What Happens When Your Lease Runs Out? - emilinda

Sunday, May 13, 2018

What Happens When Your Lease Runs Out?

Land ownership in Singapore can be split into two main categories of tenure: freehold and leasehold. Freehold properties, where ownership is indefinite bar repossession by the government, are a precious luxury in land-scarce Singapore, so most land tiles are leasehold. Leasehold properties in Singapore typically have either 999-year or 99-year leases. 999-year leases are more akin to freehold properties in nature, so typically the only worrying of the lot is the 99-year leasehold properties.

Depending on your objective of property ownership, a 99-year leasehold property may or may not be the one for you. If your aim is to purchase a home to enjoy your forever in, and to be passed down through generations, a 99-year lease is definitely not the one for you. However, if you’re thinking of other uses for the property, such as for investment purposes, or you’re content to simply enjoying the home for your lifetime and leaving your kids to be independent and fend for themselves, then a 99-year leasehold can be seriously worth considering. You can visit https://www.propertyguru.com.sg/singapore-property-resources/singapore-buy-property-guides/how-the-remaining-years-of-a-property-can-affect-its-price to learn more about how the remaining tenure on a property can affect potential prices and in turn, your investment goals.

When it all boils down to it, the main difference between a freehold property and a leasehold property is that leasehold properties have a limited legal lifespan. Thus, the question that people often ask is what happens to property when the lease runs out? What rights do owners of these types of properties have at the end of the tenure, when the land title invariably reverts to its original owners?

What happens when the lease expires?

In Singapore, more than three-quarters of the land is state-owned. The Singapore Land Authority holds the land in trust as custodian of the land. The remaining two-quarters comprises of pockets of freehold land held by a variety of owners including other government departments such as HDB, JTC, PSA as well as by private owners.

When a 99-year lease expires, ownership of the land reverts to the state. This means that the rights of any property owners during the term of the lease are effectively extinguished. In other words, property owners enjoy ownership and all that comes with it only during the term of the lease.

However, you might think that property owners will surely be entitled to fair compensation for any buildings or homes that remain on the property, as it is the land title that reverts, not the development on it. Unfortunately, not. The reality is that the state has no obligation to reimburse property owners with any sort of compensation at all. This might be a tough and somewhat unfair, but this is in accordance with land laws.


What options do property owners have?

When a 99-year lease expires, property owners have two choices.

The first choice is to top up the lease on their land by paying the government a premium for the lease term extension. Property owners can apply to the SLA for an extension of their lease back up to 99 years. This, of course, comes with the payment of a land premium – sort of rent for the extra time on the land. The amount of this premium varies on a case-by-case basis, as each application is assessed by the SLA’s Chief Valuer independently and must take into account all factors, including the number of years remaining on the lease.

It is thus up to the prerogative and discretion of the SLA on whether the application for lease extension is approved or rejected. Before coming to a decision, the SLA will consider various factors for the lease in question, such as whether any extension given would fit in with the government’s long-term intention for the land, whether the extension of proposed use would optimize use of the land, etc. In any case, a successful lease top-up will allow property owners the right to continue occupying the land for the duration of the renewed 99-year lease.

This may or may not be the ideal option, as unfortunately, the land premium charged by the SLA may make this option exorbitant and far too expensive for the everyday individual. Rather, this route is usually taken up by companies, developers, or other privately-held entities that are able to afford it.

The second choice is to sell their property to a third-party developer. This is through a collective (or en bloc) sale. This option is favored more by individual homeowners because it pushes the hefty obligation of the land premium payment onto private developers or companies that are able to afford it.

The downside, however, is that by selling the property, owners are selling off their land titles and will no longer enjoy the rights of land ownership. This means that they will no longer be able to stay on the property, as the rights to the lease will be transferred to the developers instead. What property owners do get, however, is proper compensation for their property. This would not have been possible had they just let the lease simply run its course.

