What Can We Learn From The Worst Performing Freehold Condos In Singapore In 2024?

Some Singaporeans still insist on buying freehold properties, if for no reason beyond a sense of permanence (one that isn’t well-founded, as many freehold condos tend to go en-bloc just like leasehold counterparts.) This sometimes creates the impression that freehold properties are somehow infallible or have a money-making guarantee. This week, we’re going to look at how that’s not necessarily true and at the traits shared by some of the worst-performing freehold projects of 2024:

A look at the bottom-performing freehold projects of 2024

1. Freehold status doesn’t make up for the boutique effect

Two hallmarks of a premium property are freehold status and exclusivity. However, based on the above, exclusivity may be more of a liability than an advantage. Almost all condos above are boutique, or have very low unit counts.

Urban Resort has only 64 units, The Lumos has only 53 units, CityVista has only 70, and Orchard View only has 30. The largest among them is Scotts Square, which has 338 units (mainly smaller 1 and 2-bedroom units aside from the largest 3-bedroom).

While a boutique condo has more exclusivity and privacy, resale gains are more volatile. This is due to the lower transaction volume and the effect of price anchoring (e.g., if there’s only been one transaction in the entire year, then that transaction will have an outsized impact on your listing.) This volatility means you might see an outsized return – but you might also join the above sellers, with losses ranging from $1.1 million to over $2.5 million.

Besides low transaction volumes, boutique projects lack the land space for more lavish facilities. Most boutique projects, for instance, don’t have multiple pools or tennis courts. This might also play a role in the subsequent demand.

So, if you insist on a freehold property, you may be better off selecting a mid-sized or larger freehold project, even if it’s not in a prime district. Perhaps, especially if it’s not in the prime district, based on our follow-up point.

2. All of them are in a prime location

Except for St. Regis (District 10), all underperformers above came from District 9. This may come as a shock to some, as it used to be that the premium districts were able to hold their own in terms of pricing.

However, there are several factors that turn this into a potential drawback:

The first is a recent policy change. The latest round of cooling measures rose ABSD rates to 60 per cent for foreigners. Affluent foreigners make up a significant buyer pool in Districts 9 and 10, which may explain the districts’ weaker showing in 2024. We don’t know how long it will take for the market to adapt to this.

The second reason is the high initial price point. Note that all of the above transactions, except for Orchard View, were new-to-resale. The quantum was already high when these units were purchased from developers, leaving limited room for appreciation. The problem of a high intial price is more pronounced for freehold properties, as you’re inherently paying more for the freehold status.

The third is a matter of contrast. Almost every property in District 9 or 10 is freehold. None of the above properties can stand out based on lease status. On the other hand, a freehold project amid a sea of leasehold projects can stand out in a more positive way.

This all suggests that if you’re looking for a freehold project, you might do well to cast your net into the OCR or RCR for now.

3. The losing transactions are almost all new to resale

Losses from new-sale to resale should be rare. For instance, the whole reason for buying early from developers is to get early-bird discounts or buy in early before prices are staged up. In most cases, this effectively nets you a profit when the developer “normalises” prices in later sales phases.

But we can see that in the above example, only one transaction (Orchard View) was resale-to-resale. Buying new prime-area freehold properties can still lead to substantial losses later. It’s worth considering if the sales team claims you’re getting it at a safe price.

That said, it’s fair to add that – because the unit counts were so low – there may have been no price differentiation between earlier and later sales (from the developer.) If so, it’s another reason to pick bigger freehold projects with higher unit counts and tangible discounts in earlier phases.

4. Even a 17-year holding period may not be long enough

Most people buying freeholds are warned that it entails a longer holding period.

The point of freehold property is that, as the years drag on, a 99-year property will start to depreciate from lease decay. However, the freehold property will continue to appreciate or at least hold steady in price. If you intend to hold on for a short time, such as five to 10 years, you may as well buy a leasehold property and avoid paying the freehold premium.

The sticky part is, how long is long enough when it comes to the holding period? Let’s take a look at the holding periods of the underperformers above:

For those with holding periods of 12 years or less, we can’t say we’re surprised. However, the CityVista, St. Regis, and Scotts Square transactions all had holding periods of above 17 years. Given the degree of the losses, it’s hard to be sure that adding a few more years (e.g., raising it to 20 years) would have made much of a difference.

This could suggest that, for some condos where you’ve bought in at a high, for the freehold premium to pay off, you’d need to hold on for a longer time horizon than even 17 years. Alternatively, it could mean that when you have a specific combination of traits (i.e., freehold, prime location, and boutique), even a long holding period might not save you from losses/weak gains.