Doomed to lose value? The topic of value for 99-year-old homes

According to experts, lease decay does not necessarily imply a decrease in pricing or capital worth.

Aug 9, 2024

THERE is a general notion that the value of a house is inextricably linked to its continuing tenancy. For example, an older 99-year leasehold condominium's market price is anticipated to fall when the lease expires.

However, experts say that this is not always the case in practice. Much relies on market circumstances and the property's geographic location.

And in a strong market, the "depreciation effects of a declining lease may be overlooked," according to Cushman & Wakefield research director Wong Xian Yang.

"Mathematically, lease decay is not a straight line, but a convex shaped curve that starts slowly and then accelerates as we approach the 99th year," said Alan Cheong, Savills Singapore executive director of research and consulting.

This is calculated in a leasehold table, often known as Bala's Curve in the real estate industry.

According to the table, lease deterioration begins to accelerate 70 years into a 99-year lease. "Therefore, from a purely theoretical perspective, the sweet spot for a collective sale is the period before the 70th year in the age of the lease," observed Cheong.



According to Nicholas Mak, chief research officer of Mogul.sg, median prices of older non-landed private properties in Singapore declined progressively between 1995 and 2006, in keeping with the leasehold table.

Higher pricing for older units

However, Mak observed that median prices for these residences began to rise in 2007, demonstrating that external market pressures such as economic and population expansion, as well as general inflation, had a greater influence on pricing than the decaying lease.

OrangeTee study found that prices in 15 aged 99-year leasehold condos climbed across the board in the recent decade. This was despite the fact that the complexes were quite ancient, with an average lease term of roughly 50 years, according to Christine Sun, OrangeTee Group's chief researcher and strategist.

Sun said that the majority of these properties had double-digit percentage increases in price, notably those in the eastern, north-eastern, and western areas.

The typical price of Neptune Court in Bedok, for example, increased by about 50% to S$1.6 million in 2024, when the condo had 49 years remained on its lease, from S$1.1 million in 2014. The condominium project was finished in 1975.

The median price of People's Park Complex in Outram, whose apartments have just 43 years remaining, increased 17.4% to S$1.1 million this year, up from S$920,000 a decade earlier.

Sun did, however, remind out that older private residential homes had slower price rise than modern ones.

According to government statistics, the median price per square foot (psf) of non-landed leasehold resale residences under 20 years old increased 43.1 percent to S$1,697 psf in 2024, up from S$1,186 psf in 2018.

Meanwhile, non-landed resale residences aged 20 and above had a somewhat lesser price gain of 42.7 percent, rising from S$915 psf to S$1,306 psf over the same time.

Savills' Cheong stated that between 2014 and 2024, the price performance of the 15 condominiums evaluated lagged the Urban Redevelopment Authority's (URA) general non-landed property price index.

"We cannot conclusively say that it shows that ageing leasehold properties do not hold up well to the overall market's performance," the analyst said.

According to Cheong, new releases, which are offered at a premium to secondary sales, have an impact on the URA index.

The average age of the 15 projects was likewise 38 to 41 years, according to him, which is "well below the 70-year age limit that the leasehold table shows a rapid decline in values thereafter".

Financing constraints for houses with a shorter lease remaining are one major reason why demand - and prices - for older leasehold properties may decline. According to Wong Siew Ying, PropNex's director of research and content, such restrictions may reduce the number of possible purchasers for these houses.

Not only are there limits on how an individual's Central Provident Fund may be used, but banks are also less inclined to lend money for homes with leases of fewer than 30 years, she added.

Market analysts predict that it may not make business sense for banks owing to the possible dangers of older buildings, such as keeping their capital worth or the simplicity of selling them at a set price once the lease expires. In the case of a loan default, banks would have to sell the property as a mortgagee sale to recoup the monies.

Lee Sze Teck, Huttons Asia's senior director of data analytics, said that lease decay has a greater impact on 99-year leasehold buildings older than 45.

This is due to price increases for these properties being stagnant, with property values looking to be about S$1,100 per square foot, according to Lee.

Newer homes less than five years old have the greatest property values, with average prices increasing by S$624 per square foot over the last five years. Property prices for six to twenty-year-old properties range between S$1,600 and S$609 per square foot, with a price increase of S$343 to S$609 psf. Property prices were about S$1,300 per square foot for individuals aged 21 to 45, with price rise ranging from S$56 to S$492 per square feet.



However, certain older leasehold properties may offer a higher chance of capital appreciation and long-term worth, particularly if they have en bloc potential.

In July 2022, the 99-year leasehold Chuan Park condominium in Lorong Chuan was sold to Kingsford Group and MCC Land for S$890 million. The lease on the land began in 1980 and lasted 99 years.

Another option for owners is to apply to the Singapore Land Authority (SLA) to extend the development's lease, according to Wong of PropNex.

In general, the government's policy is to let leases expire without renewals in order to reallocate property for "evolving socioeconomic needs," while SLA said that lease extensions are occasionally given on a case-by-case basis.

According to the government, approvals will be considered in light of long-term planning plans.

Since 2008, SLA has renewed just 28 residential complexes, extending the leases up to 99 years. This was done "to facilitate the redevelopment of the land parcels," according to the statement.

According to PropNex's Wong, the land premium for a lease renewal might also be high. "Owners also need to consider the condition of the development, as maintenance costs may be substantial as the building gets older," she added.

Is this a decent deal?

So, is an aged 99-year leasehold property a "good deal"? Experts in the sector said it varies.

"Some individuals acquire older condominiums for expansive living spaces, which are often scarce in today's market and can be pricey if the buyer purchases a new property of a similar size," said OrangeTee's Sun.

For investors, Cheong of Savills said that as capital values decrease over time, the yield should begin to rise to compensate for the possible loss of all capital once the property's lease ends.

"For a property with many years of lease life remaining, the return of capital is masked by the noise in the imperfect transaction market," he said. "But as we get closer to the end of lease life, it starts to make its presence felt."

Wong from Cushman & Wakefield said that the saleability of aged leasehold buildings is significantly influenced by market circumstances. "In a soft market with low demand, it could be challenging to find buyers for a shorter lease term property."

According to Sun of OrangeTee, capital appreciation for 99-year houses will vary depending on their characteristics and locational benefits. An older project that is well-located and popular with tenants might provide a good return while still seeing strong demand.

Mak from Mogul.sg provided an example: International Plaza in Tanjong Pagar. The project was finished in 1976, and its lease is for another 45 years.

Between 2018 and the first half of 2024, there were 38 resale transactions at the property, accounting for about 18% of its 210 units.

According to Mak, "younger comparable condos" in the International Plaza area witnessed similar amounts of resale transactions. The 280-unit Altez, which was finished in 2014, sold 42 homes (15 percent of the total units), while V On Shenton, which was completed in 2017, sold 81 units (16 percent of the 510 units).