Tag Archives: Leasehold estate

Homes sold as leasehold tenures on freehold sites

Owners of The Shore Residences may be unaware that they are part of a small group to have bought units sold with leasehold tenures, though the developer owns a freehold land title.

The 408-unit condominium in Marine Parade got its temporary occupation permit in January.

Its developer Far East Organization in 2009 took the rare step of selling units with a 103-year lease even though the land is freehold – a scarce commodity in Singapore.

Experts say the move allows a developer to retain the freehold land for redevelopment later, rather than selling away the title.

Far East acquired the site of The Shore Residences through a collective sale of the former Rose Garden, which was freehold, for $169.8 million – or $423 per sq ft (psf) per plot ratio (ppr) – in August 2006.

The unusual approach to lease tenures is not the first such instance here, property consultants said, but it is not common.

Experts estimated that freehold homes could command a premium of about 15 to 20 per cent over similar leasehold units, so developers who sell such homes do not get the land’s full value. The units are more affordable, as a result.

And as younger buyers become more receptive to properties with shorter leases, these units are attractive because their lower prices mean a higher rental yield compared with freehold units.

But buying such a property could become thorny, noted Century 21 chief executive Ku Swee Yong, as any eventual en bloc sale requires the land owner’s consent. Even if the green light is given, he is not obliged to extend the tenure, and the fees required to do so would be at his discretion.

Such a development strategy is preferred by family-owned businesses, who are less concerned with delivering results to shareholders, as opposed to listed firms. They can possess freehold land through collective sales or inheritance.

“Developers which are not listed, including those which are family-controlled, would have more flexibility in adopting the practice of selling leasehold tenures while retaining a freehold reversionary interest,” said Mr Ong Teck Hui, national director of research and consultancy at Jones Lang LaSalle.

Far East – owned by the Ng family – for instance, has also developed the 103-year leasehold Greenwood Mews in Greenwood Avenue and Cabana in Sunrise Terrace, which are similar cases. The firm is believed to be the first to develop leasehold properties on freehold sites that it owns.

Freehold sites are a precious resource in land-scarce Singapore, so carving out shorter leases for sale would ensure that ownership of these “legacy parcels” is retained, noted Ms Chia Siew Chuin, director of research and advisory at Colliers International.

Similarly, the State holds land in trust for Singapore, and sells it on a 99-year lease to developers. This recycles land resources for future uses as the country evolves, added Ms Chia.

While there are no conclusive records on the number of leasehold properties on freehold land – or which was the first to be built – Knight Frank data showed that one such shophouse in 48 Arab Street started its 99-year lease as far back as March 1952.

Similar properties that have been in the spotlight include the 99-year leasehold Spring Grove condo in Grange Road, which sits on the former residence of the American ambassador. Sim Lian Group’s 99-year leasehold Rochelle at Newton in Keng Lee Road, which is on freehold land owned by the Chui Huay Lim Club, is a similar case.

Mr Lee Liat Yeang, partner at Rodyk & Davidson, noted that while there are no rules on how short a property’s tenure should be, developers sell homes at new launches with at least a 60-year lease to meet financing requirements. “In today’s context, where pricing determines successful take-up, a 99-year lease is universally accepted and provides an affordable entry price for buyers,” added Mr Donald Han, managing director of Chesterton Singapore.

Souce – STProperty


How to Maximize Your Property’s Rental Yields

When I raise my rental income, I do it with my eyes closed. The minute I look in my tenant’s sad, watery eyes, I end up feeling like a war criminal. Or maybe I’m just lying, and won’t admit I’m a spineless wuss who backs off when they threaten to “leave and set fire to this dump”. (Hint: I go there with a fire extinguisher). But both ways suck, so how do you maximize your rental yields?

So for another $500 a month, the front door will actually lock?

The Three Methods

There are three methods for a landlord to maximize rental yields.
These are:

  1. Raise Rental Income (Difficult)
  2. Decrease Vacancies (Somewhat challenging)
  3. Decrease Overheads (Easiest of the three)

The third method should be constantly reviewed. You want to be keeping overheads down all the time. Here’s some pointers on each of the three:

1. Raising Rental Income

There’s plenty of ways to raise rental income.  Exactly zero of them are easy.

