Singapore Property Update

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Types of Land Ownership in Singapore

By Joe Wang

 

Freehold, 999 leasehold or 99 year leasehold? These are the common terms you may have heard of when buying a property in Singapore. So what do they mean exactly and what are the implications for you?

 

A Historical Perspective

Before we delve into the legal intricacies, let’s take a step back into the past and see how land in Singapore was acquired and passed on through the generations.

Singapore was founded by Sir Stamford Raffles in 1819 when he negotiated with the  Sultan of  Johor and the Temenggong (governor) of Singapore to establish a permanent

On 7 June 1823, Raffles arranged for another agreement with the Sultan and Temenggong to buy out their judicial power and rights to the lands except for the areas reserved for the Sultan and Temenggong.  From then on, most of the land in Singapore was acquired by the British and belonged to the British Crown.

In order to raise funds for the fledgling settlement, the British colonial government started to sell the land to private developers and settlers. Some of the prized land in the Central Business District (CBD) today such as the strip along Boat Quay was sold to wealthy Chinese “towkays” on a 999 year lease where they were turned into warehouses and factories.

Other parcels of land further from the CBD were soon sold to settlers from other countries. For example, large tracts of eastern part of Singapore which comprises of the present Siglap and Frankel estate were sold to a Jewish family from Lithuania in the 1900s.

 

Photo by Show En Kang, unsplash.com

 

The Land Acquisition Act 1967

After Singapore obtained independence in 1965, all the land under British ownership was transferred to the Singapore government except the land traditionally owned by the Johor Sultan.

In 1967, the Singapore government passed the Land Acquisition Act which gave it widespread power to compulsorily acquire land for the reason of public development. More significantly, the Act also regulated the amount of compensation to landowners who had their properties acquired by the Government, meaning that the compensation was on the basis of the land’s “pre-development value” which is much lower than the real market value.

In a short span of time, many kampungs and settlements inhabited by squatters without properly documented title deeds were acquired by the government at zero cost and became state land owned technically by the Singapore Land Authority.

The Land Acquisition Act expedited the process of land possession by the government for public purposes. Between 1959 and 1984, the government acquired a total of 43,713 acres (17,690 ha or 177 sq km) of land, which constituted about one-third of the total land area of Singapore then.

With an increase in acquired land parcels, the government became the biggest landowner by 1985. At the time, the government owned 76.2 percent of the land in Singapore compared with 31 percent in 1949.

 

Classification of land ownership in Singapore

Due to the origins of the land law in Singapore, all land ultimately belongs to the state and you can only own an estate or some lesser interest in the land. So under the State Lands Act 5 types of grants of land may be made by the state, namely:

  1. estates in fee simple
  2. estates in perpetuity
  3. leases
  4. temporary occupation licences
  5. tenancy agreements

Land ownership in Singapore is basically split into 2 categories: freehold and leasehold.

 

Freehold land

In simple terms, freehold land owners will own the land title forever. There is no expiration date to it. This is obviously the most valuable and sought after land status in Singapore.

Freehold land is a legacy of British colonial rule. Less than 17% of the land in Singapore is freehold land and it will become more scarce in the future due to two reasons:

  1. The owners pass away without dictating in their wills to transfer the ownership to their descendants; they do not have children to take over the ownership or their descendants have migrated and cannot be contacted. Such land are ultimately taken over by the government and converted to leasehold land.
  2. Conscious of the increasing limited availability of freehold land, property developers are now craving out leasehold land out of freehold land they purchased. In 2009, real estate developer Far East Organisation made the rare move of selling the 408-unit Shore Residences on a 103-year lease. It acquired the site in the East Coast area from the collective sale of the former Rose Garden, a freehold development. Thereafter, it started selling other leasehold properties carved out of the freehold sites it owns — such as the 119-unit Cabana at Yio Chu Kang in 2009, the 231-unit The Scotts Tower in the Orchard Road area in 2010, and the 62-unit Greenwood Mews in Bukit Timah in 2011.

There are two main types of freehold estates. The first is the fee simple. A property owner who owns a fee simple in land, owns the property indefinitely, without the need to pay any rent, and upon his death, the property passes onto his successors. The second freehold estate is the life estate, which is much rarer, and confers ownership for the duration of the person’s lifetime.

 



Leasehold land

Leasehold land differs from freehold in that it has an expiry date. The two most common in Singapore would be the 999-year and 99-year.

The land belongs to the State, which leases the property to the leasee, for a fee, in exchange for exclusive possession and use, subject to certain conditions and covenants.

For practical purposes, 999 year leasehold land is usally considered as freehold land due to its exceptionally long tenure.

All the other land in Singapore owned by the Singapore government are leasehold and are subdivided into 99 year, 60 year or 30 year tenure.

The bulk of leasehold land of 99 year tenure are sold to the Housing Development Board to build public housing.

The government will keep a “land reserve” at any point in time to be released and sold to private developers known as “Government Land Sales”.

Land used for commercial and industrial purposes are usually of 60 year tenure. Certain HDB shophouses are given a 30 year tenure only.

The implication for leasehold land is: once the lease ends, it will revert back to the government and zero cost. In a widely publicized case, 191 private terraced houses at Geylang Lorong 3 will be returned to the State when their leases run out at the end of 2020, with no extensions allowed. The owners will have to hand back the vacated units to the Singapore Land Authority (SLA) when their leases run out in 3-½ years with no compensation.

Owners of leasehold properties have the option to sell their aging properties to private developers en bloc to top up the lease, but it is not always approved by the state. The Singapore Land Authority said that the Government generally allows leases to expire without extension, because it needs to recover land to meet changing socio-economic needs.

However, the extension of leases are considered on a case-by-case basis and in the case of residential plots, the Government may allow lease extension if “it results in land use intensification, mitigation of property decay and preservation of community”, the authority said.

HDB flat dwellers do not have the option of en bloc as the land on which their flats are built is owned by HDB. It will revert to the government with no compensation when the lease ends.

 

Conclusion

If you can afford it, always buy freehold land or freehold property. Due to their scarcity, their value will only continue to appreciate in the coming years. Freehold properties are an ideal way to preserve your wealth and to pass it to the future generations.

 

 

Reference:

National Library Board

Singapore Land Authority

Singapore Law Statutes

 

Other articles by the same author:

Buying a good HDB flat with good appreciation potential

Why you should not buy Punggol properties

Why HDB flats cannot be considered as an asset which can generate wealth

Can I use my CPF or secure a bank loan to buy a 70 year old HDB flat?

Differences between 99 year leasehold private properties and HDB flats

 

 

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No part of this article may be republished without the permission of Singapore Property Update

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About the Author

Joe is a property enthusiast who bought his first property in Singapore at the age of 26 in 2005. From 2005 to 2015, he built a portfolio of 6 private properties in Singapore and has since sold three of them realizing a net profit of between 60 to 100 percent. He made his first million dollars in property investing at the age of 30 and has now amassed a property portfolio in Singapore, Australia and Malaysia worth more than $10 million dollars.

Joe is a conservative long-term property investor who believes in life-long learning and education in property investing. He does not claim to be a property expert or guru, but rather an adventurer who is in the middle of an exciting odyssey to achieve financial freedom from his property investments.

Email Joe at: joewang@propertyupdate.com.sg


Updated: September 25, 2018 — 9:05 am
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