Property 2006
Published March 30, 2006

Bridging the great divide
Prestigious new 99-year condos are narrowing the price gap with freehold units, writes LEONARD TAY

WHEN it comes to buying a home in Singapore, it is almost a truism that freehold beats leasehold for capital appreciation and long-term security. This preference has characterised much of the history of Singapore's residential market.

Until recently, that is.

The robust sales in the past two years of uniquely located and prestigious 99-year leasehold projects -- like The Sail @ Marina Bay and The Berth by The Cove and The Azure in Sentosa - has led many to think the price gap between freehold and leasehold is closing.

So, is the gap closing? We examine the issue.

In the past 10 years, the price gap between 99-year leasehold and freehold properties has held steady, going by a study of median prices of residential caveats islandwide. The average price gap over this period has been 23 per cent.

In addition, the standard deviation (which measures how spread-out a set of values are) of the quarterly percentage difference over 10 years was 7 per cent. It does seem that the price gap between 99-year leasehold and freehold homes still exists and has been generally uniform in the last decade.

However, the price gap narrows in the prime districts, which includes Marina Bay Area and Sentosa (districts 1, 4, 9, 10 and 11). Looking at the median prices of leasehold and freehold residential projects in prime areas, one also notices that the price gap is less uniform, with the standard deviation of the quarterly percentage difference at a much higher spread of 38 per cent. What this probably means is that buyers of quality 99-year leasehold projects in prime districts favour location over tenure.

The first sign of the narrowing gap between 99-year and freehold homes occurred in 2000. Then, the sale of units at The Loft at Nassim Hill and Caribbean at Keppel Bay spiked 99-year leasehold median prices (see chart). More recently, the sale of The Sail @ Marina Bay, and the two condominiums at Sentosa Cove - The Berth by The Cove and The Azure - resulted in 99-year leasehold prices actually exceeding freehold levels. In these instances, tenure took a backseat to location, which was seen as unique and highly desirable.

Another important factor in determining the price gap is whether the project is newly launched or sold in the resale market. A comparison of new versus resale prices in the prime areas shows that new high-end leasehold homes have a higher chance of bridging the gap with freehold projects.

In the past 10 years, new leasehold projects with special attributes, exclusive locations and quality finishing had the potential to close the price gap with their freehold counterparts. However, in the resale market, as the leasehold tenure decreases over time the price gap tends to open up, with fewer instances of 99-year properties bridging the freehold premium.

Nevertheless, there are some exceptions as 99-year leasehold projects such as the Caribbean and The Loft have been able to transact in the resale market at similar premiums when the market strengthened in 2005 (see charts).

The old adage that freehold is better than leasehold still seems to apply in today's market as a general rule. Only when a 99-year leasehold project boasts a special location, can the price gap be bridged. And this typically happens more often in the primary market where the lease is fresh.

In the last two years, there have been a number of 99-year leasehold projects that have captured the attention of home buyers and investors alike due to their locations in Sentosa and Marina Bay. These projects have crossed the threshold into an arena usually occupied by their freehold counterparts. Looking ahead, should there be more of such leasehold developments in distinctive locations, the divide could perhaps narrow significantly.

The writer is senior manager, CB Richard Ellis Research