It usually involves high capital expenditure, because it means splurging on upgrades and extras. And there’s no guarantee what the returns will be. Some ways to raise rental income are:

Just Raise the Rental

Straight up ask the tenants for more money. Because you’re in this to make money, not friends.

Before doing this, check rental rates in surrounding properties. You might get away with charging more than other landlords, if you have the right justifications. But frankly, even charging 10% more is a major challenge. Getting money from tenants is like pulling teeth from a live tiger.

If you don’t have time to research and bargain, consider getting a property agent to do it for you.  At the very least, get them to run a rental appraisal.

Interior Design

The right renovations could raise rental income. But this is hard to quantify. I can’t tell you, for instance, that marble counter-tops will raise your rental income by $X per month.

Most renovation packages cost about $30,000. If the designer has an unpronounceable or vaguely French name, it’s probably triple that. So even if renovations do raise your rental income, it might be a while before the rent covers the design costs.

I asked property investor Charlie Sng about renovations:

“You can raise your rental income by providing a fully furnished unit. So go for an inexpensive design, one that provides all the tables, chairs, cupboards and whatnot.  But don’t go overboard. No point paying $100,000 for a top designer, because there’s a cap to how much rent you can charge. I think a lot can be done with $20,000.”

Charlie says a “nicer” unit could have higher rental rates; up to 10% higher than surrounding properties. But again, no guarantees.

Upgrade to Match Tenant Needs

Protip: Avoid tenants who use words like “splatter-proof”.

You can do this if you know your tenants’ demographic (e.g. Are your tenants mostly students in a nearby University? Expat white collar workers? Blue collar workers?)

Try to include features that demographic will appreciate. Property agent Marcus Seet says:

“Students tend to appreciate things like Wi-Fi or cable channels. Retirees not so much. So if I know I have good catchment for that demographic, I might consider bearing the cost of such things.

In the last unit I rented out, the owner left his Xbox and games library there for the student tenant, which was much appreciated!

I might be able to charge higher rental rates, which more than compensates for the small extras. At the very least, it might reduce vacancies.”

2. Decrease Vacancy Periods

Vacancies create huge dents in rental yield. Fortunately, these aren’t common in Singapore; we’re land scarce, so most landlords have hordes of prospective tenants.

But some people, you know…they can’t find a heat stroke in a desert. So these methods are for them:

Lower the Rent

It might seem paradoxical. But let’s put it this way:

Say your property’s rental value is $4,500 a month, but you can only get tenants at $4,000 a month. Maybe nearby construction work lowered its value. So you lose $500 a month, and that sucks.

But if you insist on charging the full rate, and get no tenants, you’re losing $4,500 a month. A single vacant month would do more damage than nine months of undercharging. So while it hurts to lower the rent, it’s worse if you don’t.

Brace yourself for the occasional need to do it.

Maintenance is Key

Never skimp on maintenance. Charlie Sng explains why:

“I can tell you that if a place looks like the dog house, even if you lower the rent tenants will not want it.  If I offer you cheap rent, but the place is run down, the taps are rusty, the toilet is disgusting… will you take it? If you are like most tenants, you will say forget it, I rather spend more and be comfortable. They have to sleep there you know! I find the most important things are the front door, working power outlets, the air-con, and simple cleanliness. Every year I will re-polish the surfaces, and I don’t allow for any cracked tiles. If you don’t spend to maintain, you won’t even have tenants. What rental yield?”

Charlie adds that older resale flats, despite their good location, tend to have higher maintenance needs. Newer units require fewer replacements and upgrades.

If you’re renting out a condo, you’ll need to evaluate the management committee.

3. Decrease Overheads

The lower your home loan repayments, the higher your rental yield. You might consider refinancing into a cheaper home loan, especially if you foresee vacancies or drops in rental value.  Another way to lower overheads is to control maintenance costs.

For example, using paint instead of wallpaper: If the wallpaper peels, and you can’t find something similar, you’ll have to strip it all off the walls and lay a new pattern. With paint, it’s cheap to paint over peeling patches.

Likewise, using wider tiles can mean less grouting (the spaces between tiles) to clean. For more such information, raise your maintenance concerns to a contractor or an Interior Designer.

Source : Yahoo