A condo project may have a 99-year lease; but what about the land it’s sitting on? Most of us assume that leasehold projects are on leasehold land, and vice versa; but in reality, a leasehold property can be sited on freehold land.
This can have serious implications for collective sales, so it’s often undesirable for older properties. These condos can be hard to spot, but we have found some:
How can leasehold properties be on freehold/999-year lease land?
To oversimplify a bit, the owner of the land parcel rents out the land for the duration of the condo’s lease. When the lease ends, the land parcel goes back to the control of the actual owner. The actual paperwork and technicalities get more complex, but this is the gist of it.
The actual owner of the land can range from investment firms to government bodies (not necessarily the Singapore government), to even other property developers.
Leasehold condos on freehold land are considered to be disadvantaged when it comes to en-bloc sales. This is because the collective sale cannot proceed without the landowner’s consent (even if you do garner the required 80 per cent of votes).
In cases where the land belongs to a property developer, there’s a slim chance that they’ll agree to the en-bloc; it’s quite probable that they have their own plans for future development. Note that to date, there has been no record of a successful en-bloc sale for these kinds of properties (at least none that we know of, as en-bloc sales or attempts are not required to be on public record).
The problem lies in identifying these projects. For new launches, the information is supposed to be available; but we often have trouble spotting it in brochures. Also, the sales team may keep quiet about it unless you ask.
The problem is worse with older resale properties: unless you check with SLA, there’s a chance that even the sellers themselves are unaware.
Back in 2018, for example, Spring Grove condominium saw collective sale issues because it was on land owned by the US government. As a bit of history, it was the former residence of the American ambassador that was bought in 1950 on a freehold lease but sold on a 99-year lease to CDL in 1991.
Many of the owners, including some of the original buyers, were unaware of this until the issue came up.
At the time, National Development Minister Lawrence Wong (also in the linked report) said about 3,000 private residential properties have such an arrangement; we don’t know about the count today.
The following is far from an exhaustive list, but are just the ones we’ve been able to find:
Leasehold properties on freehold land
Far East Organisation is probably the most prominent developer for owning freehold land, on which it builds leasehold projects. (And if anything, perhaps the only developer that could afford to do so back in the day). Some of these include:
|No. of Units
|The Shore Residences
|103 yrs from 18/08/2009
|103 yrs from 23/04/2009
|The Scotts Tower
|103 yrs from 01/10/2010
|103 yrs from 03/10/2011
|110 yrs from 01/11/2017
Source: URA. $PSF data from November 2022 — October 2023.
You would probably have noticed that the above have 103/110-year leases, rather than 99-year leases. We can’t be sure, but this was likely done to account for the typical three/four-year construction time.
If you can afford to hold the land, it definitely does make sense to take advantage of a much longer horizon of future potential.
In the case of The Shore Residences, this was launched in 2009 at a time when the planned Marine Parade MRT station was still some time away (it’s only just about to be completed soon) and places like Marina Bay were yet to be fully completed. As such, retaining the freehold land, allows Far East to benefit from the full potential of the future developments in the area.
Others we’ve found, like Spring Grove as mentioned above, include:
|No. of Units
|East Bay Gardens
|99 yrs from 01/01/1995
|Rochelle At Newton
|99 yrs from 10/03/2008
|99 yrs from 09/04/1998
|The Red House
|99 yrs from 06/01/2012
Source: URA. $PSF data from November 2022 — October 2023.
Given that around 3,000 such properties exist, however, there are many that we’re missing. If you happen to know of any, we’d love to get a heads-up.
How much does this affect your actual property price?
When we spoke to realtors, most told us this is a niche issue, affecting only a small handful of properties. It shouldn’t really matter to begin with, given that these properties would be sold at comparable leasehold property prices. The main drawback is just the weaker collective sale prospect, which may not be as big of an issue in the current market. One agent said that:
"As Stacked has also pointed out, the en-bloc market right now is dead due to the ABSD, so it’s not something that we base our buying decisions on. End of the day, these projects are not so different from other leasehold properties. Buy with the assumption an en-bloc will not happen, whether it’s on freehold land or not."
Another agent, who has actually transacted units at Spring Grove, insisted we look up the performance; he argued the freehold-land issue had little to no tangible effect on the property. So we did:
Spring Grove prices have admittedly trended upward, from $893 psf in 1995, to $1,976 psf in 2023. The property has seen 240 profitable transactions, and 59 losing transactions; overall, it’s not a bad record.
He did make a fair point that we should be looking at the performances of all these properties, which we might do shortly; so do follow us for an update.
Not all agents were as accepting of the issue, however. One agent said that if she knew the project was on freehold land, she "probably won’t recommend it, if there’s another close-by alternative", while another agent said: "If you want to buy something on freehold land, buy a freehold condo or house. Property is a long-term investment."
Will we be seeing more of such arrangements in the future?
While it is rare to find such units in Singapore that are under such arrangements, we doubt that this number will grow moving forward. This strategy worked in the past, developers could purchase land for much cheaper and hold it until the price was right to sell it for higher on a leasehold tenure.
Of course, this was also possible because you could buy and just hold onto the land indefinitely. The five-year developer ABSD introduced probably renders this impossible now because developers have to acquire and sell all units within five years.
In any case at today’s land prices, developers may find it difficult to pay a premium for freehold/999-year land only to sell it at a price reasonable for a 99-year leasehold property.
We’ve discussed how developer’s margins have decreased, so it’s not likely that any developer can even afford to pull a move like this. 99 years is a long time to wait to reap the fruits of their labour, and only developers that are a family/legacy business will find this in their interest to do so.
We’re still digging for more information on these properties; but in the meantime, do be aware of it. Ask about the land plot the condo is sitting on, just to be sure.