reporter2
06-04-22, 12:01
Are older leasehold condo units a good investment?
Lee Su Shyan
Associate Editor
Apr 3, 2022
https://i.imgur.com/C9QcVbk.jpg
Q: My wife and I have sold our condo unit as we received a good offer and we are looking to buy another one. The prices of leasehold condos from the 1980s seem quite attractive. In addition to less chance of significant capital gains in the future, what other downsides should we be aware of? We are in our 50s and have two children in secondary school.
As you mull over the options for a new home, rents are on the rise. Urban Redevelopment Authority data shows that private home rents increased by 2.6 per cent in the fourth quarter of last year and 9.9 per cent for the entire year.
Anecdotally, property agents say they get dozens of calls as soon as a listing in a sought-after area is released. Construction delays related to Covid-19 are one factor in driving rental demand but there is also activity from the Hong Kong market with some expats moving here.
Space
For a family with two teenagers who need space and privacy, older leasehold projects will certainly deliver on the space front. As for the adults, while working from home is no longer the default option, Covid-19 has probably made all of us conscious of having enough space to function from home if it ever becomes necessary again.
These projects may not offer many fancy facilities but, set on sprawling grounds, they could have offered a respite during Covid-19 when malls were shut.
Assuming that your family requires at least three bedrooms and space of more than 1,500 sq ft, older leasehold properties will fit the bill.
Mandarin Gardens hails from that era and offers a range of units with larger units asking around $1,200 psf now. Last year, such units were being transacted at around $1,100 psf.
Pine Grove, in the opposite part of the island in the west, is of similar vintage. With an asking price psf of around $1,100, a spacious unit of 1,800 sq ft can be had for around $2 million with perhaps some spare change left over.
Pine Grove is a popular choice, with the lifestyle hub nearby at Holland Village and its proximity to various educational institutions.
For families with teenagers, proximity to their schools is important, bearing in mind that they will go on to institutes of higher learning where transport links will be even more key. Apart from space, this is one selling point of these older leasehold projects as they are in established locations and are near to amenities.
Leasehold projects that sold well last year include Neptune Court and Braddell View, both of which are near well-known schools and have good connectivity.
Maintenance costs
https://i.imgur.com/SnnHwbG.png
On the other side of the ledger, the risk of spiralling maintenance costs puts people off from buying an older condo, be it leasehold or freehold.
As the project ages, there will be many calls on your purse for expenses for rewiring, repair of wonky lifts or water pipes that need to be replaced.
Residents of the former Pearlbank Apartments - now redeveloped as One Pearl Bank - had to endure constant lift breakdowns.
Collective sale potential and investment value
What will preoccupy buyers' minds is whether the investment value can be maintained.
While the accepted wisdom is that freehold condos maintain their value more than a leasehold project, "purchasing a leasehold condo instead of a freehold condo for investment in a similar location would usually result in a better rental yield as the purchase quantum is generally lower," says associate director Clive Chng of Redbrick Mortgage Advisory, .
Mr Desmond Sim, chief executive of property consultancy Edmund Tie, argues that "people may still pay top money for a 99-year leasehold property in District 9 rather than a freehold property in the furthest suburban precinct".
But he adds that the obvious risk is that "value erosion may exist when tenure is not on your side. The demand pool may shrink as banks may not finance some purchases with much shorter tenures such as the Singapore Improvement Trust flats in Tiong Bahru".
Some of that risk is offset by the projects going en bloc. At one point, some of the former HUDC estates enjoyed a good run, including Farrer Court, which became d'Leedon, and Tampines Court, that is now Treasures at Tampines.
Normanton Park was sold and is being redeveloped - as Normanton Park.
https://i.imgur.com/RDK9lAS.png
However, the collective sale market for mega sites could be taking a hiatus, given that the recent cooling measures may be too much to digest for even a consortium of developers.
Golden Mile Complex received an offer last week but at about $100 million below the reserve price, owners may need some convincing.
For me, apart from the simple financial running down of the lease value, there are a couple of other considerations as well.
One is that as the lease draws near the expiry date, these older leasehold projects will be among the first to see if the leases will be renewed.
