In this article, we explore some easy calculations that you can do to aid you in comparing the values of leasehold properties.
If you are deciding between buying 2 leasehold properties in a similar location, calculate the
Implied comparable PSF of the older property = Asking PSF of the older property x Remaining years on the lease of the newer property / Remaining years on the lease of the older property
and compare it with the current market value PSF of the newer property. You can use the current asking PSF or the last transacted PSF of the most comparable unit in the newer development as a proxy.
Let’s use Lutheran Towers and The Siena which are both leasehold condominiums at Tan Kim Cheng road as an example.
Lutheran Towers has a 103 lease from 1974 and The Siena has a 99 year lease from 2013.
The lowest asking price of a 1950 sqft flat in Lutheran Towers is S$1.8m or S$923 psf. The Implied comparable PSF is S$923 x 94/59 = S$1,471 compared to the last transacted PSF of S$2,174 for The Siena.
There are a few ways to interpret these figures. If you feel that the quality and the facilities of the Siena justify the 33% premium, then The Siena might be a better buy for you. However, if the Implied comparable PSF of Lutheran Towers is higher or just slightly lower than the current market value PSF of The Siena, then it may imply that the asking price of Lutheran Towers is too high as it is a much older development with hardly any facilities. In this case, you may want to negotiate the pricing with the seller. If you feel that S$1,471 PSF will not allow you to buy any properties near Tan Kim Cheng road, you may feel that Lutheran Towers still offers good value for the location although it only has about 59 years left on the lease.
If you are deciding between renting or buying the same leasehold property, compare the
Total mortgage instalments over the loan instalment period vs. the Total monthly market rate rental until your expected death
Clearly, people buy their own properties for their own reasons which may be due to family, sense of home, not wanting to rent from others or other reasons. However, from a pure financial standpoint, the monthly mortgage instalments might be much higher than the monthly rentals, especially for private properties.
By paying off a 99-year leasehold property in 25-30 years, you are essentially prepaying the remaining lease period of 60-70 years for your descendants during your lifetime. If you do not care about leaving an inheritance for your descendants, renting might reduce your financial burden by removing the need for the high upfront deposit and reducing your monthly property-related outflows.