Understanding Bala’s Table: A Handy Tool to Calculate the Long-Term Value and ROI of Your Investment Property

Here’s a real-life story:

I had a client looking to buy a second property near Catholic High School for their children. They were comparing three properties within a 1km radius:
  • – Bishan 8
  • – Sky Vue
  • – Sky Habitat
Catholic High School is a highly esteemed boys’ school, which was an important factor for them. As parents, they considered other factors besides the school in making this purchase, aiming for a sound investment with a safe entry and exit strategy. When seeking advice from property agents, it’s important to be cautious as they often claim their units are the best and a “sure buy”. In such cases, relying on basic return on investment (ROI) assessment rules can be helpful, especially if market conditions don’t align with selling plans. Making an informed decision and considering all factors is crucial when investing in a property. For this hybrid investment and residential unit, let’s provide a more comprehensive comparison based on the given information.

Here are our findings:

Based on the information provided, we can see that Sky Vue is the newest development, followed by Sky Habitat with a one-year difference, and Bishan 8, which is already twenty-three years old. To delve deeper, Sky Vue’s lease started in 2013, giving it a remaining lease of 89 years, while Sky Habitat has 88 years and Bishan 8 has 72 years. This significant disparity in tenure indicates that despite its relatively lower entry price, Bishan 8 is the least preferred option.
Examining the transactions, there is a considerable price gap between the three projects. Bishan 8 has an average price of $14XX per square foot for a typical three-bedroom unit, while Sky Habitat transacts at $18XX per square foot and Sky Vue tops the chart at $19XX per square foot. This difference in pricing can likely be attributed to factors such as age, layout, and concerns about future resale value.
To better understand how the remaining lease (or age of the property) impacts its value, we can refer to Bala’s Table. This table is commonly used to assess the current and future value of land or property and serves as a benchmark for comparing leasehold properties to freehold properties, aiding in evaluating depreciation rates.

Bala’s Table:
Understanding Land Leases in Singapore

If you’re wondering about Bala’s Table and how it applies to you, let’s dive into the world of land leases in Singapore. According to the Singapore Real Property Guide, land leases are categorized as freehold or leasehold. Freehold land owners enjoy perpetual ownership, while leasehold titles grant temporary ownership rights.
Here’s Bala’s Curve:
Residential leasehold titles typically last for 99 years, while industrial leases have terms of 60 or 30 years. At the end of the lease term, the land ownership returns to the state. This distinction between leasehold and freehold land creates a thriving secondary market for buying and selling properties. To determine the value of leasehold land, the Singapore Land Authorities (SLA) developed Bala’s Table. This tool calculates the discounted value of land based on its remaining lease term. It’s widely used by the government, property developers, buyers, and sellers to determine land premiums, lease extensions, and changes in land use.

Fun Fact:

Bala’s Table, named after a Land Office employee involved in its creation during Singapore’s time as a British colony, has been in use since around 1948. The table assigns a percentage value to different lease terms. For example, a 99-year lease is valued at 96% of the freehold value, while a 60-year lease is valued at 80%. These values align with the entries in Bala’s Table, indicating its adoption in 1948 when it was officially declared that 99-year leases would be issued in all circumstances. In summary, Bala’s Table is a vital tool in assessing the value of leasehold land in Singapore. It helps determine the necessary payments for land transactions, lease extensions, and provides insights into the value of different lease terms.

Exploring Bala’s Table:
A Deeper Dive

The value of land is greatly influenced by its tenure, particularly the remaining lease duration. The longer the lease, the higher the land value tends to be. However, the depreciation of land value does not occur at a consistent annual rate as the lease term decreases from 99 years to zero.
When purchasing land, buyers essentially pay for the right to use the land or receive future rental income. For example, a piece of land with a 99-year leasehold may generate an annual rental income of $1 per square foot (psf). Over 99 years, the landowner would receive $1 psf each year. However, due to the concept of the “time value of money,” the worth of $1 today diminishes after 99 years. As a result, the present value of land rent received during the initial 10 years of the lease would be significantly higher than that of the subsequent 10 years.
Calculating the present value of land rent requires discounting future rental payments of $1 psf per year at a rate close to the opportunity cost of money. In finance, the Present Value Interest Factor (PVIF)2 serves as a multiplier for discounting this future stream of rental income.
Comparisons between the PVIF for various lease terms and the PVIF for freehold land help determine the leasehold value expressed as a proportion of the freehold value. The leasehold PVIFs as a percentage of the freehold PVIF closely align with the rates provided in the SLA’s Leasehold Table, as illustrated by the graph comparing the percentage leasehold value assuming a discount rate of 3.5%. This alignment is particularly observed for lease terms ranging from 75 to 99 years, as well as up to 30 years.
Additionally, it is worth noting that there is a greater variance between the two curves for lease terms between 35 and 70 years. While unverified, there is speculation that the original author of the table used a discount rate of approximately 3.5%.
Explore the comprehensive analysis of Bala’s Table to gain insights into the intricate dynamics of land tenure and value.

Conclusion from Bala’s Table Analysis:
Impact of Leasehold Condos on Long-Term Value and ROI

Leasehold condos exhibit faster depreciation after reaching an 80-year balance lease. This depreciation raises concerns among buyers regarding long-term value. Buyers seek assurance of stable rental income and inflation growth if these condos are used as second properties for rental purposes.
The focus is on Bishan 8, Sky Habitat, and Sky Vue, where Bishan 8 stands out as the oldest property with the lowest sale value per square foot (PSF). With a remaining lease of 72 years (approximately 72% compared to Bala Table), Bishan 8 is considered an aging property at higher risk of rapid depreciation. Buyers, including retirees, downsizers, emotionally attached buyers, and those speculating on future en bloc potential, may show interest, although an en bloc sale is uncertain.
ROI is a key concern due to the shorter lease and maintenance challenges. Properties over 20 years old may exhibit wear and tear, affecting tenant preference. Additional costs for minor repairs may deter tenants from choosing such properties. Prospective buyers should consider the renovation work required to maintain habitable conditions. Landlords may experience lower ROI due to lease decay, higher maintenance costs, and lower rental income.
In summary, Bala’s Table analysis offers valuable insights for real estate buyers and investors. Understanding the implications of leasehold properties and their risks is crucial for informed decisions and optimizing returns on investment. Are you uncertain about considering leasehold properties? The remaining lease/age of the property can have an impact on potential return on investment. However, it is important to note that freehold properties may not be the best option moving forward as well. This question doesn’t have a one-size-fits-all answer. Reach out to us for a personalized consultation to make an informed decision that aligns with your circumstances, retirement, and legacy planning goals. We understand that everyone’s financial objectives, risk tolerance, and future plans are unique.

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