Shorter Leasehold Homes – A New Market Niche?

I was admittedly shocked when I first caught wind of this particular deal – an option inked at $1.75M thereabouts for a 2-storey landed home in Upper Bukit Timah. Making a fuss over nothing? The house was situated upon approximately 3,300 square foot of land, with a balance lease of roughly 38 years. That’s akin to $3,800 per month in rent for 38 years, paid upfront!

Shortly after, Ms Lee Su Shyan, Money Editor of The Straits Times, highlighted in “Weigh the pros and cons of shorter leasehold homes” (16 December 2012) that a 60-year leasehold plot at Jalan Jurong Kechil had attracted 23 bids from interested developers. The 152,848 square foot site was ultimately awarded to World Class Developments (North), the property development arm of Aspial Corp, for $73.8 million. URA’s info on the Jurong Kechil tender exercise.

Image courtesy of Onemap.Sg
Image courtesy of Onemap.Sg

To my mind it was no longer just a single quirky home-buyer but 23 developers, a trend appeared to be developing! My interest in shorter leaseholds was piqued. Was there something I was missing?

If you’ve been reading our blog from the beginning, you’ll know that while I do favour leasehold properties for cashflow purposes, I generally shy away from anything with less than 60 years balance lease. For one, most banks require at least 30 years remaining lease on the property upon the expiry of the loan tenure – this means that you can take a 30 year loan on a 60-year leasehold, but only a 27-year loan if you wish to re-finance the loan 3 years down the loan, with the maximum loan tenure diminishing with each passing year. Evidently, banks consider such properties risky, unattractive collateral, and I certainly don’t argue with that view.

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