The truth is: data has shown that for the past 10-20 years, 99-year lease has actually earned more money than freehold. I’ll show you the data if you engage me!
Why is this important? It just goes to show that when it comes to condos, it really doesn’t matter what’s the lifespan. Yet, a lot of people have this misconception: they come and tell me, Aaron, if I buy this 99-year lease condo for $1million and rent it out at $3k a month, I’ll make a profit.
Theoretically, they’re right! But this doesn’t take into account that as time passes, the property itself gets older. Rental demand will decrease. Plus, while looking for tenants, you’ll have no rent for that 1-2 months. Calculating your profit like that just will not work.
In my years of experience, I realised that there’s always a point where condos stop earning money. 20 years is already considered a lot. Watch the video to see some statistics – I’ll show you some charts to prove it.
For example:
- District 16 condo. The property has been there from 1995 to today. Managing to earn from condos is inconsistent, depending on the market and how long you can hold on to the unit for. More detailed analysis in my video. This particular guy earned about 80%, but there were also many periods of stagnancy. It’s not correct to expect that property prices will increase when your condo is growing older. I would expect this condo that increased in price for a good 20 years will no longer continue to do so down the road.
- This property was bought in 2009. They didn’t earn anything for 5 years but things improved after. But will it continue to improve? Perhaps for one more cycle, or maybe not even that. It’s got a good location, Toa Payoh, but even then, it’s hard to predict when the cycle will come. In 2023, this estate will be 15 years old.
- Serangoon property in 2011 earned money, but then eventually became stagnant. Without much difference in price in 19 years, this is what you call a property that has reached its peak. It continues to plateau and something is wrong with the property. It needs to be renewed.
Plus! These examples I’m using already have very good locations. Can you imagine if yours doesn’t? Its appreciation would go lower.
Basically, properties won’t keep appreciating for its 99 years. There will be cycles where its price raises and lowers. Prices fluctuate, and it may never peak again. This is where you must renew your property portfolio. You might even lose money if you cannot hold on to the unit. Cycles generally span 10 years, but in the future might span only 8 or even 5. Old properties with good locations may even be heading for en-bloc. Time your sale correctly according to the renewal cycles to get the greatest price possible – it’s a balance to get the right time of the sale and how much time your property has left – its lifespan.
Know a property that’s lasted 30-40 years and still appreciating? Let me know in the comments! I’d be super interested to see the charting for that property.