If you are in the market to buy a building or landed property in Singapore, then you need to be conversant with these two terms, freehold and leasehold, common legal speak used by solicitors to describe the two kinds of legal property ownership contracts. In Singapore, by virtue of its small size, land is a precious commodity and 76% of landed property belongs to the government. Buyers can either enter an agreement to purchase the property out rightly or lease it from the government for a specified number of years, after which the land reverts back to the government.
Freehold Properties in Singapore
Freehold refers to an ownership agreement that involves outright purchase of land or property, a total transfer of ownership from the government to the individual. This type of contract grants the property owner exclusive rights to the property for the rest of their lives. The advantage of freehold leasing includes
· The new owner is at liberty to reconstruct or develop the building at will and can live in it with his family for a long time with the possibility of passing it on to the next generation
· It serves as a strong collateral for financing loans, since banks are more comfortable with giving loans to free hold owners because of their extended property ownership.
The disadvantages on the other hand are:
Freehold Properties Can be Acquired Back by the Government
Even though a free hold property is supposedly owned by the buyer for life, in land scarce Singapore this is not always the case and the government could decide to acquire the land back, to build infrastructures like factories and railways. In such situations, the owner has no choice but to sell back the property to the government. Fourth Avenue Residences is a new 99 year leasehold property by allgreen properties next to Sixth Avenue MRT Station.
Leasehold Properties Advantages
Leasehold on the other hand refers to an agreement where the property is leased for a given number of years from the government or other free hold owners. In this kind of ownership contract, the building or land owner only has the rights to use of the property for a specified number of years the commonest in Singapore being for 99 years or 999. years.
There are a number of advantages to leasing rather than buying property in Singapore:
· Cheaper initial cost of acquiring the property which means less initial capital investment.
· Leasehold properties are better for business investors who wish to convert them to rental properties and apartments as the initial cost is cheaper and so the buildings can be rented out to tenants at a lower cost, to give higher returns on investment.
A major disadvantage however is that developers who buy en-bloc leasehold properties from other leasehold owners apart from the government, also have to pay additional premiums to the government as well to top up their lease to 99 years.