A case in point, residents of the terraced houses at Lorong 3 in Geylang had to move after their 60-year leases were not renewed. This may not be a like-for-like comparison with a leasehold condo but it indicates that renewal of the lease is not automatic if it does not gel with plans by the authorities for the area.
In 2011, the owners of The Arcadia had their request for a lease top-up turned down. While no official reason was provided, it may have been because there were no plans to intensify the usage of the land.
The wider implication is that the authorities may wish to have more flexibility over how the area is developed, be it via land use intensification or urban rejuvenation.
In Britain, where many properties are held on a leasehold tenure, there are already regulations that allow the owner of the lease to request and pay for an extension. However, it is a complicated business and the regulations are still in the process of being overhauled.
Another consideration is that how a condo operates - regardless of whether it is freehold or leasehold - ultimately depends on the wishes of the majority of the residents.
You may want to spend on upgrading the facilities and infrastructure as you see yourself living there for the next 20 or 30 years but your neighbour may not be willing to shell out the funds. This is what happened at Pearlbank, where residents voted down upgrading schemes.
Conversely, you may be desperate to seize a collective sale as an escape route but your elderly neighbour, who has called this development home for the past 40 years, may not.
At Lagoon View in the east, there are still sales transactions ongoing even though it is a prime collective sale candidate. This could be due to people who have decided to sell - even though the collective sale price will be substantially higher - simply because getting elderly residents' agreement to a collective sale will be tough.
While all condos have to be governed by collective decision, these points of dispute will be thrown into sharp relief when it comes to ageing, leasehold projects.
Legacy for your children
Many people say they would like to leave something for their children, but perhaps that is going to be less relevant in the Singapore context.
Children usually aim to buy an HDB flat once they get on the career ladder and it's often at this stage that parents offer financial help, if they can, when the need is greatest.
Any support the children get subsequently should be viewed as icing on the cake. In that context, you and others may be less concerned about the value of the property to be left to the next generation.
Bottom line
Purchasing an older leasehold project certainly has its merits, mainly that of liveability due to the generous land plot and spacious units. But do go into the purchase bearing in mind the long-term uncertainty that hangs over it.
https://www.straitstimes.com/business/invest/inthemoney-go-for-older-leasehold-condo-units
Lee Su Shyan
Associate Editor
Apr 3, 2022
https://i.imgur.com/C9QcVbk.jpg
Q: My wife and I have sold our condo unit as we received a good offer and we are looking to buy another one. The prices of leasehold condos from the 1980s seem quite attractive. In addition to less chance of significant capital gains in the future, what other downsides should we be aware of? We are in our 50s and have two children in secondary school.
As you mull over the options for a new home, rents are on the rise. Urban Redevelopment Authority data shows that private home rents increased by 2.6 per cent in the fourth quarter of last year and 9.9 per cent for the entire year.
Anecdotally, property agents say they get dozens of calls as soon as a listing in a sought-after area is released. Construction delays related to Covid-19 are one factor in driving rental demand but there is also activity from the Hong Kong market with some expats moving here.
Space
For a family with two teenagers who need space and privacy, older leasehold projects will certainly deliver on the space front. As for the adults, while working from home is no longer the default option, Covid-19 has probably made all of us conscious of having enough space to function from home if it ever becomes necessary again.
These projects may not offer many fancy facilities but, set on sprawling grounds, they could have offered a respite during Covid-19 when malls were shut.
Assuming that your family requires at least three bedrooms and space of more than 1,500 sq ft, older leasehold properties will fit the bill.
Mandarin Gardens hails from that era and offers a range of units with larger units asking around $1,200 psf now. Last year, such units were being transacted at around $1,100 psf.
Pine Grove, in the opposite part of the island in the west, is of similar vintage. With an asking price psf of around $1,100, a spacious unit of 1,800 sq ft can be had for around $2 million with perhaps some spare change left over.
Pine Grove is a popular choice, with the lifestyle hub nearby at Holland Village and its proximity to various educational institutions.
For families with teenagers, proximity to their schools is important, bearing in mind that they will go on to institutes of higher learning where transport links will be even more key. Apart from space, this is one selling point of these older leasehold projects as they are in established locations and are near to amenities.
Leasehold projects that sold well last year include Neptune Court and Braddell View, both of which are near well-known schools and have good connectivity.
