How does aging affect different types of condos? Do freehold condos hold their value better? Does location matter?
An in-depth analysis using EdgeProp’s market trend tool shows that the overall average price gap between freehold and 99-year leasehold condos widens over time. Table 1 below shows the average prices of freehold and 99-year leasehold condos of different ages in 2021. We also compared the average prices of older condos with similar new launch condos and compiled the distribution of the differences.
Note: The overall average price data excludes older condos that have undergone an en-bloc sale to prevent skewing the average prices. The average prices in the tables below are for condo units of various sizes, including older condo units; these units are often larger, so the price per square foot may be lower.
In the first 20 years, the average price difference between new and old condos is roughly the same, but after that, the average price difference for 99-year leasehold condos becomes larger. This is because 99-year leasehold developments have a finite tenure, and are therefore considered to have a lower value as they age.
However, freehold tenure does not always mean the property belongs to the owner and their descendants forever. If a property is successfully sold through an en-bloc sale, the owners receive a windfall, but at the cost of losing a property they thought was theirs forever.
Furthermore, under the Land Acquisition Act, the Singapore government has the power to acquire any land for public purposes, regardless of its tenure. The government has invoked this act to acquire several properties for the construction of roads, MRT stations, and other public uses.
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Collective Sale Potential Drives the Price of Older Condos
A price increase can occur when a condo reaches 31 to 40 years of age. This may be because older condos have stronger potential for a collective sale. Owners of such properties are more willing to consider en-bloc opportunities to avoid paying for necessary estate maintenance and facility replacements, which could mean significant out-of-pocket expenses if the sinking fund is insufficient. Additionally, an en-bloc sale allows owners to realize higher returns. (See condos with collective sale potential)
Interestingly, as seen in Table 1, in 2021, the average price of freehold projects aged 21 to 30 years was S$1,380 per square foot, while similar properties aged 31 to 40 years had an average price that was S$97 per square foot higher (6.6%). The average price of 99-year leasehold properties also showed a similar trend, but with a smaller increase of S$58 per square foot (5.5%), clearly indicating that older freehold properties have stronger en-bloc potential.
Does Prime Location Outweigh Aging?
Location is crucial for a property, but even the best prime locations cannot seem to defy the effects of age. As shown in Table 2 below, the difference in the average selling price of freehold properties across the island gradually decreases in the first 20 years, then drops sharply. However, for freehold properties in prime locations, the sharp decline occurs when the property is between 21 and 30 years old, after which it levels off.
The average price of freehold condos aged 41 to 50 years island-wide is 42.4% lower than similar new condos. For example, the 44-year-old Pandan Valley has an average transaction price of S$1,220 psf, while the upcoming Forett at Bukit Timah has a transaction price of S$2,027 psf. When comparing properties in prime locations, a smaller difference of 41.9% is observed, which clearly shows that older condos in prime locations still enjoy demand and value.
The situation is slightly different for leasehold properties. Although the price difference for condos in prime locations is more severe in the first 10 years, the rate of change for both types of properties is the same when they reach 11 years of age. Please refer to Table 3 below for details.
However, it should be noted that the sample size of older condos decreases with age due to limited supply.
Despite the price differences, both types of properties have roughly the same average selling price when they reach 31 years of age. The average prices for 99-year leasehold properties in these prime locations and elsewhere on the island are S$1,049 psf and S$1,051 psf respectively, demonstrating that lease decay affects 99-year leasehold properties in prime locations as much as it does those in other locations.
East vs. West Comparison
In 2021, the average selling price for new freehold condos in the East was S$2,157 psf, higher than the average price of S$2,030 psf for similar condos in the West. The average prices for the Urban Treasures project along Jalan Eunos and Mont Botanik Residence along Jalan Remaja were S$1,917 psf and S$1,746 psf, respectively. The higher average price in the East may be due to more established and popular residential areas such as Paya Lebar, Katong, Marine Parade, and the East Coast.
Freehold condos in the East appear to be more susceptible to the effects of age compared to those in the West. The average price of properties aged 10 years or less in the East is 33.5% lower than the price of new properties in the region, while in the West, it only decreased by 19.4%. Please refer to Table 4 below.
Freehold condos in the West seem to offer a better value proposition, as they are not only cheaper but also better able to withstand the effects of aging.
In 2021, the average selling price for 99-year leasehold properties in the West was S$1,778 psf, higher than the S$1,733 psf for 99-year leasehold properties in the East. The average prices for Clavon along Clementi Avenue 1 and Treasure at Tampines along Tampines Lane were S$1,634 psf and S$1,414 psf, respectively.
Unfortunately, the picture becomes less clear when we examine the prices of older properties in these two regions. As shown in Table 5, properties in the East aged 10 years or less are more susceptible to lease decay than those in the West. However, the effect of lease decay on properties in both regions is equal between 11 and 20 years. After that, lease decay has a greater impact on condos in the West.
Therefore, buyers of 99-year leasehold condos 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 horizon might consider the West.
Key Takeaways
- A property’s age affects its price, regardless of whether it is freehold or 99-year leasehold, especially after it exceeds 20 years.
- Property investors and buyers looking to profit should consider purchasing new properties, as age is a major factor affecting property prices.
- However, condos aged 31 to 40 years are considered to have greater collective sale potential, which drives up their prices.
- Freehold properties withstand aging better than 99-year leasehold properties because they are perceived to have a longer tenure.
- Properties located in prime districts 9, 10, and 11 are still affected by lease decay. While a prime location does not eliminate this effect, it helps mitigate the price decline, especially for freehold properties.
- Compared to condos in the East, freehold condos in the West have lower prices and are better able to withstand the effects of aging. However, the East may be more suitable for those looking for a 99-year leasehold property and planning to hold it for more than 10 years.
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