Often, en bloc sales can net homeowners a hefty fortune in compensation. For example, in 2007, the sale of Farrer Court Apartments, which had a total of 618 apartment units, were sold for a total of $1.399 billion dollars. This means each homeowner received a $2.122 to $2.238 million-dollar share.

The verdict?

So, is a 99-year property a smart investment or a money pit? That remains to be seen. Whether you already have a 99-year lease on your hands, or you are considering purchasing a property with a 99-year lease, make sure you take into consideration all possible factors before you make any decision. As they say, in real estate, you need to think ahead.

19 comments:

  1. I prefer freehold. The leasehold term for only 99 years and it short duration of time. If for long term investment I freehold land more worthy.

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  2. I also prefer freehold. Tak payah susah payah apply and the property price for freehold higher than leasehold.

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  3. akak prefer freehold sebab jarak masa agak singkat compare leasehold. Untuk pelaburan jangka panjang pun seeloknya freehold.Kena fikir betul kan? tak boleh main beli atau decide macam tu je..

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  4. Thanks sharing this information. I'm lack of knowledge about property and investment. This article help me a lot

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  5. Kat Malaysia ni ramai yang suka freehold. Sis pun kalau nak beli rumah memang cari freehold punya, senang dan tak menyusahkan untuk renew2 dan tak menyusahkan anak2 akan datang. But nak cari freehold sekarang susah nak dapat di area yang sis suka.

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  6. Wahhh ! Terlampau berat utk fahamkan mengenai milikan hartanah buat masa skrg. Kena gali lebih banyak ilmu pasal hartanah nie. Apa2 pon, mmg freehold lah yg akan dipilih kerana ia lebih membawa kebaikan kepada pemilik

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  7. Antara freehold dan leasehold, akak pilih freehold. Tapi kan even kita freehold pon kalau la kebetulan kerajaan nak mengadakan pembangunan di tanah tersebut dia ada hak. Kena bayar pampasan la kat kita.

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  8. Mana-mana pun akan prefer freehold. Leasehold ni at the end of the day kena banyak benda nak kena taken into consideration. Tapi kat singapore kebanyakkannya lease hold kan?

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  9. Saya pilih Freehold sebab memudahkan pembeli untuk masa akan datang, Betul yang Ezna katanya kalau Kerajaan nak ambik hak kita, memang kena lepaskan janji kita diberi dan dibayar pampasan atau diberi kemudahan rumah di tempat/kawasan lain.

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  10. In Malaysia, there are also two types of land and land owners. The village area itself is not a permanent property but it's been a long time ago.

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  11. My parents' home in Malaysia is leasehold, bought from the owner who cannot pay the 99-years term. It's a bit of a hassle compared to freehold home. I prefer purchasing freehold home, which after the loan period is paid off, will be completely mine. I've never heard of Singapore's housing term before but now I do. Thanks for sharing

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  12. i still prefer freehold then. this is one very knowledgeable article which i should share with my friends. not many people know about leasehold.

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  13. perihal hartanah ni kena banyak kajian..perlu ada ilmu sebelummembeli..ramai yang suka jenis feehold bandingkan dengan hakmilik untuk bilangan tahun tertentu

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  14. Thanks for sharing, I agree we really need to think ahead before getting a property, both leases has it's pros and cons really need time to weigh it down before making any decision.

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  15. Banyak lagi kena belajar tentang ilmu property ni. Nak komen banyak tak boleh. Hehe. So dengan umur macam ni dah sampai masanya untuk belajar lebih mndalam lagi

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  16. Freehold is better as always... But sometimes if the location we wan dun hv freehold.. terpaksa lah get leasehold.. Very informative post..

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  17. oh wow...i didn't know the difference before this at all. Lucky I came across this post. So means its best to just find freehold lands and properties...Got it! Thanks for the info!

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  18. Betul, penting untuk cari siap-siap atau update pasal agreement rumah sewa kita. Tapi lebih baik beli terus je kalau mampu.

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  19. Interesting...Are there still freehold properties for individuals offered in Singapore? I think lease yg 999 pun susah nak dpt skrg ni, even in Malaysia yg penuh dgn tanah.

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