reporter2
21-07-22, 10:20
Ageing 99-year leasehold condos still appreciate, but lag benchmark median gain
Jul 20, 2022
https://i.imgur.com/dSs1NEz.png
A COMMON perception is that an ageing 99-year leasehold condominium is likely to see price declines as its lease decays, but a new study has found quite the opposite.
In examining transaction data of such condos that are at least 35 years old, ERA Research & Consultancy has observed that their prices have continued to increase over the past 13 years (See table).
The team went through almost 1,000 condos to arrive at a group of 64 condos aged over 35 years. This means 13 years ago, they were already at least 22 years old and starting to age.
But while the results show that ageing condos on decaying leases can still be a good store of wealth, the rate of price growth of these older condos is slower than that of the benchmark. In the study, the benchmark is defined as the median price of all 99-year leasehold resale condos regardless of age.
“The older the condo, the wider the gap in the rate of price growth it experiences compared to the benchmark,” Nicholas Mak, who heads ERA Realty’s research and consultancy department, told The Business Times. “In other words, if you put S$1 million in a condo regardless of age versus an older one, and hold it for 10 years, you will see a difference, with a slower price growth for the latter. After 12 years, the gap widens further.”
This slower rate of price growth for older condos is observed in all market segments as well as island-wide.
Interestingly, older Core Central Region (CCR) condo prices are growing slower when compared to those in the Rest of Central Region (RCR) and Outside Central Region (OCR). When compared to benchmark condos within the same locality, they are also under performing by a bigger margin.
And while the biggest difference between the rate of price growth of older condos and that of the benchmark is in the CCR, the smallest is in the OCR.
“This shows that the older 99-year leasehold resale condo in the OCR is able to preserve its value better than a similar condo in the CCR when compared to a benchmark 99-year leasehold condo in their respective localities,” said Mak.
https://i.imgur.com/JpWVjND.png
One reason is that the median age of the OCR condos in the basket used in the study is younger than those in the CCR and RCR.
“Thirty to 35 years ago, the higher concentration of condos were in the central region and the east coast,” said Mak. “Also, some of the older condos in the CCR have already gone en bloc successfully, whereas many of the condos in the OCR came about only in the last 20 years, and so they are younger.”
Mak suspects the CCR condos are also underperforming because the region has the highest proportion of freehold properties of the 3 localities. In the prime central region, purchasers prefer to go for freehold condos.
When the 99-year leasehold condo in the CCR is new, it can sell very well, he noted. But when condos are much older, people are mindful about potential en bloc sales and will consider buying for that opportunity.
“All things being equal, investors think, ‘why pay so much for an ageing leasehold condo when I can buy an ageing freehold condo in the CCR?’,” he reasoned. “So they are more likely to purchase the latter, as the en bloc sale payout is higher than that of a leasehold condo.”
While this consideration applies to every part of Singapore, there are more freehold condo options in the CCR compared to other regions.
Also, a pool of Housing and Development Board (HDB) flat upgraders are supporting older condos in the OCR. “If they want something more spacious, they will go for the older condo,” he said, adding that familiarity with location and proximity to schools or an MRT station are other incentives.
Besides, the higher median prices of older condos in the CCR also put them out of reach of HDB upgraders.
In 2021, the median absolute price for an older 99-year leasehold condo in the CCR was S$2.6 million, compared to S$1.3 million in the RCR and OCR.
“So the conclusion is: Don’t hold on to your 99-year leasehold condo for too long. There isn’t a magic number because it’s not like prices will fall off a cliff after X number of years. It’s just that price growth will be slower and slower.”
After all, besides the depreciation of land tenure, owners will also have to contend with physical deterioration of the buildings as well as their outdated designs.
And as the case of the early-generation Arcadia condo near Adam Road has shown, getting permission from the authorities to top up a decaying lease back to 99 years is also elusive.
Completed in 1983, Arcadia residents sought a lease extension for their ageing estate to conserve its 3 buildings on environmental and heritage grounds.
