Is Freehold Industrial Worth Buying Or Is Leasehold Better? – 5 Important Factors To Consider

Is Freehold Industrial Worth Buying Or Is Leasehold Better?

When considering whether to buy freehold or leasehold industrial property, it’s essential to weigh the advantages and disadvantages of each type of ownership. Factors such as investment goals, budget, and responsibilities differ between freehold and leasehold properties.

Over the last few years in Singapore’s industrial market, buyers have favored leasehold industrial property for its lower barrier to entry and wide choices to choose from as compared to freehold industrial.

That being said, freehold industrial properties are not bad investments, they cater to a specific group of investors. Understanding the key differences can help you make an informed decision that aligns with your objectives and preferences.

Here’s a full breakdown guide on whether is freehold industrial worth buying or is leasehold better.

Key Takeaways

  • Freehold properties offer perpetual ownership rights and higher resale value compared to leasehold properties.
  • Investment goals and budget are crucial factors in determining whether freehold or leasehold is the right choice for you.
  • Freehold property ownership is indefinite and can be passed down to heirs without restrictions, while leasehold property ownership is for a fixed term.
  • Leasehold properties have restrictions and obligations outlined in the lease agreement, limiting the owner’s control over the property.
  • Consider your long-term plans and financial capabilities when deciding between freehold and leasehold industrial property ownership.

Singapore’s Industrial Property market

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Over the last 3 years since 2019, we have seen a huge 25% jump in the total value of strata industrial transactions. Since April 2023, the ABSD(Additional Buyer Stamp Duty) was raised to curb the increasing demand for residential properties here in Singapore.

The ones heavily affected by this change were foreigners as they are now required to pay an additional 60% on top of their property investment instead of the usual 30%.

Since industrial properties are not required to pay the ABSD, foreign buyers have flocked to this opportunity and invested in Singapore’s thriving industrial property market. But before making any financial decision, it is important for you to understand the difference between freehold and leasehold property in Singapore.

When to Choose Freehold or Leasehold Property Ownership

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In Singapore, industrial properties can be classified into several categories:

  1. Business Parks: These are modern and integrated developments designed to accommodate a variety of industries. They often feature amenities like office spaces, research facilities, and recreational areas.
  2. Industrial Parks: These are designated areas zoned specifically for industrial activities. They typically offer a range of industrial spaces such as factories, warehouses, and distribution centers.
  3. Flatted Factories: These are multi-story buildings designed to house small and medium-sized industrial operations. They provide compact units suitable for light manufacturing, assembly, and production activities.
  4. Business and Industrial Space: This category encompasses a diverse range of industrial properties, including standalone factories, workshops, and industrial units within mixed-use developments.
  5. Specialized Industrial Facilities: Singapore also hosts specialized industrial facilities catering to specific industries such as biotechnology, pharmaceuticals, and precision engineering. These facilities are often equipped with advanced infrastructure and specialized utilities to support unique manufacturing processes.
  6. Logistics and Warehousing: Given Singapore’s strategic location as a global transportation hub, there is a significant presence of logistics and warehousing facilities. These include distribution centers, cold storage facilities, and logistics parks.
  7. Data Centers: With the increasing demand for digital infrastructure, data centers have become a prominent feature of Singapore’s industrial landscape. These facilities provide secure and reliable hosting services for IT equipment and server infrastructure.
  8. Business Incubators and Accelerators: While not strictly industrial properties, these spaces play a crucial role in nurturing startups and fostering innovation within the industrial sector. They provide shared office spaces, mentorship programs, and access to funding resources for budding entrepreneurs.

These categories encompass the diverse range of industrial properties available in Singapore, catering to the needs of various industries and business activities. Take note that each property may require licensing for ownership.

Considerations for Freehold Property

When considering the purchase of a freehold industrial property, the primary allure is the perpetual ownership it offers.

Unlike leasehold, where tenure is limited, freehold ownership lasts indefinitely and can be passed down through generations or sold without significant restrictions. This aspect of freehold property not only provides a sense of permanence but also typically results in a higher resale value, making it more attractive to potential buyers.

