Ep 7: Why some Leasehold Properties Don’t Depreciate Much Overtime? – Maureen from Abiel Real Estate Fund

Welcome back to another day on The Coconut Avenue, join us as we explore various property insights, investment strategies, and challenging property myths out there today. We’ll be bringing on investors and experts in the game to share with us their insights and stories to better prepare for our journey, whether you’re looking at your first property or building a bucket of gold through properties, there’s something for you here. Ultimately it’s about helping you find your unique game plan. Maureen is here with the Chief Financial Coconut, Reggie, and I to carry on where she left off last week.

Ready to learn more? Let’s go. 

Reggie: Okay, welcome back. And you know, in episode one, you know, if you’ve not heard it, definitely head over, listen to episode one. And Maureen is quite a big proponent of HDB, you know, contrary to popular belief, not, not everybody’s so pro HDB. But in our discussion, you know, she definitely talked about how you should sell after an extended period of time, about five years, that’s the benchmark and then convert it to a private property.

And in my head is Iike, if HDB was so good, right? Why don’t you just hold it la? So we’re back today with Maureen and try to, just kind of understand why, you know, we should go into a private property, right? Let’s go. 

Maureen: Okay. Actually, on perspective on HDB itself, like being 99 years, I don’t know why it’s such a shock, Reggie, that suddenly everyone come to realize that, oh, my HDB is 99 years, it’s going to expire, worthless.

It’s always been the case. There has never been a policy to say that, hey, we guarantee we’re going to buy it back from you. So HDB by default should be treated almost exactly like the same as a 99-year leasehold condo. So people always think, oh, by the end of my condo time, there’s going to be en-bloc or there’s… no, who says? Someone might not be interested in en-blocing your place, right? So it’s exactly the same issue.

Reggie: Like Woodlands. 

Maureen: [Laughs] Exactly. 

Troy: Maybe in the future, maybe in the future Woodlands is good.

Reggie: Sorry to all my Woodland friends. [Laughs]

Maureen: Yeah. But, but it’s the same thing. So the perspective to look at first and foremost in the professional investment world, no matter how people look at it, I know that there’s been a lot of controversial talk about the fact that if you buy a 99-year leasehold condo, in fact, the appreciation over time, it can be a very good investment, blah, blah.

All that is true, right? If you analyze the data. But in saying that, if you look at the professional world of property investment, all the people that I know of, especially for their own private collection — so I’m not talking about major funds who invest it for funds purposes, just for private collection — still prefer freehold. For the precise reason that once you buy it, it is perpetual, you can give it to your grandchild, you can do whatever. It’s yours, whereas leasehold, it’s for a period of 99 years. There’s an expiry date. Is it considered rental? It’s a long-term lease, right. If you want to call it that way.

Reggie: Technical, technical truth.

Maureen: Correct. And the thing is that they budget it in such a way…. I think that there is somebody clever — this is not facts, this is just Maureen’s imagination — that there is somebody out there who is very clever, who say, why don’t we just make it 99 years. Because by then they’ll be all dead.

And then they would think that it’s kind of like perpetual anyway. When it’s not, right. So I think that that’s how they view it. But in actual fact, it’s still 99 years, so it should be treated the same. So the way that I look at leasehold property, so whether it be HDB or leasehold, it’s the same, I can go into it if it makes money.

But my perspective is it’s going to be a short term hold, right? I will always find a point in time. I will trade out of it. It is never a long-term play, right. It’s only a short term play. But would I buy it? Yes, I would. Especially if it makes money. But my perspective is always the same. You do not buy it with the intention of holding for a long-term period.

In fact, your position should be, I hold it just long enough to make money. And also to let the next person who buys it from me to make money. It’s not about being kind or whatever. It makes sense. Like you want to give somebody something that is in demand, right? If you squeeze the orange dry, who wants to buy it, right?

They want some things left so that when they buy it…

Reggie: Unless they sell the peel. [Laughs] There’s a Chinese medical store, they sell peel. 

Maureen: [Laughs] Right. So you want to leave some fats there so that, you know, they can also utilize that period. 

Troy: So that you can sell that house as well. 

Maureen: Correct, correct. So I always recommend young people when they enter into HDB, I say 5 to 20 years and below. Why? 30 years — 30 years and beyond, so from zero to 30 years, beyond 30 years, the Bala depreciation or the rate of depreciation of a leasehold property start to take up in speed. So they get faster and faster, the depreciation rate. Between zero and 30, it start to accelerate, but not the same way as after 30 years. So that’s why I always ask people to invest during this bend of time, but why 20 years? It’s because it’s good to leave at least 10 years for the next person, right? So that they’ve got some time left. And also taking into account, obviously leasehold property, banks are not dumb. They also adjust their lending criteria. Once you put less and less years left, and that means that, if it means that I have to have a lot of cash in order to buy this property, versus if I can just take the loan from the bank, it reduces the demand.