The Singapore Land Authority rejected their request in 2011, saying that “the conditions for lease extension include land use intensification and urban rejuvenation”.
https://www.businesstimes.com.sg/real-estate/ageing-99-year-leasehold-condos-still-appreciate-but-lag-benchmark-median-gain
Jul 20, 2022
https://i.imgur.com/dSs1NEz.png
A COMMON perception is that an ageing 99-year leasehold condominium is likely to see price declines as its lease decays, but a new study has found quite the opposite.
In examining transaction data of such condos that are at least 35 years old, ERA Research & Consultancy has observed that their prices have continued to increase over the past 13 years (See table).
The team went through almost 1,000 condos to arrive at a group of 64 condos aged over 35 years. This means 13 years ago, they were already at least 22 years old and starting to age.
But while the results show that ageing condos on decaying leases can still be a good store of wealth, the rate of price growth of these older condos is slower than that of the benchmark. In the study, the benchmark is defined as the median price of all 99-year leasehold resale condos regardless of age.
“The older the condo, the wider the gap in the rate of price growth it experiences compared to the benchmark,” Nicholas Mak, who heads ERA Realty’s research and consultancy department, told The Business Times. “In other words, if you put S$1 million in a condo regardless of age versus an older one, and hold it for 10 years, you will see a difference, with a slower price growth for the latter. After 12 years, the gap widens further.”
This slower rate of price growth for older condos is observed in all market segments as well as island-wide.
Interestingly, older Core Central Region (CCR) condo prices are growing slower when compared to those in the Rest of Central Region (RCR) and Outside Central Region (OCR). When compared to benchmark condos within the same locality, they are also under performing by a bigger margin.
And while the biggest difference between the rate of price growth of older condos and that of the benchmark is in the CCR, the smallest is in the OCR.
“This shows that the older 99-year leasehold resale condo in the OCR is able to preserve its value better than a similar condo in the CCR when compared to a benchmark 99-year leasehold condo in their respective localities,” said Mak.
https://i.imgur.com/JpWVjND.png
One reason is that the median age of the OCR condos in the basket used in the study is younger than those in the CCR and RCR.
“Thirty to 35 years ago, the higher concentration of condos were in the central region and the east coast,” said Mak. “Also, some of the older condos in the CCR have already gone en bloc successfully, whereas many of the condos in the OCR came about only in the last 20 years, and so they are younger.”
Mak suspects the CCR condos are also underperforming because the region has the highest proportion of freehold properties of the 3 localities. In the prime central region, purchasers prefer to go for freehold condos.
When the 99-year leasehold condo in the CCR is new, it can sell very well, he noted. But when condos are much older, people are mindful about potential en bloc sales and will consider buying for that opportunity.
“All things being equal, investors think, ‘why pay so much for an ageing leasehold condo when I can buy an ageing freehold condo in the CCR?’,” he reasoned. “So they are more likely to purchase the latter, as the en bloc sale payout is higher than that of a leasehold condo.”
While this consideration applies to every part of Singapore, there are more freehold condo options in the CCR compared to other regions.
Also, a pool of Housing and Development Board (HDB) flat upgraders are supporting older condos in the OCR. “If they want something more spacious, they will go for the older condo,” he said, adding that familiarity with location and proximity to schools or an MRT station are other incentives.
Besides, the higher median prices of older condos in the CCR also put them out of reach of HDB upgraders.
In 2021, the median absolute price for an older 99-year leasehold condo in the CCR was S$2.6 million, compared to S$1.3 million in the RCR and OCR.
“So the conclusion is: Don’t hold on to your 99-year leasehold condo for too long. There isn’t a magic number because it’s not like prices will fall off a cliff after X number of years. It’s just that price growth will be slower and slower.”
After all, besides the depreciation of land tenure, owners will also have to contend with physical deterioration of the buildings as well as their outdated designs.
And as the case of the early-generation Arcadia condo near Adam Road has shown, getting permission from the authorities to top up a decaying lease back to 99 years is also elusive.
Completed in 1983, Arcadia residents sought a lease extension for their ageing estate to conserve its 3 buildings on environmental and heritage grounds.
The Singapore Land Authority rejected their request in 2011, saying that “the conditions for lease extension include land use intensification and urban rejuvenation”.
https://www.businesstimes.com.sg/real-estate/ageing-99-year-leasehold-condos-still-appreciate-but-lag-benchmark-median-gain