Recently there is alot of debate regarding 99 years properties. Should you or should you not buy one?
Now we all know that a 99 years have a disadvantage of buyers difficulty of get a full loan or utilising their CPF. And it will deplete it’s value to zero eventually when 99 years is up. But does that mean it’s not an asset or should we avoid it entirely in your property portfolio?
Maybe it is time to understand more about it first.
Firstly is property an asset?
Well according to the Famous Book – Rich Dad Poor Dad by Robert Kiyosaki, a property is consider an asset only when it is not taking money out from your pocket. In short… If you are staying in it and paying it’s mortgage every month… it’s a liability. But if it is fully paid or someone is paying your mortgage e.g. your tenant paying your mortgage then it’s an asset.
When will a 99 years start to depletes it’s value?
Apart from the economy performance element and location in the picture. Usually a 99 years property starts to deplete it’s value from around 35 years of age. Some may asked. Why is it so? Because we were told that only property with balance of 60 years have difficulty in getting loan and CPF…
Well we have to factor in that in Singapore we have Seller Stamp Duty or SSD in short for private property. Now we will need to hold the property for at least 3 years in order not to pay additional stamp duty. So unless the seller have some unforseen reason or someone offering a very good price, it’s quite unlikely the seller will sell at a lost. And of course HDB we are bounded by the 5 years MOP or Minimum Occupation Period before they can sell.
So after 35 years of age. The new buyer for the property will have to factor that in the SSD or MOP too. Because by the time they can sell their property their buyer will be affected by the loans and usage of CPF and will not offer a good price.
But there will be some exceptional case especially for properties near key growth areas or an MRT. Which is usually a better location compared to most Freehold property locations. However their value will grow at a lower pace compared to newer ones around it’s vicinity.
So should we avoid 99 years property entirely?
As mentioned, properties at the better locations are usually 99 years leasehold tenure. And now we will never get a freehold land from the GLS. Usually the newer properties with a freehold title are usually through enbloc exercise. So 99 years properties being at a better locations and usually around 10 to 20% cheaper than freehold properties makes them a better investment property for rental income. Tenants do not care if your property is a leasehold or freehold tenure. They just want convenience and amenities. So lower capital needed means you are getting a better yield.
So what is the key to have a 99 years leasehold property in your portfolio?
Well the key is to refresh your portfolio every once in a while. Maybe like every 10 to 15 years. Which is also usually when 99 years leasehold property reaches it’s peak value. That way you will always have a portfolio that never depletes it’s value due to age.
In conclusion, be it 99 or 999 years leasehold or freehold properties it is not an asset yet until it’s fully paid, and one have to invest with caution so as not to over invest. The tenure doesn’t matter as long as you renew your portfolio and it is at a good location or unless you are aiming for enbloc. Property investment in Singapore can be a investor’s heaven if you invest wisely.
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