Buying leasehold is one thing but what about a property with just a 60-year lease?
That surely is stretching things. Well, maybe.
Like many people, I have always leaned towards freehold but I may well be proved wrong by a small site at Jalan Jurong Kechil that has such a lease.
The tender was awarded to Aspial Corp's unit World Class Developments (North) for $73.8 million recently.
Yes, Aspial is a jewellery company but it has a property development arm.
The site is about 152,848 sq ft and it was specified that it could be developed for residential or retirement housing.
It was remarkable that it attracted 23 bids, an unusually large number of developers getting in on the game, especially given the lease is much shorter than the usual 99 years.
World Class has yet to reveal its design plans but already there is much interest online in what the development will be like.
Now that shoebox flats are passe, it seems developers think that shorter-lease projects will be the next big thing.
Consultants and property agents say that many people are coming to the market with a budget of $1 million to $1.2 million.
A 60-year leasehold unit can be priced at perhaps a 20 per cent discount to one with a 99-year tenure.
This means - if you adopt a back-of-the envelope calculation - spending $800,000 for the same apartment that would have cost $1 million.
For a buyer, especially for retirement housing, this makes sense as it means an extra $200,000 for expenses and other investments.
However, it is not entirely a no-brainer as it would partly depend on how long you live and how much spare cash you have.
The value of a 60-year apartment runs down quicker than for the 99-year property.
Assume you bought it when you were 40. By the time you are 70 and need the money, you may have lost the option of cashing out of your main asset since it may not be worth that much.
Conversely, if you were able to afford the $1 million on a 99-year lease, after 30 years there will be more value for you to realise if you do need to sell and downgrade.
It is a similar decision for an investor weighing up between the 60-year and a 99-year leasehold apartment.
As the yield is based on the $800,000 capital sum, a 60-year leasehold flat will offer better returns.
After all the tenant is not going to value the apartment based on the tenure of the land.
However, if you look at the financing aspect, an investor may also end up having to pay a higher interest rate and being able to borrow less simply because banks are unwilling to finance this relatively shorter lease.
A good response when the Jalan Jurong Kechil site is launched may mean buyers are becoming more open to different lease terms.
It may also encourage more such sites with shorter lease terms to come onto the market, giving home owners more options.
This will bring the Singapore system closer to Hong Kong, where homes are often sold with 50- or 60-year leases.
However, to my mind, apart from the drawbacks of shorter leases, there are also risks from how the developers go about pricing the project.
Although prices for a 60-year lease may be lower than for a 99-year lease, the question is how large is the gap and how fast it may close.
Looking at the enthusiastic response from developers, in future they may aim to price it lower than a 99-year leasehold property, but not as much as 20 per cent cheaper, as long as they think there will be demand.
While a shorter lease will make sense at the start for the buyer because it is cheaper, there are drawbacks that arise 30 or 40 years down the road.
Think through this buying decision carefully. Given that life expectancy is getting longer, this may well be a problem that will come home to roost sooner than one thinks.