appreciation for freehold properties began to increase faster than that of its leasehold counterparts, thus widening the premium for freehold landed properties. This can be rationalised by the inverse relationship between the age of leasehold landed properties and remaining years in the tenure, which slows down the rate of capital appreciation after some time. Thus, as one would expect, freehold properties have a better rate of capital appreciation in the long term.

Despite the better long-term rate of capital appreciation, freehold properties are more volatile in terms of prices and the annual rate of capital appreciation. This can be explained by the popularity and scarcity of freehold landed properties, especially during an upmarket.

Although tenure is an important factor, the immediate surrounding of the property is also important. If a freehold landed property is located in a less-superior location, the price performance of this property could be equivalent to a leasehold landed property. Factors such as noise caused by proximity to major roads/expressways, industrial properties or lack of accessibility contribute to price performance as well.

Although freehold landed properties generally exhibit better price performance than leasehold ones, due to the limited supply of landed homes in Singapore, leasehold landed properties are still valuable and much sought after.

Leasehold landed properties may also be a better option if you are looking to lease the property out for rental income, as the tenure of the property does not matter to the tenant. You may also consider the purchase of a leasehold landed property to enjoy specific attributes of the property, for example, individual character, design of the house, immediate environment, local amenities and so forth.

However, one should be aware that, when the tenure of a leasehold property dips below 30 years, it may be difficult to sell the property, as prospective buyers are not able to secure a bank loan. According to the Central Provident Fund Board, buyers are not allowed to withdraw from their CPF when the tenure is less than 30 years.

In a perfect world, everybody would prefer to buy a freehold property for the better price performance, perpetual ownership and the better wealth preservation factors. But in the real world, we are faced with other factors or challenges, such as budget constraints, the availability or supply, individual needs, investment objectives, and so forth, so that a leasehold landed property may be a more suitable purchase.

By Tang Hsu Jing, consultancy and research analyst at Knight Frank.

More top-end condominiums in the core central region (CCR) have been changing hands – at higher prices – with each passing month. Yet, deals above $4,000 psf are still rare. Analysts say that this shows the luxury segment still has room for capital appreciation.

November saw only one such transaction – a Scotts Square unit which sold for $4,358 psf, according to the Urban Redevelopment Authority (URA). In October, a Boulevard Vue unit sold for $4,800 psf.

Back in 2007, a unit at Orchard Residences went for as high as $5,094 psf, while one at the Marque on Paterson Hill fetched $5,262 psf. In all, 13 units sold at higher than $4,000 psf in the second half of 2007. So far, in the second half of this year, there have been only five such sales.

Investors are still not paying top dollar for extra exclusivity – a sign that they have been cautious on luxury homes in the current property cycle. Prices of mass-market homes, meanwhile, have already surpassed their 2007 peaks.

Even then, analysts say it’s only a matter of time before prices of luxury properties catch up with – and exceed – their 2007 peak.

“There’s room to grow a further 5 to 8 per cent to reach 2007 price levels,” said Dr Chua Yang Liang, head of research, South-east Asia at Jones Lang LaSalle.

Sales of new luxury homes have also been volatile, according to the URA’s data. Sales in the CCR in November fell to 213 from 335 units in October. In September, following the government’s Aug 30 measures to cool the property market, CCR sales were as low as 84 units.

But investors need not worry about the erratic sales volumes, analysts say.

“Luxury property sales tend to see some volatility because there are fewer luxury property developments compared with mass market ones,” said Dr Chua. “High-end property developers launch their projects more sporadically.”

With China clamping down hard on the property market in its tier-one cities, ultra-rich investors are likely to move capital to Singapore, analysts say.

“High-end residential properties in Singapore, which traditionally enjoy significant foreign home buying interest, may benefit as a number of investors from across the world are looking at diversifying their investments geographically,” said Mr Ong Kah Seng, senior manager of research at Cushman & Wakefield.

Credit Suisse says investors should exit the residential real-estate market in China and move their money to the residential and commercial property markets in Singapore, Hong Kong and Japan.

The bank expects residential property prices in Singapore to increase 5 per cent in each of the next two years, on top of an estimated 15 per cent gain this year.

Still, analysts warn that the policy risk going into next year remains high for all types of properties, including luxury units that are typically unscathed by measures that seek to curb leveraged home-buying.

They said harsher cooling measures may be introduced – such as a tax on profits from property sales after URA data this week showed that 1,909 private residential units were sold last month,a surprising 80 per cent jump from October’s 1,058 units.

Source : Today – 17 Dec 2010