Are you looking for yield or are you looking for overall capital gains + Yield?

Assumes that a 99 year property gives a yield of 4% while that of a Free Hold property gives 3%.

Is it still worth it? What if the fall in your property value more than offset what you earned in rental?

Will you be able to get a Singapore property loan? Generally yes for properties which are newer, but as 99 years property ages, getting a home loan becomes an issue, either from a valuation or from a loan quantum perspective. As credit reduces, the capital value of a 99 lease hold property may fall even faster.

If a Singapore Property Investors makes 20k a year in rental for 10 years (making 200k) of a $1m property and after 10 years the property value falls from $1m to $800k. Not to mention interest costs, your efforts would have come to nothing.

As a gauge, Singapore land authority determine the value of a 99 lease hold property using the following chart at “property buyer articles”.

(Adapted from SLA’s Differential Premium valuation calculation)

For a 99 year lease hold property, it depreciates less during the first 33 years, still fetching at least 80% of a similar Free Hold land it drops off very quickly after 60 years.

How to value a 99 year condominium? How does it add up?
• Building cost (plus other building related costs)
• Land cost

What tenors of property and what are the risks?

Under normal circumstances, without any Singapore government policy impetus, a 99 year lease-hold property will continue to lose value until it reaches zero.

If a development (or a condo) wants to top up the lease of a lease-hold property back up to 99 years, it is still subject to SLA’s chief valuer’s valuation of the value of the proposed upgrade.

Can en-bloc happen to a 99 year lease hold condominium?

In case of an en-bloc or simply just a top-up of lease, you would have a difference in values between the existing property and the proposed new one.

So this is how SLA calculates the differential premium. How does SLA calculate DP?

• Differential Premium = The proposed new property value – existing property value.

Under the new ruling in 2007, Singapore government takes 75% of the additional value created (Differential Premium) from the proposed upgrade or development, while the stake holders take 25% of the additional value.

Due to the depreciation of the 99 lease hold properties, the differential premium becomes higher.

When the Singapore government takes 75% of the differential premium, this means that most of it will end up as tax or fees while the stake holders only stand to gain the 25% of the additional value created from an en-bloc or top-up of lease.

And this top up of lease of a 99 years land is not a given. It is entirely subject to approval.

So are you saying that 99 year lease hold condominiums cannot en-bloc?

En-bloc activity for 99 years lease hold properties can still happen.

Scenario 1 – Top up of lease to 99 years + tear down and build a new condo: -
For example, a 99 years lease hold property was sold at $900 per sq feet per plot ratio (psf ppr). The price differential between this property and the free hold property in the same vicinity is very small when new. Say the Free Hold property was $1000 psf ppr.

30 years later, the Free hold property price is $2500 psf ppr.

• At 30 years old, SLA’s valuation rates the 99 year property at 85.4% of a Free hold equivalent property. Assuming that the market also rates the property similarly.

This means that the equivalent 99 year old free hold property is rated at $2500 x 85.4% = $2,135 psf ppr.

Say you want to top up the lease to 99 years and build a new condominium on it’s existing site, the top up value would be $2500 x 96% = $2400 psf ppr. (But 99 years leases top-up is subject to case-by-case valuation by the SLA)

Considering that you would already fetch $2135 psf ppr. If you were to tear down the building to re-build a new condo, you are likely to get $2400 psf ppr and cost of building psf ppr could be $300 to $600 psf ppr. That would mean that the cost already be $2435 or $2735 psf ppr.

So in this case, there is absolutely no impetus for the developer to build or to make an offer to the residents for en-bloc.

The only ways an en-bloc would happen are: -
• The 99 year lease hold building is in a very bad condition. The price being sold on the market is much less than SLA’s valuation of 85.4% of a Free Hold equivalent. This type of anomaly or price distortion makes en-bloc possible.
• 99 years top-up of leases is approved. (There is no guarantee)

Scenario 2 – Top up of lease to 99 years + tear down and build a new condo + Doubling the plot ratio: -

For example, a 99 years lease hold property was sold at $900 per sq feet per plot ratio (psf ppr). The price differential between this property and the free hold property in the same vicinity is very small when new. Say the Free Hold property was $1000 psf ppr.

30 years later, the Free hold property price is $2500 psf ppr. But if you double the plot ratio, that means that you could build double the sq feet of space on the same plot of land. That would mean that the potential price now is $2500 x 2 x 96% = $4,800 psf ppr.

• At 30 years old, SLA’s valuation rates the 99 year property at 85.4% of a Free hold equivalent property. Assuming that the market also rates the property similarly.

Now, with an existing property on the old plot ratio = 85.4% of $2,400 = $2,049.60.

Assuming that building cost would be $400 psf ppr to $800 psf ppr (higher for bigger buildings)

So SLA calculated the differential premium is $4,800 psf ppr (assuming the case-by-case valuation agrees with this value)

So the cost is $2,049.6 and potential value is $4,800 psf ppr.

