99 years and running – What can I do with my leasehold property?

Backdrop of the types of properties in Singapore 

As most of the prospective home buyers and investors know, land in Singapore is developed under 3 main leasehold categories: 

  1. Freehold Land 
  2. 999-year lease land 
  3. 99-year lease land

As the name suggests, the properties established on these different land will have varying lifespans. For one, properties that are developed on freehold land gets to enjoy indefinite ownership under the leasehold owner. They would not have to fret over when they have to hand over the property due to the expiry of the lease. 

On the other hand, 99-year lease land will last up to 999 years for the owners of the land – this means that they can hand down the property to multiple generations without having to worry as well. However, 99-year lease will most certainly feel the difference – after all, 99-year is perhaps only long enough to last up to two generations. As such, owners of 99-year properties will face the issue of having to relocate once the lease on the land that the property resides on expires.

What normally happens to leasehold properties 

As the majority of the land in Singapore is state-owned, it means that they belong to Singapore Land Authority (SLA) and they have the full authority to decide the developments established on these lands. This leaves the tiny proportion of the remaining freehold land to belong to the private owners.

As mentioned above, all leasehold properties have an expiry date regardless the length of the ownership. Hence, once the lease runs out, the ownership of the land is withdrawn by the SLA and the properties residing on these land will be taken away as well. 

This is a tricky issue as there may be nothing wrong with the properties residing on these land – leading property owners to feel that they deserve to receive some form of compensation for being stripped of their perfectly fine accommodation on the land. (which could have been a worthwhile investment!) However, the truth is one and only: SLA, by no means, have any obligation to submit any form of compensation. 

Alternative you might want to explore 

As such, many homeowners are now looking into this issue to avoid a letdown once the lease expires. Thus, this article serves to provide readers multiple alternatives to explore so as to solve such an issue. The first options involves a top-up with SLA directly while the other involves a third party developer to engage in a collective sale of the property. However, it is to be noted that both options require a collective action of all house owners within the property. This means that a consensus has to be achieved across all owners before such an action can be taken up. 

Option 1: Lease Top-up 

In this option, property owners can achieve a collective consensus to apply to SLA for a top up of their lease back to 99 years again. However, this cannot be done without a payment of a land premium. The amount of land premium will be dependent on the amount of years left in the lease – if there are 60 years left on the land, owners will be able to top up 30 years so that the lease will be back up to 99 years again. 

It is also notable that this premium is released and assessed by the SLA’s Chief Valuer on a case-by-case basis, which numerous factors including the number of years remaining in the leasehold will be considered as well. Thus, be prepared that it is up to SLA’s discretion to accept or reject the said application. After all, SLA might have plans set in stone for the piece of land that was set aside previously for your properties, and now wish to withdraw it regardless of your application. However, with that being said, if the application was successful, property owners will then be able to enjoy their stay in the given property for another 99 years again. This will also be the optimal result for applicants. 

Then again, it should also be noted that the lease top-up is not a small figure to be overlooked as well – in fact, the land premium to be paid is quite an exorbitant amount which will discourage many hopeful applicants. It may also be a huge deterrent in the talks amongst home owners within the property to reach a consensus. Thus, normal individuals will usually rather settle in a new house rather than to venture into this option. It is, rather, a route more frequently taken by companies or privately-held entities that have the financial capability to afford it. Striking examples would be the former Shing Kwan House and ICB Building (now the SGX Building), the former Overseas Union House (now 50 Collyer Quay) and the former HMC Building (now Lumiere).

Option 2: Collective (En Bloc) Sale 

The other more popular option would be to push for a collective sale that will be easier to manage by the individual home owners within the property. This is mainly because it shifts the hefty obligation of the land premium payment from themselves to the interested private developers or companies that are financially capable to afford it. 

However, the ability for them to continue to reside in their home will be stripped away as it will now belong to the private developers instead. That being said, they do enjoy an amount of monetary compensation for the property that was supposed to be re-collected by SLA without any form of compensation. 

Looking back, the year where there was the most en bloc sales executed was 2007 – that years saw the sale of Farrer Court Apartments. The 18 apartments were sold for a total of $1.339 billion dollars, netting each homeowner a cool $2.122 to $2.238 million dollars (after overhead costs). 2016 also saw the collective sale of two privatized HUDC estates (Shunfu Ville and Raintree Gardens) and Singaporeproperties predict this trend of HUDC estates going en bloc to continue unto 2017.

Conclusion: Are leasehold properties worth it? 

Finally, it comes down to this question: Really, are leasehold properties a worthwhile investment or accommodation? And our answer will be: It depends on what you are looking for. If you have the sufficient finances and wish to purchase an accommodation that can be passed down from one generation to another, you might want to consider a freehold land property instead.

However, we understand that not everyone is under the same circumstances. Others might wish to own a comfortable for your own lifetime since you are confident that your future generations are able to purchase a home of their own, then by all means get a 99-years lease property. This goes for investors interested in earning a stable income from rent or are waiting to snag a good deal when selling accommodations after they have a rise in value as well.

Last but certainly not the least, we will also like to bring to your attention that while leasehold properties may be more affordable than freehold land, there are a plethora of factors that might affect the price of an accommodation as well. From its nearby facilities and services to its in-house amenities, there will be multiple reasons for a property to be affordable or expensive. Thus, this will in turn affect the chances for it to secure an en bloc sale once the lease expires as well. Therefore, do tread carefully when purchasing an accommodation to make sure that it will be your dream home in all aspects!