We have always questioned how the age and tenure (freehold and leasehold) affect the capital appreciation of private condominium, in turn, affecting our return on investment in our real estate investment. In this study, we have analysed data made up of 87 private condominiums to determine how the age and type of tenure (freehold and leasehold) has affected the capital appreciation of the condo in the last five years.
These 87 condos were picked over 2800 condos in Singapore as they have annualised capital growth of more than 3% over the past five years and have more than 180 residential units. Note, in this article, the age of the property is the number of years from the year of obtaining temporary occupation period (TOP).
Here are my findings:
How does the age of property affect capital appreciation?
From the studies of the 87 private residential properties, the younger developments take up a more significant share in the game of capital appreciation. In essence, 32% of the properties that have at least 3% annualised capital gain over the five years are ten years and below.
If we break that particular group down in 0 to 5 years and 5 to 10 years group, a whopping 86% is are properties age five and below. This observation would imply that the younger the development, the odds of capital appreciation of the property increases. In other words, if you are planning a 5-years investment horizon in real estate, you should consider getting a brand new private condo.
Capital Appreciation – Freehold vs 99 Years Leasehold
From the standpoint of tenure, 99-years leasehold and freehold have equal chances of good capital appreciation, and each takes up 45% of the market share. But we can technically add 999 years property to freehold category as practically, we cannot outlive 999 years as of today’s scientific prowess. So, with 999 years condos added to freehold category, it would make freehold and 999 years leasehold properties a more attractive proposition.
Before you head out to buy a brand-new freehold private condominium (oh ya, if you are looking at new launches, you may check out this page “New Project Launches“), ok, back to topic, please read further as things get more interesting when we break down the age of the properties into their respective tenures.
How does the age of freehold and leasehold private condominiums affect their capital gain?
Capital gain of freehold property vs age of the private condo
From the statistics, freehold properties (includes 999-years leasehold) performed well when they are into their 11 and 30 years. This age group formed 71% of the freehold properties that have at least 3% annualised capital gain over the past five years. In other words, if you are planning to have a real estate where you plan to hold for long or perhaps uncertain about the short-term economic outlook, freehold property may be the property you may want to consider. My rationale for this observation is that freehold properties are usually priced higher initially, but given enough time, it will appreciate over time. However, as it age passed 30 years old, the age of the property will catch up with it where the facilities will be aged, facets will be dated and, hence, appeal less to buyers.
Capital gain of 99-years leasehold condo vs age
For 99-years leasehold condos, unlike freehold condos, the younger condominium form bulk of the properties with more than 3% annualised capital gain over the past five years. Interestingly, leasehold condo over 31 years old takes up a more significant market share of good capital gains compared to leasehold condo between 11 to 30 years old. Peering through the raw data, properties over the age of 31 years have at least 4% of capital gain over the past five years. Can you guess why is this observed?
In general, brand new or newer leasehold condominium experience better capital appreciation than a brand new freehold condominium. However, as time passed, the role is reversed, with freehold condominium gaining momentum on the capital appreciation and leaving leasehold properties in the dust. However, selected few leasehold properties with en-bloc potential will pick up speed and surpassed the capital gain of freehold properties when the age of condo is above 30 years old.
So, to decide if new or old, freehold or leasehold condominium is suitable for you, you have to establish your investment horizon, expectation and strategies. With that, I hope this article will benefit you in some ways and good luck in finding your “gem” soon.
In my seven years of real estate career, I have seen many property owners losing their money or have their money stuck in their property investment. Mostly because of bad decisions made based on lack of information, bad advice and unchecked emotions. I would love to meet up with every one of you and help you in your real estate journey, but this may not be possible. So, I have started this blog to share my insights and hopes they will help you make a better decision.
If you are ready to begin your rewarding real estate investment journey with me, Whatsapp me today at +65 9004 5827, till we meet, good luck in your real estate investment journey.
If you like to work out your own analysis, click here to download the raw data I’ve worked with.
Data extracted using SRX Analyzer. This article is purely for information only. You should not make your decision based solely on the information provided. There are other factors such as distance to MRT station, upcoming developments in the estate, rental yield, quality of build of the condominium, etc. that would affect the investment potential of the properties. As such, please consult your trusted real estate salesperson before making any purchasing decision.