Freehold vs. Leasehold Property: Key Differences & Types

Singapore Freehold Properties

A freehold property is one that you own indefinitely. In Singapore, there are two types of freehold titles: “Estate in Fee Simple” and “Estate in Perpetuity”.

An Estate in Fee Simple is the highest level of freehold title granted by the state to an individual, with no conditions attached. In contrast, an Estate in Perpetuity is subject to the terms under the State Lands Act. These terms include the state’s right of free access to the land, the right to extract minerals and resources from beneath the land, and the obligation to maintain landmarks.

Freehold properties can be acquired by the government under the Land Acquisition Act of 1966. The Land Acquisition Act gives the government the right to acquire any land in Singapore for public purposes. The government’s compulsory acquisition cannot be challenged, and its decision is final.

Singapore Leasehold Properties

A leasehold property refers to the right to temporarily use and occupy a property through a lease agreement. A leasehold is an interest in land that grants the lessee an indefeasible right to use and occupy the property. At the end of the lease term, the land title and the property revert to the original owner.

A typical example of a leasehold property in Singapore is the public housing flat (HDB). Each HDB buyer enters into a lease agreement with the government, granting them the right to use and occupy the property for 99 years. When the HDB mortgage is fully paid off, the buyer does not own the property but rather has the right to exclusive occupation of the space for the duration of the lease. At the end of the 99-year lease, ownership of the HDB flat reverts to the state.

How to Determine the Title of a Singapore Property?

Every piece of land in Singapore must be registered under the Land Titles System according to the Land Titles Act of 1993 to be recognized by Singaporean courts. Information on land titles can be obtained for a small fee by conducting a simple search in the Integrated Land Information Service (INLIS).

How Can My Singapore Property Become Freehold?

Freehold titles were originally issued by the government. However, the government has stopped issuing freehold titles under the Government Land Sales (GLS) program. Any new projects released by the government are on a leasehold basis. Land sold through the GLS program has lease terms ranging from 15 years (for transitional office spaces) to 99 years (for residential land).

Freehold properties can only be purchased from existing owners of freehold properties.

Is Property Title Important in Singapore?

Freehold properties tend to command a premium for several reasons, including higher potential for capital appreciation due to the limited number of freehold titles issued, immunity from lease decay, and greater autonomy for the owner over the land.

Whether freehold or leasehold is better is debatable. Ultimately, it depends on the owner’s preference. Leasehold properties are more affordable compared to freehold properties. A homeowner who does not wish to commit a large amount of capital or prefers a lower debt burden would opt for a leasehold property.

Freehold vs. Leasehold Comparison

Ownership

The owner of a freehold property has ultimate ownership of the property, whereas the owner of a leasehold property has the exclusive right to occupy the property during the lease term. At the end of the lease, ownership of the leasehold property reverts to the original property owner.

Financing

There are more conditions for using Central Provident Fund (CPF) savings to purchase a leasehold property than for a freehold property. For example, CPF cannot be used to finance any property purchase if the remaining lease is less than 30 years. This restriction does not apply to freehold properties, as the owner has perpetual ownership of the land.

Banks prefer to accept freehold properties as collateral over leasehold properties. This is because leasehold properties depreciate exponentially with lease decay. Furthermore, banks are more inclined to offer a higher loan-to-value (LTV) ratio for freehold properties, as they are considered a safer instrument compared to leasehold properties. With a higher LTV, a buyer of a freehold property can borrow more money relative to a leasehold property buyer.

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