Remember, I always say coming back to demand. What will create the most demand for your property? And that’s what’s going to make sense, right? 

Reggie: So if more cash upfront and then the lesser people can buy that. So you pull strings, right? Okay, okay. It’s interesting. You talk about the Bala again and again and again, right? So. I dunno who this Bala is. I’m trying to understand. [Laughs]

Maureen: No one knows who Bala is, by the way. He’s just a really smart guy who came up with a table for how you should calculate the rate of depreciation. But a lot of people who read the Bala and they got the wrong impression. They think that, oh today is 400,000, tomorrow is 399. It doesn’t work like that because Bala Table only calculate the rate of depreciation, but naturally Singapore land traditionally also have an appreciation factor that is taken into account, which is why I think in the last episode we talked about like old generation, they buy a place for 40,000 and at the end of it, it’s like, worth 400?

And you say, but Maureen, if Bala clicks in, it should depreciate, right? It should be like worth like 20 by then. It’s because as Bala take into effect, there is also like the land appreciation in value of the place that the uncle bought that takes into account as well. So it’s like a two line of effect that takes place.

So it is increasing in value too, but towards the end of his leasehold, that, that increase is slowing down because the depreciation factor starts to take effect. Does that make sense? 

Reggie: Yeah, that makes sense. So essentially what you’re saying is that. Because from Bala’s observation, right?

It’s… I’m assuming this is observation kind of thing, right? You plot data over time then this is what you see. Right? So from Bala’s viewpoint, by 30 years, rate of change will increase, right? That means the depreciation becomes more serious than the first 30 years, but also because Singapore as a city has, you know, higher and higher demand for property because we’re packing more and more people in limited land space.

So then the growth of land value outshines that Bala decline, which is why the net net at the end of the 30 years, at least for the first 30, 40 years before the first batch of HDB buyers — which is why they are very, you know, pro-establishment [laughs] — first 30, 40 years, they made their money because of the land growth outrunning the Bala depreciation.

Maureen: Correct. Correct. Now, if assuming by the end of year 0, right, government don’t compulsory buy back your place or take back the place, by right there should be some values due to the land. It’s just that, because at that point in time, the rental, if you want to put it that way, the rental lease period expire.

So then you no longer have the rights over the property and therefore it become worthless from that perspective. But so, so I think that it’s very wrong to then say that, oh, then HDB is not worthwhile buying. It’s still a very good strategy, I think. 

Troy: You mentioned that in episode one that in the past, people earn money through HDB, a lot of them, but in the future, we should not just focus on HDB, but we should use HDB as a jumping board into condo. You are still able to get that appreciation but it’s just not solely focused on HDB. 

Maureen: Correct. I think that when the government made the announcement that hey, we are not going to guarantee that we’re going to buy HDB from you, what they essentially did is that they just crystallize the thought for people. It was always there. It’s always the same. So that’s something that they are now more aware than before, and yes, you can use HDB as a leverage into condo. But the other thing is also, mind you, the number of multimillionaire friends that I’ve got who live in HDB is countless.

Reggie: Yeah, I get what you mean. 

Maureen: So then it begs the question of like, these people are not dumb. Why are they doing it? Because there are certain value to HDB. So if you view it that your house is not an asset from the perspective of, oh, it can give you lots of income, right. By right, if you’re a very savvy investor, you should buy HDB, from the perspective of: you need minimal entry price, but it allows you to stay in a comfortable place.

It can accumulate some equity, but I’m going to leave the pot of my gold and invest in worthwhile property outside, so that I can lease it out to people that makes where my wealth is. You get that. 

Reggie: I get that. But I’m just not sure if it still exists at this point in time, because before that, there was a period of time where there were not like serious taxation from multiple property ownership. 

Troy: Stamp duties.

Reggie: All the duties, right. Duties are getting very serious. I think there was a period of time, they were trying to curb, you know, because prices were just going down woo, woo, woo. It’s like, who is buying all this? But clearly there are a lot of buyers. And prices were just going so fast.

And stamp duties came in, right. So then the theory holds, right. In terms of owning a affordable place and then, you know, putting, deploying your cash somewhere else to then make that money, right. And I do have a lot of friends with families that are like that. But does it still work now at this point in time? 

