When Do Leasehold Properties Depreciate In Value?

Does It Start When The Property Reaches 20 Years Old?

So, when does leasehold properties start to depreciate? After all, when the lease reaches zero, the land technically reverts to the government. With the endpoint having nothing in value, there should be a deprecation at some point in time. The question is when does it usually start? Does this also mean that resale freehold properties command better value retention over the leasehold ones? The inspiration for this article came from a reader who wanted to understand the price deprecating behaviour of Regent Grove. It was the resale condo used in determining if J Gateway was a good buy.

With Regent Grove as the primary objective of this study, all condos used for comparison are those completed in the year 2000, +/- a few years.

Note: A direct comparison between freehold and leasehold properties will never be fair. Freehold properties are usually smaller in size while leasehold ones tend to be bigger and have more facilities. Also, leasehold properties tend to be nearer transport nodes and amenities. Also, due to the smaller size and lower transactions of the freehold developments, the price indicated may not reflect average market prices.

Basic Trend-line of The 20-Year Old Condos

Source URA: Property Price Index

  1. Most of the condos listed in the comparison follow a very similar price pattern shown in URA’s property price index. With the graph as a reference, there are four crucial benchmark price points to take note.
  2. Benchmark A was the initial launch price of the project. However, due to massive speculation, the pricing difference can be as high as 50% within the same year. It was also not uncommon to hear of units being flipped six times before obtaining TOP status. Bearing that in mind, Benchmark A is not a reflection of actual market value. But the average of all the psf transacted including the ones speculators were willing to pay.
  3. Benchmark B was the time where prices were at their lowest point with the emergence of the SARS epidemic. Sales volume in 2003 was the lowest at 7966 units.
  4. Benchmark C was the peak of the market before the government introduced a series of cooling measures. The measures resulted in the suppression of prices.
  5. Benchmark D are the prices we see today.
Pricing Depreciation Analysis Between 20-Year-Old Leasehold and Freehold Condos (From 2013 to 2018)

Price Depreciation Of Leasehold Properties Completed in 2000 Since 2013

Price Depreciation Of Freehold Properties Completed in 2000 Since 2013

  1. Most leasehold projects launched during that time frame are outside the central region with a rather high concentration in the Western part of the island. The freehold developments, on the other hand, are located mostly in the core central region.
  2. All the leasehold condos experience some loss in value from the peak in 2013, no matter where the location. Except for Kentish Lodge which barely broke even and Seasons Green which registered a growth of 3%.
  3. Only 50% of the freehold condos experience some loss in value from the peak in 2013. The loss-making freehold condos are mostly in the core central region.
  4. Leasehold properties experienced an average loss of 7.63% compared to 3.75% for freehold ones.
Does This Mean That Freehold Properties Are More Resistant Against Depreciation?

From the table above, it seems that the cooling measure was the main factor that resulted in the softening of prices. Both leasehold and freehold properties were affected. There wasn’t a clear cut way to determine if the reducing tenure played a part. However, specific freehold properties do seem to hold their value in spite of these measures.

So going forward, why do these freehold condos have better value retention than the others? Despite the drop in value, did the leasehold properties appreciate more compared to the freehold ones? The next blog article will examine the relationship between capital upside and the tenure of these 20-year-old properties in detail.

Meanwhile, to understand more on the mechanics of how certain factors affect prices, do contact us for a free consultation before you purchase your next property.

Article contributed by Jerry Wong

Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following

  1. How certain factors affect real estate prices. (Using historical transactions as references)
  2. Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
  3. Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!

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