Chasing away Leasehold worries

As posted in the Sunday Times by Jessica Cheam

The wait lasted nearly half a year.

SinceI exercised the option to buy my first new home some time last August,I had eagerly awaited the day I could move in, pop open a bottle ofchampagne and bask in the smell of my freshly painted walls.

Thatday finally arrived just in time for New Year's Day - the beginning ofa whole new decade - and I was understandably excited.

But justbefore and after The Big Move, I was besieged by a phenomenon I hadnever thought about: post-purchase cognitive dissonance (PPCD).

I'mnot making it up, really. Cognitive dissonance is defined as acondition of conflict or anxiety resulting from one's actions. And PPCDis when, after buying something, you feel that an alternative wouldhave been preferable.

In fact, you go through a rationalisationprocess in your head, questioning all the factors that made you decideto buy the said thing, and wonder if it was all one big mistake.

You see, in my quest for a spacious, affordable home somewhere in the suburbs, I had bought a 99-year leasehold apartment.

I surprised myself because I have traditionally been on the side of freehold property in the freehold versus leasehold debate.

Iknow the typical arguments for both sides of the case but I never gaveit much thought till I became a home buyer and the cold, hard, factswere staring me in the face.

I had started off looking atfreehold properties but, when it came down to dollars and cents, Irealised that the difference between a freehold and leasehold apartmentof the size I wanted was more than $150,000 and it made a bigdifference.

I took the plunge.

Today, my 1,650 sq ftproperty has 85 years left on its lease. After spending every penny myother half and I had on renovations and furnishings, we were thrilledthe day we moved in.

Everything was gleaming and it felt good that we owned everything we saw.

But this lasted only a few days.

Acutelyaware of the new depths my bank accounts had plunged to, I was overcomeby an attack of PPCD during lunch with my mother one day while shoppingfor cutlery.

Mum, I asked, did I make a bad move sinking all mymoney into a property that will take me 30 years to pay off? And at theend of 99 years, would be worth absolutely nothing?

Also, giventhe price I'd paid for the property, is it likely that I could evenbreak even on costs if I wanted to sell my apartment a few years later?

Iwas panicking, and convinced that nobody would buy my apartment when Iwant to sell it. I would incur a huge loss on it - something I wouldn'tbe able to live down as a property reporter.

In an attempt toalleviate the symptoms of my PPCD, I spoke to some property analystsfor an objective assessment of my choice to invest in a leasehold home.

This is the list of factors to consider that I eventually came up with:

1. Affordability

Themajor advantage of a leasehold property is that it is cheaper andoffers a first-time home buyer a good opportunity to get on theproperty ladder without financial stress.

2. Yield

Leaseholdhomes also typically give you a higher yield compared to a similarfreehold property as you can command the same rent but your capitaloutlay is lower.


3. Depreciation, and factors that will compensate for this

Themain drawback is that the value of your property depreciates with age.I have now come to accept this fact, but there are some factors thatcan influence the rate of depreciation, such as location, quality ofamenities and transport network.

For those contemplating a leasehold home, is it near an MRT station? Is your estate slated for major upgrading?

Thankfully, I thought, my new home will benefit from the upcoming Bukit Timah MRT line.


4. Collective sales

Leaseholdproperties typically receive less proceeds as developers have to paythe Government a fee to top up the lease, unlike for freeholdproperties.

Owners at an ex-HUDC estate in Bedok Reservoir Roadhit the jackpot after the site was snapped up in Singapore'slargest-ever collective sale. Each unit at the 99-year leaseholdWaterfront View received about $660,000 - about 65 per cent above theaverage price of $400,000 the owners could expect on the open market.

I'mpersonally not one for collective sales. But it is comforting to knowthat even an old leasehold estate such as Farrer Court could command apremium of $2.15 million per home when it went en bloc.

5. Historic figures

Lookingat property cycles in the last decade, analysts say the rate ofappreciation of freehold homes does not always outperform that ofleasehold homes.

In general, the numbers show that in anupswing, leasehold properties tend to gain more, although in adownturn, they also fall more rapidly - meaning prices are morevolatile.

So if you buy a leasehold property and intend to holdon to your home for some time, you could easily choose to sell in anupswing instead of a downturn.

All in all, I felt my anxietiesdissolve when I realised that my leasehold home was affordable, willgive me a reasonable yield if I choose to rent it out, and would likelyappreciate - or hold - in value when transport networks are improved.

Analystssay there is no conclusive evidence to show one is definitely betterthan the other, and that the decision you make depends mainly on budgetand preference.

I now realise that my home, which I love becauseit has four bedrooms and is surrounded by four different nature parks,was really the best choice for me, given what I could afford.

My mum, in her infinite wisdom, said: 'If history is anything to go by, you'll be fine.'

Myparents recently sold an HDB flat in Jurong after my grandmother wholived there passed away. It had aged 20 years since they bought it, yetthey sold it at a price far higher than what they paid for it.

See? Why worry so much, my mum chided, HDB flats are also leasehold and their values go up every year.

It was a good point. I decided then I would just enjoy my first home, day by day.