Maintenance costs
https://i.imgur.com/SnnHwbG.png
On the other side of the ledger, the risk of spiralling maintenance costs puts people off from buying an older condo, be it leasehold or freehold.
As the project ages, there will be many calls on your purse for expenses for rewiring, repair of wonky lifts or water pipes that need to be replaced.
Residents of the former Pearlbank Apartments - now redeveloped as One Pearl Bank - had to endure constant lift breakdowns.
Collective sale potential and investment value
What will preoccupy buyers' minds is whether the investment value can be maintained.
While the accepted wisdom is that freehold condos maintain their value more than a leasehold project, "purchasing a leasehold condo instead of a freehold condo for investment in a similar location would usually result in a better rental yield as the purchase quantum is generally lower," says associate director Clive Chng of Redbrick Mortgage Advisory, .
Mr Desmond Sim, chief executive of property consultancy Edmund Tie, argues that "people may still pay top money for a 99-year leasehold property in District 9 rather than a freehold property in the furthest suburban precinct".
But he adds that the obvious risk is that "value erosion may exist when tenure is not on your side. The demand pool may shrink as banks may not finance some purchases with much shorter tenures such as the Singapore Improvement Trust flats in Tiong Bahru".
Some of that risk is offset by the projects going en bloc. At one point, some of the former HUDC estates enjoyed a good run, including Farrer Court, which became d'Leedon, and Tampines Court, that is now Treasures at Tampines.
Normanton Park was sold and is being redeveloped - as Normanton Park.
https://i.imgur.com/RDK9lAS.png
However, the collective sale market for mega sites could be taking a hiatus, given that the recent cooling measures may be too much to digest for even a consortium of developers.
Golden Mile Complex received an offer last week but at about $100 million below the reserve price, owners may need some convincing.
For me, apart from the simple financial running down of the lease value, there are a couple of other considerations as well.
One is that as the lease draws near the expiry date, these older leasehold projects will be among the first to see if the leases will be renewed.
A case in point, residents of the terraced houses at Lorong 3 in Geylang had to move after their 60-year leases were not renewed. This may not be a like-for-like comparison with a leasehold condo but it indicates that renewal of the lease is not automatic if it does not gel with plans by the authorities for the area.
In 2011, the owners of The Arcadia had their request for a lease top-up turned down. While no official reason was provided, it may have been because there were no plans to intensify the usage of the land.
The wider implication is that the authorities may wish to have more flexibility over how the area is developed, be it via land use intensification or urban rejuvenation.
In Britain, where many properties are held on a leasehold tenure, there are already regulations that allow the owner of the lease to request and pay for an extension. However, it is a complicated business and the regulations are still in the process of being overhauled.
Another consideration is that how a condo operates - regardless of whether it is freehold or leasehold - ultimately depends on the wishes of the majority of the residents.
You may want to spend on upgrading the facilities and infrastructure as you see yourself living there for the next 20 or 30 years but your neighbour may not be willing to shell out the funds. This is what happened at Pearlbank, where residents voted down upgrading schemes.
Conversely, you may be desperate to seize a collective sale as an escape route but your elderly neighbour, who has called this development home for the past 40 years, may not.
At Lagoon View in the east, there are still sales transactions ongoing even though it is a prime collective sale candidate. This could be due to people who have decided to sell - even though the collective sale price will be substantially higher - simply because getting elderly residents' agreement to a collective sale will be tough.
While all condos have to be governed by collective decision, these points of dispute will be thrown into sharp relief when it comes to ageing, leasehold projects.
Legacy for your children
Many people say they would like to leave something for their children, but perhaps that is going to be less relevant in the Singapore context.
Children usually aim to buy an HDB flat once they get on the career ladder and it's often at this stage that parents offer financial help, if they can, when the need is greatest.
Any support the children get subsequently should be viewed as icing on the cake. In that context, you and others may be less concerned about the value of the property to be left to the next generation.
Bottom line
Purchasing an older leasehold project certainly has its merits, mainly that of liveability due to the generous land plot and spacious units. But do go into the purchase bearing in mind the long-term uncertainty that hangs over it.
https://www.straitstimes.com/business/invest/inthemoney-go-for-older-leasehold-condo-units