CAPITAL APPRECIATION OF FREEHOLD VS LEASEHOLD PRIVATE PROPERTIES

Abstract

Capital appreciation is the one of the most critical factor investors consider during purchase of a property. This paper compares the tenure of the property and investigates whether leasehold or freehold can achieve higher capital appreciation. Capital appreciation is largely influenced by the transacted price. Hence, we will further look into the factors that affects the transacted price of the property. The transaction data from 2005 to 2019 is regressed with a semi-log regression to investigate the effect of tenure and other variables on the transacted price. A second hedonic regression which adopts part of the Repeated Sales Model was used to investigate the effect of tenure on capital appreciation. The study will compare the performance of different market segments and which location has produced the highest and lowest capital appreciation in the 15-year period. The results show that freehold properties have a lower rate of capital appreciation despite having a price premium over leasehold properties. However, the difference in capital appreciation due to tenure was less significant when compared to other factors such as holding period and the location. The properties in central region generally had poor capital appreciation despite the price premium over the other market segments.