Have you ever been caught in a debate between freehold and leasehold properties? Almost 1 in every 3 esteemed clients whom I have worked with cannot escape from this subject matter. Well, one isn’t superior to the other, but here are the 2 factors that are essential for your consideration.
#1 — Rental Yield
Does it matter to your tenant? Probably not. There is virtually no difference between a freehold or leasehold property to your tenant. But to you, the landlord, your rental yield depends on your initial capital outlay. Leasehold properties are priced at a slight discount compared to freehold properties. In turn, you will have higher return on investment from your rental income. If you are a buy-to-lease owner looking for a substantial investment yield, a leasehold tenure makes more financial sense.
#2 — Capital Gain
The question on every investor’s mind. “How much can owner profit?” Both leasehold and freehold units are known to be profitable investments. However, when making comparisons, one must look at the tenure and entry price of the investment.
For starters, brand new freehold units are generally priced 10 to 15 percent higher than leasehold units. As leasehold properties have limited tenures, capital gains come to fruition in as early as 3 years after launch. In my experience, I have seen plenty of leasehold properties yield positive returns in short durations of time.
If your time horizon is much longer (decades), a leasehold property might not be for you. Freehold properties tend to have the upper hand in terms of lengthy time horizons. Given the “unlimited” lease, freehold properties can be passed from generations where capital appreciation grows steadily but at a much slower pace.
No matter whether freehold or leasehold, the entry price will be the biggest determinant of your investment. To truly understand the marketability of a property, it is important to do your research thoroughly and to seek a specialist for insights.
If you’re an investor and wish to out more on property investment, my name is Jen Tan, don’t be afraid to pop me any questions! I would love to hear from you soon.