When buying cheaper old leasehold, you should expect to incur more expenses in the long-term. Anyone who holds a property on leasehold, they have to protect it or otherwise it reverts to the property owner, freeholder, leaving him/her empty. People who have lived on a property for many years have an option to renew the lease. However, the lease premium depends on the remaining length of time.
The vital trigger point for a diminishing lease is after 80 years. That is because the formula for calculating the amount you have to pay to extend the lease is favorable towards a freeholder when the remaining number of years is less than 80. In such cases, the buyer has to compensate the freeholder for delay in getting the property back and the increase in value of the lease resulting from lease extension. Cheaper old leasehold might also affect your chances of getting a mortgage. Lenders have to ascertain that the property will cover for the mortgage.
In Singapore, you can hold land in the forms of leasehold. They include freehold, 999 years leasehold and 99 years leasehold. Any property built on a freehold land belongs to the leaseholder indefinitely. Therefore, you should not worry about a lease running out – you will also avoid the expenses associated with old cheap leasehold. That extends to the 999-year leasehold properties too. The 999-year leases are long enough to hold several generations easily.
The 99 years leasehold properties are the most worrying. What rights do the owners of the 99-years leasehold properties have after the tenure has ended or when the ownership has reverted to the government? If you have keeping a keen eye on the Singapore property news, you will find that it’s not a pretty scene for these owners.
What happens after the land has reverted to the government? The state owns around three-quarters of the total land in Singapore. The Singapore Land Authority is the holder of the land and functions as the custodian of this land. The one-third comprises a few freehold land pockets held by some other government departments including the JTC, HDB, PSA and the private owners. After a 99-year leasehold has expired, the land owner has to revert to the state and any owner’s rights are extinguished effectively. What’s more, the state does not compensate the property owner for any home that remains on a property. Even though the tough individuals say that that is unfair, the SLA does not reimburse or pay any form of compensation to land owners after the lease term has ended. What to do after the 99-year leasehold period has ended After the leasehold period has ended, the property owner has two options. First, he/she can choose to pay the government a premium amount to prolong the leasehold tenure. A property owner can choose to top-up the lease on their property with the SLA or sell it to third party developers known as en bloc sale or collective sale. All the owners must participate collectively regardless of the option chosen.
To benefit from lease top-up, the property owner has to apply to SLA. The option involves topping up the lease to another period of 99 years with land premium payment. A quick example: if there are around 50 years remaining on a land, the owner can choose to top-up for 49 years for the lease to revert to 99 years. The SLA’s Chief Valuer has to assess the premium on case-by-case basis while considering factors like the length of time remaining on the leasehold. After that, the SLA has to decide on whether to reject or approve the top-up application. To make a good decision, the SLA considers various factors such as whether the extension would match with the government’s long-term intentions with the leasehold land and whether the intended use would optimize use of the land. If the lease top-up is successful, the property owner may opt to continue occupying the land for the renewed duration or sell it to another individual. For most property owners, occupying the leasehold property for the remaining duration is the ideal choice. Unfortunately, the SLA charges an exorbitant land premium that makes the option very expensive for the average individuals. The top-up option is the route that companies and privately held entities take – they can afford the option. Some of the properties that have received leasehold top-ups include the ICB Building (or the SGX Building), former Shing Kwan House, former HMC Building and the former Overseas Union House.
En Bloc or Collective Sale
Most homeowners favor the en bloc or collective sale option because it pushes the muscular land premium obligation on to the company or private developers that can afford it. On the downside, unlike the leasehold top-up method, the owner has no option of staying on the property because the rights to the leasehold move on to the company or private developer. What the leasehold property owner gets is compensation for their property, which they would hardly get if the lease ran its course. According to statistics, en bloc sales were high in the year 2007. In the same year, the largest en bloc sale happened – the Farrer Court apartment’s sale. The price of the 618 units exceeded $1.3339 billion dollars. In other words, each of the homeowners received between $2.122 and $2.238 million dollars – after overhead costs. In the year 2016, collective sale of HUDC estates happened – the Raintree Gardens and the Shunfu Ville.
Are 99-year leasehold properties a good choice?
If you are willing to buy a property that you will pass from one generation to the other, the 99-year leasehold property is a wrong option. However, if you are content to own the home during your lifetime – you do not care about your kids – or you are buying the property for investment reasons, it is worth consideration.
Leasehold will definitely affect the probability of its appreciation. However, some other factors also take part. A quick example: if you are purchasing leasehold or a freehold and choose a development that is closer to an MRT station, a good school, or any other amenity, you should expect its value to increase with time. That alone will make the property to private developers and companies. In other words, you will be in a better positio