Red hot demand for new 99-year condo

About three in four private residential projects launched in the past year are 99-year leasehold developments, according to some property analysts.

Demand for these units has been strong, and market watchers said home buyers should be aware of what they are buying into, as the capital value of leasehold properties depreciates progressively as the development ages.

Experts said the price premium for a freehold property could be as high as 40 per cent.

Demand for many new 99-year leasehold private homes has been red hot, partly driven by the large number of such projects in the market. They account for about 77 per cent of new private homes placed for sale between June 2011 and June 2012.

Analysts said there’s also a mindset change among some home buyers now and they are highly mobile when it comes to housing.

For instance, some buyers may take a short-term view on their home purchase, opting to move to another property after five to 10 years, so it doesn’t matter if the project is freehold or not.

For investors, market watchers said new leasehold units offer a better rental yield at 3.5 to 4.2 per cent, compared to about 2.5 to 3.5 per cent for freehold homes.

But those looking at wealth preservation or handing down their homes to their children will be better off with a freehold property.

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 1 per cent per year.

For freehold properties, when the property is more than 20 years old and is ageing, and it is time for re-development perhaps through collective sale, the value of the land in a way is a bit more preserved because the developer would not need to pay the government a land premium to top-up the lease.

Analysts said a freehold property also commands a price premium over a comparable leasehold project.

This price premium could vary between 10 and 40 per cent.

Source : Channel NewsAsia – 22 Aug 2012