Would you buy a 99-year terrace home?

Oct 08, 2022

Generally, one would think that the value of 99-year leasehold properties would decline as their balance leasehold tenures shrink. However, the median price of 99-year terrace houses in the first 9 months of this year rose to a record S$1,214 per square foot (psf) on land area, as an analysis by List Sotheby’s International Realty (List SIR) using URA Realis data shows.

The latest median price reflects a 15.3 per cent increase from the S$1,053 psf for the whole of 2021, which in turn was up 13.2 per cent from 2020.

The latest price is also above the pre-Covid median price of S$1,007 psf in 2019.

List SIR research director Han Huan Mei highlights that the median price gap between 99-year and freehold/999-year terrace houses has risen to S$715 psf in the first 9 months of this year, from S$663 psf in 2021, S$604 psf in 2020 and S$464 psf in 2019. “As this price gap widens, 99-year terrace houses have become an attractive option. In particular, intermediate terrace houses are the entry level for condominium and HDB (Housing Board) dwellers looking to upgrade to a landed property.”

Han adds that the Covid outbreak accentuated the need for bigger living space, with work-from-home made mandatory for most office workers. Students were also required to do home-based learning.





Value for money

With or without a pandemic, there has always been a segment of property buyers drawn to 99-year terrace houses; these properties offer value for money for the likes of multi-generational families who need a larger living space than what an apartment or condo unit could provide, but their budget may be too small to buy a freehold landed house.

JLL senior director of research and consultancy Ong Teck Hui says: “The advantage of buying resale 99-year leasehold terrace houses is their affordable prices for a larger floor area compared to condominiums...

“For example, a resale 99-year leasehold terrace house in Park Villas in the Hougang area with a floor area of 2,800 sq ft could cost about S$2.3 million, but the same value can only fetch a new apartment unit of below 1,600 sq ft in nearby The Florence Residences. Some buyers are attracted to the low cost in terms of psf of floor area for such landed homes.” (Park Villas is a conventional landed project, on a site with 99-year leasehold tenure starting May 1, 1994. The Florence Residences is a condo project being built on a site with 99-year leasehold tenure starting Dec 24, 2018.)

“Buyers of resale 99-year landed homes would probably be from growing families who prefer much larger floor areas than what condominiums can provide and see value for money in getting a much bigger home at a relatively affordable price. They would probably prioritise quality of life in terms of liveable space over investment considerations,” says Ong,

Tricia Song, head of research for South-east Asia at CBRE, notes that 99-year leasehold terrace houses are more budget-friendly vis-a-vis similar-sized freehold ones.

Agreeing, List SIR’s Han says: “Compared with freehold terrace houses, 99-year terrace houses are more attractively priced to meet functional needs. For example, if a buyer needs a home with four or five bedrooms, and he compares a 99-year leasehold terrace house with a 99-year condo as well as a freehold terrace house, a 99-year terrace house is still more affordable, especially for young professionals, a large family or a multi-generation family.

However, those thinking of buying older, 99-year leasehold terrace houses also need to be mindful of a few things. One needs to plan ahead and consider if the balance lease on the site can meet one’s needs. “For retirees, a shorter balance lease of 30 or 40 years could meet their needs till age 95. But for a young family, it is more prudent to look for a leasehold property with at least 60 years’ balance lease,” says Cheong Choon Ghee, senior associate vice-president at List SIR.

Funding implications

A short balance lease also has implications for funding the property purchase.

Currently, no Central Provident Fund (CPF) savings can be used to buy a private residential property, be it landed or non-landed, if it is on a site with a remaining lease of 20 years or less at the time of purchase.

For a property with more than 20 years’ balance lease, the amount of CPF savings that can be used (for its purchase) depends on the remaining lease of the property and the age of the owner, or youngest owner in the case of a joint purchase.

The overriding consideration for CPF savings usage is that the property purchased should be able to last the youngest owner till age 95, allowing him or her to age in place.

If this condition is met, the owner(s) will be able to use their CPF Ordinary Account (OA) savings for up to 100 per cent of the property purchase price, or the property valuation price at the time of purchase, whichever is lower.

