Why do people choose leasehold properties over freehold properties

There are several reasons why people might prefer leasehold properties over freehold properties in Singapore, despite the perpetual ownership offered by freehold properties.

Cost

Freehold properties generally cost 15 to 20 percent more than leasehold properties due to their rarity, as the Singapore government has stopped selling freehold land. This higher cost can be a significant deterrent for many buyers.

Affordability

Leasehold properties, particularly those with 99-year leases, are more affordable. This lower purchase price makes them more accessible to a wider range of buyers, including those on a budget or looking to maximize their investment potential.

Rental Yield

Leasehold properties often provide higher rental yields because of their lower purchase prices. For investors, this can mean better returns on their investment, as the rental income can be more substantial relative to the initial cost.

Market Value

While there is a common perception that freehold properties retain their value better, the market value of a property is influenced by many factors, including location. In some cases, leasehold properties in desirable locations can appreciate more than freehold properties in less desirable areas.

Financing and CPF Usage

For leasehold properties, especially those with shorter remaining leases, banks may impose stricter loan conditions or deny financing. However, for many buyers, the overall cost savings and potential for higher rental yields outweigh these challenges.

Lease Decay

Although leasehold properties depreciate faster as the lease term diminishes, especially after 40 years, this does not necessarily make them less attractive. Many buyers are willing to accept this trade-off for the initial cost savings and potential for higher returns.

In summary, the decision to buy a leasehold property over a freehold one often comes down to affordability, potential for higher rental yields, and the specific needs and priorities of the buyer.