Free hold or leasehold?

Dear readers,

A very prevalent question among many property buyers in today’s market is whether it is better to purchase a freehold (FH) or a leasehold (LH) property. Hence, I will be addressing this burning question and also provide my thoughts on the matter so that it can empower you to become a discerning buyer.

There is a common misconception surrounding the debate over FH & LH homes. Many believe that FH properties tend to be more valuable, thus reaping a profit is almost guaranteed. Therefore, people prefer owning FH properties as they believe such properties will bring them higher financial gains. This is absolutely NOT TRUE in most cases. There have been many LH projects that actually generated good or even much better profit margins than the FH ones.

FH or LH may have some effects but not largely on whether a piece of property is going to generate profit, it should be determined based on factual basis as opposed to making an emotional purchase. Getting your research and facts in place goes a long way in making the right judgement.

At the end of the day, deciding between FH or LH all boils down to the entry price and this is almost an investment mantra for all my property investment for the past 18 years.

3 Important Factors
when choosing a FH property: 

a. Legacy

b. Location

c. School

a. Why Legacy?

Diving into an example - a buyer takes out a 20-year loan, putting a down payment of 25%, eventually renting the property out. The rent collected from tenant goes towards paying off the mortgage, with the buyer topping up any shortfall.

The aforementioned approach is seen as a form of forced saving into the property. As you can see from the table below, any rental proceeds collected after the 20th year will be yours to keep for generations. That is why the affluent  tend to choose to purchase FH properties, in aims of leaving it as a legacy for their descendants.  

b. Location, Location, Location

The next point is about location. If you can find a FH property that is near to an MRT station, that is a huge huge advantage – as FH properties near MRT stations only make up 13%of properties in Singapore. That is why FH properties near an MRT station always hold its value and may even appreciate over time – demand versus supply. 

c. Near to Reputable/ Renowned Schools

If you are a parent or parent-to-be and reading this, imagine you could buy a property that is near to a reputable school that your children could get into easily. I am sure you would say “YES” because we all want the best for our children! What happens if this property that is near a reputable school happens to be FH as well, wouldn’t it be an additional plus point?

I have seen FH properties near reputable schools having very high profit margins. Just take a look at the table below, one owner made a whopping $800,000 in profit!! It makes everyone wish that they own such properties. And we think to ourselves if working hard and saving up, will we ever be able to see such amount of cash in our bank accounts. Don’t just work hard, work smart too.

I hope this article has been informative and have helped you better understand the longstanding debate between FH & LH. I have concised this article to a shorter form to provide with you an overview on some important points when making your next property investment move.

If you are interested, I have another article that is on an EXTREMELY IMPORTANT topic – how to identify a property that is priced right. I will be analysing & breaking down a case study and teaching you how to use an important fundamental principle to determine the potential upside of the asset.

Just as some who are successful, like the example above, who has made an $800,000 profit, are also others who have chosen the wrong assets and ended up making little to no profit. Hence, having knowledge coupled with research would make your purchase a safer one (as can be seen from the table below).

As with every type of investment, we cannot guarantee a fixed amount of profit you will reap. But what I can guarantee you is that we can minimise your risk for your next property purchase.