So the differential premium is around $4,800 psf ppr – $2,049.60 = $2,750.40.

And under the new role in 2007, the Singapore government takes 75% of the $2,750.40. So the cost payable to the Singapore Government is $2,062.80.

So the cost of the renewal of the 99 year condominium is: -

$2,062.80 (payable to the Singapore government) + $2,049.60 (Existing value of condominium) + $800 (Construction cost) = $4,912.40

The cost of building, topping up the lease as well as paying the differential premium of 75% came up to $4,912.40, there is no value to be had from en-bloc in this case.

Given the high development charge of 75% for change of use or for Differential premium, it is unlikely that en-bloc can happen.

Unless there is a change of the Singapore government’s share of the differential premium from 75% to a more reasonable level.

SUMMARY OF 99 YEARS LEASE HOLD EN-BLOC POTENTIAL
So in conclusion, the capital value of a 99 year lease hold property is better obtained from the increase in property prices around the property rather than waiting from any en-bloc or top-up of lease.

This would likely hold true until such time that government policies would change making residential property renewal profitable and happen.

The above are illustrations only. We are not in favour or against 99 years leasehold properties, there are price distortions and opportunities in all types of properties. As long as you can get Singapore property loans and valuations are not stretched and it can meet your personal and family’s needs, you can go ahead. Else you can consult a Singapore mortgage consultant at sms +65-9782-8606 who can help you sort out your home loans.

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Between June to August 2009, despite the recession, Singapore property market has gone crazy and speculative.

Can you get a good deal from Property developers?

It is hard to get a good deal with property developers as they have more information regarding development plans, news as well as their in-house economic team. Property buying is an emotional process. It is due to the fact that it is largely emotional that marketers have tried to whip up buying sentiments. Sustainable sentiments are fine, but sentiments are the most volatile and many people can get burned through a turn in sentiment.

Property agents also get in for the kill

When a condo is to be launched, these days the condominium developer will likely appoint 1 or 2 marketing property agents. These agencies then inform their property agents about the launches and they appoint agents to man the show rooms.

There is nothing too unfair about what the property agents do. They just want to sell the properties they market. Some are very honest, many just simply want to withhold information so that property buyers get hooked.

So do consumers get a choice to the best units and the best prices?

Most good deals are immediately snatched by agents.

For good property deals, Singapore property agents will buy it themselves. They may even ask their relatives to book the condo units and corner the development. These property agents then put up these property for sale again.

Genuine property buyers will have to pay more
Of course you as genuine property buyer, if you like the development, not only you have to pay the developer’s already high asking prices, you will also have to suffer paying easily 5 to 15% more because of these Singapore property speculators if you really like the condo.

This is still not the worst. Genuine Singapore Property buyers are convinced by these agents that banks can match the valuations and they place their 1% deposit.
Because developers have recently launched at very high prices already, coupled by an additional margin by Singapore property agent speculators, the asking prices cannot be matched. This means that genuine property buyers have to top up cash.

Your dream home can end up being bought by someone who has no wish of staying in it

Developerprice = $850,000 (Bankvaluation stretched to match $850,000)

Speculator buys at $850,000 and puts it up again at $920,000 (within days).

What is the true cost of speculation?

$850,000 + $20,100 (Stamp duty) – $8,500 (1% commission for selling property) = $861,600.

Speculator flips it and puts up at $920,000. (Bank cannot match $920,000 valuation)

It’s easy money for property speculator if you can’t keep your cool.

Property agent flipper makes = $920,000 – $861,600 = $58,400.

These agents get wind of the launches and their timings. Sometimes they even go and talk directly to the developer to get a cheaper deal.Many people will fail to get a Singapore home loan and lose their 1% deposit. Luckily for some, they have come to us at www dot propertybuyer dot com dot sg Property buyer Singapore Mortgage consultants at SMS 9782 8606 to do an Approval in Principle for their potential purchase.

How much cash do you have to pay for the Condo?

$58,400 (extra) + $42,500 (5% cash) + $22,200 (Stamp duty) = $123,100

Suddenly you are out of budget by $80,600. In normal circumstances you can pay your stamp duty through Central provident fund (CPF), but because for sub-sale, there may not be enough time to complete the transaction and insufficient time for your lawyers to work with the CPF lawyers to disburse the funds. Instead of using your central provident fund (CPF) to pay for your stamp duty, you will have to first pay it through cash.

Do we have a choice when buying new launches?

It depends on how desperate you are to land that property. There are more than 280,000 condominiums in Singapore. If you are patient you can always find another one as good.

It is caveat emptor. If you don’t want the speculators to come, then you can make a choice to avoid Sub-sale properties of you can check with property buyer home loan consultants SMS (text) +65-9782-8606 to help you conduct some valuation checks to make sure.

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