SINGAPORE (EDGEPROP) - What’s the impact of ageing on different types of condos? Do freehold condos hold better value? Does location matter?
A thorough analysis using our Market Trend tool indicates a growing gap in the overall average price for freehold and leasehold condominiums as they age. Table 1 below shows the average price of freehold and leasehold condominiums of different ages in 2021. We also compared the average prices of older condominiums against similar new condominiums and compiled the difference.
NOTE: Data for en-bloc sales have been excluded from older condominiums to prevent skewing the average prices. The average prices in the tables below are for condominium units of all sizes including older condominium units which are generally larger in size and hence may have a lower price on a per square foot basis.
The difference in average prices between new and older condominiums is about the same for the first 20 years but a sharper difference is observed for leasehold condominiums thereafter. This is because the tenure for leasehold developments has an expiry date and hence is deemed to have less value as they age.
However, freehold does not always mean that the property belongs to the owners and their descendants forever. If the property is successfully sold via en-bloc, owners would have gained a windfall but at the expense of a property that they thought was theirs forever.
In addition, the Singapore government has powers to acquire any land, regardless of tenure, for public purpose under the Land Acquisition Act. The government has invoked the Act to acquire several sites for building roads, MRT stations and other public purposes.
En-bloc potential gives a boost to older condominiums.
A price increase is observed when condominiums reach 31 to 40 years old. This could be attributed to the stronger en-bloc potential of older condominiums. Owners of such properties are more willing to consider en-bloc opportunities to avoid paying for necessary repairs and replacements in the common areas as it could mean significant out-of-pocket costs if there is an insufficient sinking fund. In addition, selling via en-bloc would allow owners to realise higher gains. (See potential condos with en bloc calculator)
It is interesting to observe from Table 1 that the average price of freehold developments aged 21 to 30 years old was $1,380 psf in 2021 but the average price for a similar property aged 31 to 40 years old was higher by $97 psf or 6.6%. The average price for leasehold properties shows a similar trend but a smaller increase of $58 psf or 5.5%; clearly indicating the stronger en-bloc potential of older freehold properties.
Does prime location trump age?
Location is vital for properties but it would seem that prime location is no match to lease decay. Referring to Table 2 below, the difference in the average price for freehold properties islandwide indicates a gradual decrease for the first 20 years before declining steeply. However, the sharp fall for prime freehold properties sets in when the property is between 21 and 30 years old before flattening out.
The average price for freehold property islandwide aged 41 to 50 years was 42.4% lower than a similar new property. For example, 44-year-old Pandan Valley transacts at an average of $1,220 psf while uncompleted Forett at Bukit Timah fetches $2,027 psf. A smaller difference of 41.9% is noted when comparing properties in a prime location which is a clear indication of the demand and value that an older property in a prime district still enjoys.
Forett at Bukit Timah
A slightly different picture emerges for leasehold properties. Although the price difference for prime property is more severe for the first 10 years, the rate of change is on par for both types of properties when they hit 11 years old. Please refer to Table 3 below for details.
However, do note that the sample size for older condos falls the older they get due to its limited supply.
Despite the differences in the rate, both types of properties fetch about the same average price when they reach 31 years old. Average prices for such prime and islandwide leasehold properties were $1,049 psf and $1,051 psf respectively; proving that lease decay has as much impact on leasehold properties in a prime location as properties in other locations.
East vs west
New freehold condominiums in the east were selling at a higher average price of $2,157 psf in 2021 compared to the $2,030 psf their counterparts in the west were fetching. Average prices for Urban Treasures along Jalan Eunos and Mont Botanik Residence along Jalan Remaja are $1,917 psf and $1,746 psf respectively. The higher average price for the east could be due to more established and popular residential estates such as Paya Lebar, Katong, Marine Parade and East Coast.
Freehold condominiums in the east seem to be more affected by lease decay than those in the west. The average price for properties of 10 years old or less in the east is a significant 33.5% lower than new properties in the same region but the west reports a decrease of only 19.4%. Please refer to Table 4 below.
It would seem that freehold condominiums in the west offer a better value proposition because they are not only cheaper but also weather the impact of lease decay better.
New leasehold properties in the west were selling at a higher average price of $1,778 psf in 2021 compared to the $1,733 psf for leasehold properties in the east. The average price for Clavon along Clementi Avenue 1 and Treasure at Tampines along Tampines Lane is $1,634 psf and $1,414 psf respectively.
Unfortunately, the picture becomes less clear when we examine the prices for older properties in both regions. Referring to Table 5 below, properties in the east aged 10 years or less is more affected by lease decay than those in the west. However, lease decay affects properties of both regions equally when they are 11 to 20 years old. Thereafter, lease decay hits condominiums in the west harder.
As such, buyers of leasehold condominiums would be advised to buy in the east only if they intend to hold the property for at least 10 years. Buyers with a shorter investment timeframe should consider the west.
The age of the property affects the price regardless of tenure especially after the property crosses the 20-year mark.
However, condominiums of 31 to 40 years old are deemed to have stronger en bloc potential which gives a boost to its price.
Freehold properties weather lease decay better than leasehold properties because of their perceived longer tenure.
Properties in Districts 9, 10 and 11 are still affected by lease decay. While the prime location does not eliminate the impact, it helps to mitigate the price decline, especially for freehold properties.
Freehold condominiums in the west are cheaper and weather the impact of lease decay better than their counterparts in the east. However, the east might be more suitable for buyers looking for leasehold properties and planning to hold the property beyond 10 years.