Updated: Dec 28, 2022
Landed properties are one of the most exclusive forms of private housing in Singapore; not many enjoy the privilege of owning these properties. As such, there are a lot of myths and rumours that come from the mystique of landed housing – some are half-truths, some have grown obsolete over time. Here’s a clearer look at the landed housing market as it stands, as of end 2022:
Myth #1: Only freehold landed properties are worthwhile investments
It’s true that, over a long term, freehold properties tend to appreciate better than leasehold properties – this is simply a fact of lease decay. But that doesn’t mean that leasehold landed properties are poor investments. Rather, it depends on your overall investment strategy.
Consider, for example, an investment strategy that’s based on rental yield rather than pure gains (e.g., you intend to rent out the property, rather than just live in it and sell it at profit later).
A key differentiator here is that, unlike a buyer, tenants do not care about the leasehold or freehold status. To put it in context:
As of 2022, it’s quite possible to get a rental rate of around $4.80 psf. Assuming a 3,200 sq. ft. unit, this is a gross annual rental income of $184,320.
If the unit is a leasehold landed which costs $5 million, the gross rental yield is ($184,320 / $5 million) / 100 = 3.6 per cent.
Now if the unit was a freehold landed property, the total cost would definitely increase – it’s fair to assume around a 20 per cent premium, of about $6 million.
Would your tenant pay more for your freehold status?
The answer is almost definitely no, as whether or not it’s freehold is irrelevant to them; so you will still get around $4.80 psf.
So for the freehold counterpart, your gross rental yield would be ($184,320 / $6 million) /100 = 3.07 per cent.
While the freehold property will appreciate better over 15 to 20 years, we shouldn’t forget to factor in the added rental yield, if the property is let out.
Besides this, there are some investors who are not interested in resale, but aim just to collect rental throughout their retirement. In these cases, you may be pursuing a cashflow-positive strategy (i.e., the rental income more than covers any ongoing costs).
A retiree may not mind purchasing a cheap leasehold landed with 50 years remaining, for instance, if it will provide continued rental income for her twilight years, over and above the costs. Such assets can complement other retirement products, as rental rates tend to rise with the cost of living (thus providing income that keeps pace with inflation).
So this myth is something of a half-truth. If your intent is to profit purely from long term resale gains, without any rental, freehold does tend to outperform leasehold. But if rental income is part of the strategy – or if you intend to hold for short periods like five to 10 years – leasehold properties can equally viable investments.
You need to have a coherent property wealth plan, to determine whether leasehold or freehold landed is right for you.
Myth #2: Landed properties are the most expensive to maintain
This is highly dependent on the property: some landed homes have managed to stay in great shape for decades, whereas others may experience serious structural problems (in which case it may be better to tear down and rebuild the home).
Newer landed homes, built over the past decade or so, tend to be more cost-effective to maintain. This is due to improved sustainability standards, along with better materials and contractors, compared to homes built in earlier eras. Buyers today can also look for a CONQUAS score – a rating for the property’s maintainability and quality.
(For homes built in earlier eras, you should contact a qualified professional, like a contractor or valuation firm, to check the maintainability.)
Also, if we say a landed property is “expensive” to maintain, we should make a fair comparison to condos. In most non-landed private homes, you would typically have to pay the MCST around $1,000 to $1,200 per quarter. For luxury condos, this may be the amount you pay per month. A condo also forces you to pay for things you may not use, like the private elevator or concierge.
A landed home and a luxury condo may both tie for initial price, but don’t be surprised if the condo’s monthly maintenance fees end up being pricier.
It is true that keeping a landed home clean can be a more labour intensive though, as you have more to mop and dust in such a large home.
Myth #3: Cluster housing is the worst form of landed property
Some buyer complain that cluster housing is not “true” landed property – they can’t do as they will to the façade, and must still live within MCST rules. Also, some (but certainly not all) cluster housing can be quite densely packed, so may not give the full sense of privacy.
However, these are advantages to cluster housing, that may even make some buyers prefer it. One example of this are common facilities like the pool: even if some landed properties allow for one, maintaining a pool is labour intensive, and may not justify the cost. Likewise, some home owners may be unable to maintain landscaped areas, and the external façade of the building by themselves.
Some home owners may also want 24/7 security – such as those who have experienced break-ins before, and are still emotionally shaken.
Cluster housing also tends to have a lower quantum than freehold landed counterparts – so it can make more economic sense for some buyers. It’s best to make decisions on your lifestyle and home ownership needs, rather than on generalisations about a subset of properties.
As a practical example of this, I recently helped a client to purchase a cluster housing unit, after they right-sized from a semi-detached house.
After viewing Executive Apartments and Executive Maisonettes, they turned these down in favour of cluster housing. The cluster housing unit was the closest in space and lay out to their previous landed home; and it added the convenience of being close to an MRT station, as well as having a pool and BBQ facilities. This allowed them to continue having regular cook-outs and gatherings.
Myth #4: Landed properties are bad for rental
It can take longer to find a tenant for a landed property, as a higher level of income or housing allowance is needed. Likewise, rental yields for landed properties may appear lower than condos, and almost certainly lower than HDB flats.
(This is simply maths, as rental yield is annual rental income divided by price; so the cheaper the property the higher the yield will be. Hence, HDB flats will almost always top the charts for rental yield).
However, this perspective leaves out some unique strengths of landed homes as rental assets.
First, the tenant demographic for rental properties are usually well-heeled expats, or tenants who are on corporate housing allowances. Due to their income level, these are tenants who are unlikely to be late with payments, to default, or to break leases. Landlords who abhor chasing payments will appreciate dealing with this tenant group.
In a recent example, I just helped two expatriate families – one from the UK and one from Australia – to find rental homes. These were C-suite executives, and hence desirable and low-risk profiles for landlords.
Both families did not opt for condos: they were used to the spaciousness of landed homes, with plenty of yard space. One family practically required this, as they had two big golden retrievers, and the dogs needed running room and the pool to cool off in.
Second, landed properties are in low-density enclaves, and supply of landed homes is lower than that of any other housing type. This is quite different from ubiquitous properties like HDB flats. There is, for instance, a higher risk of another HDB or condo landlord renting out their unit for cheaper than yours – maybe even within the same development or even the same block. (This is especially true for big projects, with 1,000+ units).
With landed properties, surrounding competition is seldom as intense, and has less risk of degenerating into a “price war.”
Third, landed properties are often rented by family units, rather than the occasional single or pair of roommates. Family units are more “sticky” – once their children attend school in the same area, or they have taken efforts to furnish the property (if you provide it unfurnished), they are more reluctant to leave.
A successful landlord is one who considers all practical factors, not just a single number like the rental yield. Taking this approach, we can see it’s too simplistic to dismiss landed assets as “bad for rental.”
For more on landed properties and how they’re best used as assets, reach out to me on Max Properties. I can help you to determine which landed properties today best match your goals, be it passive income, retirement, or pure home ownership.