Thursday, August 23, 2012

99-year leasehold properties see demand soar

Several property analysts have noted that demand for new 99-year leasehold developments are rising, with such units accounting for about three out of four private residential projects launched in the last year, according to a Channel NewsAsia

Despite the robust demand, market watchers have advised home buyers to be aware of the properties they are buying into, as the capital value of leasehold properties gradually depreciates with age.

Experts noted that a freehold property could have a price premium of 40 percent.

SLP International Property Consultants said demand for new 99-year leasehold private homes have increased, accounting for about 77 percent of sales for new private homes between June 2011 and June 2012.

Analysts added that some home buyers have changed their mindset when it comes to housing. They choose to purchase a home for short-term use and eventually move into another property.

Compared to freehold properties which have a rental yield of 2.5 to 3.5 percent, new leasehold units fare better with a rental yield of 3.5 to 4.2 percent.

“99-year leasehold is always considered with a little bit of discount. The theoretical treatment of a 99-year leasehold land should be a depreciation of about one percent per year,” said Ku Swee Yong, CEO of International Property Advisor.

“So if you were to buy a property at S$1,000 psf, each year its value should depreciate by S$10 psf,” he added.

Nicholas Mak, Executive Director at SLP International Property Consultants, said the value of freehold properties more than 20 years old is a bit more preserved as developers no longer need to pay a land premium.

View the original article here

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