Maureen: That’s a very good thing that you touch on. So you’re talking about like the ABSD kicking in after whatever, right? So business people or investor are always going to work around policies. They’re going to find ways around it. So the way that a lot of the savvy investor, what they are doing is of course, then there’s the, you know, although this doesn’t work as much as before they buy a property, the wife buy, and then they even use children, you know, family, and even the most wealthy people that I know still continue to do that.

Reggie: That’s why they’re wealthy. 

Maureen: They will find ways to get that place at that price without the ABSD, right? But the other thing is also that actually by default also drive up the property value of commercial properties. Because with commercial property, I don’t need to pay ABSD, you know? I can just trade that. So there are avenues around it and they’re still going to deploy that money.

They’re just going to deploy in asset that allows them to still generate the income and all that stuff. So, Reggie, it actually still works. 

Troy: And maybe for the more general population who are not that savvy, maybe this ABSD serves as a deterrence for speculation, they have to be really more, do more research into seeing that if you add that 12% ABSD, will you still earn when you sell it?

Maureen: Correct. 

Reggie: Sorry for being slow, I just got it, okay. Like when you were saying about commercial property, I was like, why Maureen talk about commercial property? Okay. Now I get it because you know, you can invest in commercial property, it’s not that you have to buy everything residential. So it’s still the same… Okay, I get it, I get it.

Maureen: Yes, correct! And the important thing to catch is that people are asking me. People always say , eh, you know, Mr. Lee, Mr. Ang, Mr. Teoh very rich, why they stay in HDB? Because HDB is very accessible, very cheap. And then if they know that it’s not an asset, it wouldn’t generate cash flow. Yes, it will still accumulate equity over time versus me leasing, right, or Mr. Ang or whatever leasing. So they’ll just deploy their cash into investment. And that is a very clever way of doing it. So, so don’t discount HDB, right? Don’t discount. It’s still a very good policy. 

Reggie: I get it. I get it. And then we really need to ring HDB. Hello, HDB, do you want to sponsor us? Yeah, but I get the idea, right? Which, the original idea of how HDB flats are being priced is really to kind of give everybody a social housing kind of, kind of thing. And then over time it became some sort of wealth distribution platform also for a lot of people. And I think based on what you have put forth, it’s still very much the case, you know, where it is low entry point, where people can just partake.

Yes, you can be very you know, regardless of your political affinity, the reality is, you know, HDB is still a very, very affordable benchmark for you to kickstart and go in and accumulate your wealth. And then after that, you switch over to something that is of a freehold structure.

And based on that freehold thing, I just want to kind of share with you guys that if you think about it, if something compounds year on year or over time, then of course the freehold one will compound forever because you know, timeline is infinite. 

Maureen: Correct. I think Reggie, you touch on a very clever point. I mean, there are data analysis, even agents telling you that actually leasehold make more money than freehold.

Yes, to some extent, because if the entry price is right, you know, it’s not like, oh, freehold only make money, but leasehold doesn’t, especially in condo format, but you touched on a very good point. It’s because freehold people are still willing to buy that, even though it appear on paper, like it makes less money initially.

It’s because you get to… the accumulation is long term. Yeah. The only thing with that is that when you start buying airspace, right, let’s say you buy condo, its freehold, and it’s airspace. You need to understand that at some point your building is going to deteriorate to such an extent that you can’t really live there anymore.

Or it’s not in demand, purely because people don’t want to live in such an old place, right. When you have got all your neighbors. And it’s very hard to consolidate everybody to say, we agree to renovate this particular infrastructure, right? Like… 

Reggie: Golden Mile.

Maureen: Correct. Oh my gosh, and this is like, so many places are like this, right?

It’s so hard to, but it’s still worth value. It’s still worth something because the land has continued to appreciate over time. So that there lies the value and the beauty of freehold property. And I think you were spot on. 

Reggie: Thank you. Yeah. And especially Golden Mile, guys. I think Golden Mile has went out of fashion and came back in fashion because it’s all retro, right?

It’s like so old school now. I was like, damn, this place is a thing. They decided to make it into a heritage space now, right. So when you ‘heritagize’ it — I don’t know what word is that [laughs] — make it a heritage space, then it adds onto the cultural value. And I mean, we are currently at like ang moi street, right? Telok Ayer area. This whole area is also the same situation.

Heritage space and there’s a different way of evaluating this space altogether, right. And fundamentally, I think you’ve established the idea that yeah, HDBs are considered properties.

Maureen: Yes!

Reggie: Wah, that was a very resounding yes. 

Maureen: I went to Hong Kong a few years ago and I was getting into the cab of this uncle, who’s like clearly in his sixties, and he’s still working multiple jobs.

