Investing in leasehold condominiums in Singapore can be a strategic move, especially when entry prices are lower than their freehold counterparts. However, one crucial factor that investors must pay attention to is lease decay—the gradual reduction in value and appeal of a property as its lease tenure shortens. Understanding how this phenomenon impacts your investment is vital to making smart, long-term decisions.
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What is Lease Decay?
Lease decay refers to the depreciation in a property’s value as its remaining lease term decreases, particularly for 99-year leasehold condos. While this effect may seem minimal in the first few decades, its impact becomes more pronounced as the lease dips below the 60-year mark. Banks become more conservative in financing such properties, and buyers tend to be cautious—ultimately lowering resale value and limiting demand.
For example, Thomson View Condo, a 99-year leasehold project located in a desirable residential enclave, may still hold strong value today due to its location and spacious units. However, over time, if lease top-ups or en-bloc potential are not realised, lease decay will naturally affect its long-term appreciation potential.
Impact on Financing and Buyer Appeal
As leasehold condos age, loan-to-value (LTV) ratios tend to shrink. Financial institutions may restrict loan tenure and offer smaller amounts if the remaining lease is below 60 years. Additionally, the Central Provident Fund (CPF) usage for property purchases becomes limited, deterring younger buyers who rely on CPF for home financing.
In contrast, a newer leasehold property like River Green, located in prestigious District 9, still enjoys robust market demand and easier financing. Its modern design and longer lease runway make it more attractive to investors seeking rental income or capital appreciation.
Capital Appreciation vs. Rental Yield
Investors often choose leasehold condos for better rental yield, especially if the purchase price is lower. While lease decay might not immediately affect rental income, it can erode the resale price over time. Hence, a balance between yield and exit strategy is critical.
In locations with high tenant demand and limited supply—like River Green in the Orchard River Valley vicinity—the rental market may continue to perform well even as the lease shortens. But investors must be proactive in timing their exit or capitalising on collective sale opportunities.
Mitigating the Effects of Lease Decay
One way to manage the risk of lease decay is to buy into properties with strong en-bloc potential or those situated in high-demand districts. Condos with large land areas or redevelopment value, such as Thomson View Condo, may still fetch good returns through a collective sale, despite leasehold limitations.
Additionally, focusing on value-add strategies—like renovating units for rental or targeting underserved tenant demographics—can help maintain income streams even as resale prospects diminish.
Conclusion
Lease decay is a real and measurable factor in leasehold condo investments. While it should not discourage you from investing altogether, it must be carefully evaluated in relation to financing options, rental prospects, and future exit strategies. Whether you’re considering the established charm of Thomson View Condo or the upscale vibrancy of River Green, understanding lease dynamics can help you make smarter property decisions in Singapore’s competitive real estate landscape.
