Freehold vs Leasehold Property In Singapore: What You Need To Know
Updated: Oct 7, 2022
Source: Freehold vs Leasehold condo in Singapore: Which one is better? https://www.youtube.com/watch?v=h7h7N1VjET4
When you are looking to buy your first home, the question of whether you should opt for freehold or leasehold property is one that might come to mind. Both freehold and leasehold properties have their own pros and cons, so it is essential to understand each type of ownership before making a final decision. You might have heard your friends talking about their house being leasehold or freehold, but do you know what that means? Do you know which one is better for you when buying a home? This article will explain the differences between freehold vs leasehold property in Singapore in detail.
What's Freehold Property?
Freehold property is a type of real estate that gives the owner the full ownership rights to the land and the structures built on it. A freehold property is also known as a fee simple property. You can own a freehold property either by inheriting it or by purchasing it. On the other hand, with leasehold property, you own only the building but not the land it is built on. When you own a freehold property, you own everything above and below the ground. You are responsible for everything from the building’s maintenance to the taxes. A freehold property is an investment that will appreciate in value over time. It is a great choice for those who want to keep their options open and stay in the property for a long period of time.
What's Leasehold Property?
When it comes to leasehold property, you are only the tenant and do not have any ownership rights to the land. The landowner is responsible for all the taxes and maintenance of the land and the building. Therefore, you are only responsible for paying your rent. You can be granted a long-term lease or a short-term lease. A long-term lease is an agreement that lasts 99 years or more. A short-term lease is an agreement that lasts less than 99 years. Leasehold property is often less expensive than freehold property. You might prefer leasehold property if you do not plan to stay in the same place for a long time. If you know that you will not stay in the place for a long time, you will eventually have to pay the property’s conversion to a freehold property.
Key Differences Between Freehold And Leasehold Property
- Ownership - Freehold property is a type of real estate that gives the owner the full ownership rights to the land and the structures built on it. On the other hand, with leasehold property, you own only the building but not the land it is built on. - Landlord - If you are a leaseholder, the landowner is responsible for taxes and maintenance of the land and the building. On the other hand, if you are a freeholder, you are responsible for taxes and maintenance of the building. - Appreciation In Value - A freehold property is an investment that will appreciate in value over time. On the other hand, leasehold properties depreciate in value over time. - Length Of Stay - If you know that you will be staying in the same place for a long time, then it is better to own a freehold property. On the other hand, if you do not know how long you will stay in the same place, it is better to own a leasehold property.
Pros Of Being Freehold Owner In Singapore
- Full Control Over The Property - If you own a freehold property, you will have full control over the property and can make changes to it as you like. On the other hand, a leaseholder has very limited control over the property. - High Investment Value - A freehold property is an investment that will appreciate in value over time. On the other hand, leasehold properties depreciate in value over time. - Can Make Any Repairs To The Property - Being the owner of a freehold property, you can make any repairs to the property without seeking anyone’s permission. On the other hand, leaseholders have to get the permission of the landlord before they can make any repairs to the property.
Cons Of Being Freehold Owner In Singapore
- High Initial Investment - A freehold property requires a high initial investment. This is because you have to pay stamp duty when you buy a freehold property. On the other hand, leasehold properties are less expensive as you do not have to pay stamp duty. - High Maintenance Cost - A freehold property requires you to pay higher maintenance fees like landscaping, repairs, and taxes. On the other hand, leasehold properties do not require you to perform these costly repairs. - High Stamp Duty - The government charges higher stamp duty for a freehold property than a leasehold property.
Pros Of Being Leasehold Owner In Singapore
- Lower Initial Investment - A leasehold property requires a lower initial investment than a freehold property. - Lower Maintenance Cost - Leaseholders do not have to pay taxes or perform repairs like freeholders. - Tax Saving - Leaseholders can claim tax savings on their income tax. However, freeholders cannot.
Cons Of Being Leasehold Owner In Singapore
- Short-Term Lease - If you are a leaseholder, you will eventually have to pay the property’s conversion to a freehold property after a certain period of time. This can cost you a lot of money. - Limited Control Over The Property - You will have very limited control over the property. You cannot make changes to the property without the landlord’s permission. - Costly Conversion To Freehold Property - When the lease ends, you will have to pay a hefty amount to convert the property to a freehold property.
Conclusion
When you are buying your first home, you have to decide whether you should buy a freehold or leasehold property. Both freehold and leasehold properties have their own pros and cons, so it is essential to understand them before making a final decision. If you are looking to purchase your first home, it is important to understand the differences between freehold and leasehold ownership. While both have their advantages and disadvantages, you will have to decide which is better for you. The best thing to do is to start saving money now because the earlier you can save, the more options you will have in the future.
Author By:
Brian Loh CN
MSc. Applied Finance, University of Adelaide, Australia