And I asked him, eh uncle, why are you working so hard? You know, he said that, you know, I haven’t finished paying off my place. Because in Hong Kong, the property prices are high. It takes them forever to pay off that little space that they’ve got, which is not even… 

Reggie: You wanted to use “square,” right?

[Laughs] Yeah, yeah, yeah.

Reggie: I was like, mmm, space… more like square. I’ve been to my friend’s place in Hong Kong, it’s really like a square, my God. 

Maureen: And I think that we don’t know how blessed we are in Singapore. Like our entry price is really, really affordable. And the government ensure that, hey, even worst case scenario, young couple, you can get your own house, and that house even, you know, it will allow you to have some form of saving. Like it or not, it will allow you to have some form of saving in there and they allow you to use CPF as well. I think the policy put up by the government in Singapore is just phenomenal. It’s great. 

Reggie: Fair. Can you vote?

Maureen: Yeah, no, I can’t. I’m a PR.

Reggie: I can already sense the affinity but yeah, I get it. So what we have established is that HDB is a property and there is a difference between HDB and a private property in terms of 99 years lease. And there is also another tier of difference between the freehold and the 99 year hold, you know, in terms of condominium. Right? So ultimately what you are telling us is it is a step-by-step, right.

You enter the HDB first, right? And then you flip over to partake in the private space, right. Which if you can, you straight away, you can go for freehold, but you know, if you can’t, then a leasehold is okay. 

Maureen: Well, well, Reggie actually there isn’t a lot of price difference. I mean — correction the leasehold and freehold, the variance in price is not so great that one would choose leasehold, because it’s a lot cheaper or whatever else. I mean, really you will still do it. It still comes down to an investment. And really what I’m also saying is that HDB and leasehold condo, the perspective that one should view it is not that much different. In terms of the time limitation of the investment.

However, what a private condo would allow you to do is that it allows you to obviously leverage and then you can, you know, you can use the equity to then buy other property with it, which HDB doesn’t allow you to do that, because the government introduced HDB as a way so that people can live in it, right. But it’s still a forced sense of saving, it’s still a way for you to accumulate equity. 

But beyond HDB, really, there is no hard and fast rule whether one should go into leasehold or freehold, but all I’m saying is that there are rules, like the entry price and all the other things still make sense for you to accumulate wealth, inside private space, but you just need to know that should you choose after HDB to move into a leasehold, you need to move out at some stage as well. 

You can’t  stay in the leasehold space forever. The same effect that is taking place in HDB still  affects the leasehold condo space because it’s still 99 years. So at some stage you still need to trade out of there and go into another space. 

Reggie: And then we will talk about the buy price, all this kind of stuff further down. That’s going to be sexy. 

Maureen: Correct. But, but really just to give an insight, I mean you know, for my own Mastermind group, like I always say to them, if you can afford, I mean, the ultimate dream is to own like a landed freehold property in Singapore, like a house. And then they always say to me, oh, but it’s so affordable, it’s so expensive. 

Actually, no, there are so many places in Singapore where you have freehold land, landed property, they’re selling like $2 million or ish. So when over time, when you reach the age of, let’s say, 40+, this is almost the same as a condo, right? Like, you know, so I think that is definitely accessible.

So that’s what I’ll be betting on. That’s the ultimate dream if there is such a thing. 

Reggie: So the ultimate dream would be to then ultimately land yourself in a freehold landed property. 

Maureen: Correct. 

Reggie: Right. Which is where I just walked past yesterday at Koven. That’s a, that’s a nice area.

Okay. So any other things to add, guys? I think HDB is a very contentious discussion. 

Maureen: It is. But you just need to know what the element is. It will expire just like a leasehold condo will also expire. It is a very good forced sense of saving, allow people to enter, and that needs to be the, the value of that needs to be extracted.

And also government gives you grants for buying HDB and for young couple, that needs to also be exploited. You need to know that. And so those are the elements that people need to be aware of. It’s just that HDB, it doesn’t allow you to draw down on the equity. That’s obviously not a very good thing with HDB.

Troy: You can’t leverage.

Maureen: You can’t leverage..And so those are the elements that you need to be aware of, but I’d say that, it’s still a very good form of saving, it still allow you to accumulate equity. So don’t sneeze on it. Don’t think that it’s a, you know, a poor cousin or whatever. It’s a very good form of property, I think. 

Troy: Actually from the mainstream news or from the mainstream side, people are always propagating that the HDB fear myths, you know, like it will go down to zero.

So we don’t really hear from your perspective, from this perspective a lot. And we understand now that there are actually many different variables that we need to consider and mindsets. 

Maureen: Correct. Exactly. 

Reggie: Cool. I think that’s a lot of stuff for HDB and I think we’ve established exactly what you said, right?