If not, owner(s) can still use their CPF OA savings, but at a pro-rated amount. Potential buyers may ascertain the amount of CPF OA savings they may use by using housing usage calculator on the CPF website.

When contacted by The Business Times (BT), OCBC Bank’s head of home loans, Maryanne Phua, said that for the bank to grant a housing loan for a private residential property, the property should have a remaining tenure of at least 30 years at loan maturity.

To ensure this, the maximum tenor for the housing loan may be reduced for older leasehold private residential properties.

“Correspondingly, where the loan tenor is reduced, a higher income will be required for borrowers to meet the total debt servicing ratio requirements.”

There are other issues for a property with a leasehold tenure that is running down.

As CBRE’s Song points out: “Lease decay may set in, which could make it challenging to find the next buyer. Due to this illiquidity, prices could deteriorate faster than freehold ones during downturns.”

In similar vein, JLL’s Ong notes that there is still a strong preference for freehold properties among landed homebuyers, so “it may be more difficult to sell a 99-year leasehold landed property, especially when the market is weak or when the leasehold has depreciated substantially”.

Harder to do en bloc sale?

Market observers also point to another factor that could lead to more severe property value deterioration for a 99-year landed house vis-a-vis 99-year leasehold apartments/condo units: the reduced likelihood of being able to do an en bloc sale as an exit for the property owner.

Says List SIR’s Cheong: “Generally, owners of private apartments can collectively sell their units on leasehold land to a developer for redevelopment. The developer would pay an amount as determined by the Singapore Land Authority (SLA) to top up the lease to a fresh 99-year term for the new development. But for 99-year landed properties, this option is not so clear-cut. Even if it is, it is not as easy to collectively sell to a developer because this would require 100 per cent consent from the owners, unlike the case for apartments and condo units where only 80 per cent consent is required.”

Industry watchers told BT that at least in the past decade, they have not come across any cases of the SLA topping up leases for 99-year private landed residential properties.

Higher rental yield

However, all is not lost for 99-year terrace houses with relatively shorter balance land tenures. A new pool of buyers or uses could emerge. “An example would be retirees who have a shorter time frame for wanting a large living space, for instance, to house their multi-generation family for some time – but not on a long-term basis – without overstretching their finances. In such a scenario, lower priority would be placed on price appreciation or bequest,” says Song of CBRE.

Short-tenured terrace houses can also make ideal rental properties, if their owners (or buyers) are prepared to spruce them up. “The rental yield would also be higher, compared with that for a freehold property, should the owners decide to lease it out eventually due to the lower purchase price or outlay,” adds Song.

Information on the breakdown of terrace house stock by land tenure is not available. However, based on List SIR’s analysis of URA Realis caveats data, the bulk of the 99-year terrace houses transacted from January 2020 to September 2022 are on state land parcels sold in the 1990s. Examples include the Kew Drive area and Eastwood Park in District 16, Loyang Villas in District 17; Park Villas, Parry Green, Tivoli Gardens and Tai Keng Villas in District 19; Lakeside Grove, Westwood Park and Westville in District 22; and Villa Verde in Choa Chu Kang in District 23.



During the same period, District 19 emerged tops for sales volume of 99-year terrace houses, followed by Districts 17, 23, 22 and 16.

Among these five most popular districts, Han said Districts 22 and 23 posted the highest price gains, of 38.5 per cent each in median prices in terms of psf on land area, between 2020 and the first 9 months of 2022. This was followed by District 19, with 37.5 per cent price appreciation.

Another finding from the analysis is that buyers with HDB addresses make up a higher proportion of those who picked up 99-year terrace houses compared with those who bought freehold/999-year leasehold terrace houses.



However, amid overall price gains in terrace houses, HDB dwellers’ share of purchases in both lease-tenure categories has slipped between 2020 and January to September 2022.

This may be a sign of price resistance setting in, says Han. She predicts that prices of 99-year terrace houses could remain at current levels for the rest of this year.

https://www.businesstimes.com.sg/bru...r-terrace-home