Freehold property owners enjoy a greater degree of control and autonomy over their property. They are responsible for all aspects of property maintenance, including repairs, renovations, and ensuring compliance with local regulations. This means that, as a freeholder, you have the freedom to use, modify, and enhance your property as you see fit, subject to local zoning and land use regulations.

The decision to buy freehold industrial property should be weighed against the responsibilities that come with it. While the control and stability are appealing, the financial and time investment in maintenance and compliance cannot be overlooked.

Here are some key points to consider for freehold property ownership:

  • Higher initial investment compared to leasehold
  • No ground rent or service charges
  • Full control over property alterations and improvements
  • Long-term investment with potential for property value appreciation
  • Responsibility for all maintenance and compliance with regulations

Considerations for Leasehold Property

Leasehold ownership grants the right to use and occupy the property for a set period, often ranging from 30 to 99 years.

The lease term is a critical factor; properties with shorter leases can be challenging to sell or mortgage. It’s essential to consider the lease length and the implications for long-term security and property value.

  • Leasehold properties are typically more affordable upfront.
  • The property reverts to the landowner upon lease expiration.
  • Long-term leasehold can be a viable option in specific scenarios, such as in regions where freehold is not available.

When considering Leasehold vs Freehold, it’s crucial to assess whether the leasehold structure aligns with your investment goals and the level of control you desire over the property.

In some Asian countries, only leasehold ownership is permitted, which may influence your decision if you’re looking to invest or reside in these regions. While a leasehold can offer a lower initial investment, the complexities and potential limitations of the lease terms should not be overlooked.

Factors to Consider in Buying Freehold or Leasehold Property

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Apart from understanding the pros and cons of owning a freehold industrial vs a leasehold industry. Next, we need to look at other factors before stamping down your purchasing decision.

Investment Goals

When considering the purchase of industrial property, your investment goals are paramount.

Freehold properties often appeal to those seeking long-term capital appreciation and control over the asset. In contrast, leasehold properties might be more suitable for investors looking for shorter-term holdings or those with a lower threshold for initial capital outlay.

  • Freehold: Ideal for long-term investment strategies.
  • Leasehold: More aligned with short-term investment horizons.

It’s crucial to align your property choice with your financial objectives and risk tolerance. Remember, each type of ownership comes with its own set of financial implications and growth potentials.

Considering the unique characteristics of Singapore’s real estate market, it’s important to weigh the choice between freehold and leasehold properties carefully. The decision should reflect not just current market conditions but also your future plans and how the property fits into your overall investment strategy.

Budget and Initial Investment

When considering the purchase of industrial property, your budget and initial investment are pivotal factors that can influence your decision between freehold and leasehold options. Freehold properties often command a higher purchase price due to the perpetual ownership they offer. This means a larger upfront investment, but potentially lower long-term costs since there are no lease renewals or ground rents to consider.

On the other hand, leasehold properties typically have a lower initial cost, making them more accessible for investors with a limited budget. However, it’s important to factor in the recurring costs associated with leasehold properties, such as service charges and lease extensions.

Here’s a simplified comparison:

Ownership TypeInitial CostRecurring Costs

It’s essential to align your investment with your financial capabilities and long-term strategy. While freehold may seem more expensive initially, the absence of ongoing lease-related expenses could make it more economical over time. Conversely, leasehold properties can offer a lower point of entry but may incur additional costs throughout the lease term.

Responsibilities and Rights

When considering the purchase of industrial property, it’s crucial to understand the responsibilities and rights associated with freehold and leasehold ownership. Freehold property owners enjoy the liberty of outright ownership, which includes the land and any structures on it. This means they bear full responsibility for all maintenance and repairs, offering unrestricted control over the property. In contrast, leaseholders must adhere to the terms of the lease, which often include obligations such as paying ground rent and service charges, and may require permission for alterations.

Leasehold property ownership is characterized by a set of predefined conditions that can significantly impact the rights of the leaseholder. For instance:

  • Leaseholders are typically required to pay rent and keep the premises in good repair.
  • They must allow the landlord to inspect the premises and avoid subletting or parting with possession without the landlord’s consent.
  • Obtaining public liability insurance, often in the joint names of the landlord and tenant, is a common requirement.

Freehold owners, on the other hand, have the autonomy to make decisions regarding their property without the need for external approvals, which can be particularly advantageous for businesses that require customization or expansion.