Let’s not discount the very fact that there is this entry point, all right. Because it is unique to Singapore, right? That is the truth because I’ve lived abroad before and that’s not the case for my friends. Most of them are renting all the way to like 30 plus today, right. Because prices are crazy, right? Whether is it KL, whether is it Hong Kong, whether is it in China, different places. So HDB is that benchmark and that jumping board for all of us. 

And if we can, we meet the requirements. Of course if we don’t, then we continue to lobby to meet the requirements. But if we meet the requirements, then we, you know, shouldn’t discount this very platform for us to partake in the property market. And in due time we can definitely, you know, move up and get ourselves into more and more sexy property. Yeah. Thanks for tuning in. We’ll see you guys next week. Bye!

Troy: Hey, thanks for taking time to tune in today, guys. I hope you’ve learned a little bit more about property investing. If you feel like you’ve benefited from this podcast, do share this with your loved ones and also do follow us on all socials, my community Telegram group. And tell us what you’re interested to know about next. Everything is in the description below. Have a great day ahead, guys. And always remember: when we are better prepared, the next opportunity is just around the corner. See you next week.

Condos are more atas, that’s true. A lot of facilities and all, but really. How many of you guys really use the facilities often? I’m not saying condos are bad or good, I mean, to each his own or her own la, but sometimes I just think that there are a lot of different types of biases informing decisions. I believe we all need to focus on the inherent biases that we have before purchasing properties.

Maybe I’ll talk about the bias in detail in future episodes. But basically my takeaway in this episode is that it’s wrong to think that buying into condos is more profitable than HDBs, because there are a lot of people out there who are losing money when you buy condos and you don’t really hear them la. The overwhelming stories is that, oh, you buy condos, wait for it to appreciate in the future and you will gain money. 

But all the people who are losing money, they too paiseh to tell people they lose money already what. So you don’t hear from it la, but it’s not possible that everyone earns money. Maureen also said that the only difference between 99-years leasehold condo and HDBs, or we should say the benefit, the only benefit, is that in 99-years leasehold condo, you can get leverage.

But HDBs you can’t, and whether you buy a HDB or 99-years lease condo, it’s recommended to get into a property before 20 years old, because then you have some time for it to appreciate if it does, and it’s not too old when you sell it. So you can’t just buy into any property. And you can’t just say you want to buy new properties  every time. Sometimes you can’t get a deal for a new property. 

And of course there are other metrics to look at, especially demand because when a strong demand is there, it can even overpower a depreciating property due to age. And definitely you need a good agent that can go through what your needs are and go through all the metrics with, not an agent that tells you every project can make money. But we’ll talk about this in future episodes. 

I think what Maureen has mentioned clearly is that it’s really dangerous to assume that going into a private property will earn you more money than a HDB, or even assume that all condo will hit the stage of being en-bloc. And then you can earn a big sum in a short time. Nobody knows when it’s going to get en-bloc. Nobody can say for sure. So yeah, that’s a risk that you have to take if you are looking to buy into that. So that’s what I learned in this episode.

 So tell us what you learned in this episode in our Telegram group. Discussion is over there, it’s waiting for you to exchange opinions, exchange your stories. It’s great to know you guys are listening to this and liking it. See you in the next episode — signing out!

Reggie: So, yeah, I hope you guys enjoyed today’s episode. The Coconut Avenue is something that I really want to push, because I think that there is like a huge gap in the market when it comes to property investing. 

We’re going to run one season, it’s been very hard producing this season because you know, a lot of property investors do not have incentive to talk. They don’t need to tell you, right. There is no, you know, it’s not like you can join their fund or it’s very hard for them to raise funds from the retail guys with all these like legal stuff.

And yeah, most of the time when they buy a property, there’s only one, right? Or there’s only a row of them. So it’s limited and they don’t really want to talk as much. It’s very hard wooing these guys to come on and talk and we’re amazed that we managed to pull some of these guys, you know, and also some casual investors who own like two or three properties and are doing their own thing.

So very happy that they decided to come on to talk. And I think it’s a great, great podcast that you should check out. And of course, kudos to Troy for trying out. So he’s a listener turned podcaster, and it’s been very hard on him to kind of learn this whole process and, you know, just kind of refine himself. So that’s great. 

And if you want to be a podcaster and you have something in this whole like personal finance space and you’re interested, ring us up, right? Email us at hello@thefinancialcoconut.com. And we can like maybe see what we can do together! So follow The Coconut Avenue and help us spread the word. It’s been a difficult process, but definitely something that you will learn a lot, a lot from. So head over now and I’ll see you next week.