Lease Decay and the Prices of Private Residential Properties in Singapore

Abstract

Singapore’s residential properties sold mainly on 99-year and freehold leases are useful for studying how changing leases and age affect property values. This paper uses the hedonic model to analyze the effect of lease decay on transaction prices for non-landed, private residential 99- year leasehold properties. The results find a negative effect of lease decay on the transaction price, or more specifically, a 1% increase in the remaining lease increases prices by 1.46%. The effects of decay differ between freehold and leasehold properties, thus implying that age has negative effects on freehold property prices but positive effects on leasehold prices. The results show that older properties could increase in value after controlling for the physical decay effect.

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