Understanding these differences is essential for making an informed decision that aligns with your long-term investment goals and operational needs.

Differences Between Freehold and Leasehold Property Ownership

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Ownership Rights in Freehold Property

When it comes to freehold property, the owner enjoys a level of autonomy that is unparalleled in leasehold arrangements. Ownership is absolute, encompassing both the land and any structures on it. This means the owner has the freedom to use, modify, or sell the property at their discretion, adhering only to local zoning and land use laws.

Freehold ownership is not only about control but also about legacy and investment value. The property can be retained for a lifetime, passed down through generations, or sold without the constraints of a lease term.

The following points highlight the key aspects of freehold property ownership:

  • Full control over the property, including buildings and land
  • No lease expiry; ownership is perpetual
  • Freedom to make alterations or improvements without seeking permission from a landlord
  • Higher resale value due to perpetual ownership rights

It’s important to note that with great power comes great responsibility. Freehold property owners are solely responsible for all maintenance, repairs, and compliance with regulations, which can be a significant consideration for potential buyers.

Lease Terms and Restrictions in Leasehold Property

Leasehold property ownership is characterized by the lease terms that define the duration and conditions under which the property can be occupied. The leaseholder’s rights are limited to the period stipulated in the lease, which can vary in length from a few years to several decades. Once the lease expires, the property reverts back to the freeholder unless the lease is renewed.

Leaseholders must be aware of the restrictions and obligations that come with their lease agreement. These often include:

  • Ground rent payments to the freeholder
  • Service charges for maintenance of common areas
  • Permission required from the freeholder for significant alterations
  • Potential for lease extension or purchase of the freehold

Leasehold properties can offer more affordable entry points into property ownership, but it’s crucial to consider the long-term implications of the lease terms and any associated costs.

Ultimately, while leasehold allows for ownership-like use of the property, it does not confer the same level of control or permanence as freehold ownership. The decision between freehold and leasehold should align with one’s investment strategy, financial planning, and acceptance of the terms of the lease.

Understanding the nuances between freehold and leasehold property ownership is crucial for any potential investor or homeowner. Freehold properties offer perpetual ownership, while leasehold properties come with a time-limited interest in the land.

Is Freehold Industrial Worth Buying Or Is Leasehold Better

The decision between buying freehold industrial property or opting for a leasehold arrangement depends on various factors such as long-term goals, budget constraints, and market conditions.

Freehold properties offer perpetual ownership rights and greater control, making them attractive for investment and resale.

On the other hand, leasehold properties provide a more affordable entry point but come with restrictions and limited ownership duration. Ultimately, individuals should carefully evaluate their needs and preferences before deciding between freehold and leasehold industrial properties.

Aaron Oon is a Senior Associate Director at Propnex and Founder of Real Estate Insider. A consistent Top Producer in the competitive world of real estate, Armed with a Finance degree from NUS, Aaron is more than just a real estate agent; he’s a strategic thinker and a creative problem solver.

If you are looking to invest in a property here in Singapore or would like to know more about Singapore’s property market. Be sure to reach out through the Calendy video link below:

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Frequently Asked Questions

What are the advantages of buying freehold property over leasehold property?

Freehold properties generally have higher resale value and offer greater control over the property due to perpetual ownership rights.

When should I consider buying leasehold property?

Consider buying leasehold property only when there are no other options available, such as in locations where leasehold is the only ownership option like in certain Asian countries.

What factors should I consider when choosing between freehold and leasehold property in 2024?

Factors to consider include investment goals, budget, and current real estate market conditions to make the best decision based on individual circumstances and preferences.

What is the difference between freehold and leasehold property ownership rights?

Freehold ownership provides full ownership rights indefinitely, while leasehold ownership grants ownership for a fixed period subject to lease terms and restrictions.

What responsibilities and rights come with leasehold property ownership?

Leaseholders have obligations and restrictions outlined in the lease agreement, including potential limitations on property modifications and use.

How does leasehold property ownership differ from freehold property ownership in terms of control and regulations?

Leasehold property ownership allows ownership for a set period with less control compared to freehold ownership, as lease agreements may impose rules and regulations on property usage and modifications.

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