Bala’s Curve Explained: A Guide for Singapore Property Investors and Homebuyers

What is Bala’s Curve?

Bala’s Curve is a valuation tool that shows how leasehold property values depreciate over time compared to freehold properties. As the lease shortens, the property’s value decreases—most noticeably during the final decades of the lease.

The curve is non-linear, meaning the depreciation accelerates as the lease nears expiry. For example:

• A leasehold property with 60 years remaining retains approximately 80% of its freehold value.

• When the lease shortens to 30 years, its value may drop to just 60%.

This decline reflects a property’s diminishing utility as its lease runs out, making it less attractive to buyers and financiers.

This table highlights how the value drops significantly after the 60-year mark, accelerating as the lease shortens.

Final Thoughts: Is Bala’s Curve Enough?

While Bala’s Curve is a powerful tool for evaluating leasehold properties, it’s only part of the equation. Factors like market conditions, property location, and individual circumstances play a significant role in determining a property’s true value.

By combining the insights from Bala’s Curve with current market data and professional advice, you can make informed property decisions that align with your goals. Whether you’re buying for personal use or investment, understanding how leasehold depreciation works is key to navigating Singapore’s property landscape.

Need Help with Your Property Decisions?

At Homeasset.sg, we simplify complex property concepts so you can make smarter, more confident decisions. If you’re ready to explore leasehold properties or need guidance on Bala’s Curve and its applications, reach out to us today. Let’s make your property journey a success!

The Origin of Bala’s Curve

Bala’s Curve traces its roots to the colonial era when Mr. Bala, a Land Office employee, developed the model to standardize leasehold valuations. Over time, the Singapore Land Authority (SLA) adopted this model, formalizing it through Bala’s Table, which provides percentage values corresponding to remaining lease terms.

Today, the SLA and other government bodies use Bala’s Table to assess:

1. Leasehold property value for sales and transactions.

2. Lease renewal premiums, particularly for residential and industrial properties.

3. Valuation for government schemes, such as the HDB Lease Buyback Scheme.

How is Bala’s Curve Used?

Bala’s Curve plays a pivotal role in property valuation and leasehold management across Singapore. Here are the key applications:

1. Property Valuation

Property buyers, sellers, and banks use Bala’s Curve to estimate the market value of leasehold properties at different stages of their lease. For instance, a 99-year leasehold property is initially valued at 96% of its freehold equivalent but depreciates more significantly after the 30-year mark.

2. Lease Renewal Premiums

For properties nearing the end of their lease, owners can apply for a lease extension. The government typically calculates the renewal premium based on Bala’s Table, which quantifies the difference between the property’s current value and its hypothetical freehold value.

3. HDB Lease Buyback Scheme

The HDB Lease Buyback Scheme, aimed at helping seniors monetize their flats for retirement, uses Bala’s Table to determine how much value remains in the property. For example, under this scheme, HDB purchases the tail-end lease of the flat based on its depreciated value as reflected by Bala’s Table.

4. Bank Financing

Banks use Bala’s Curve to assess risks when granting loans for leasehold properties. Properties with fewer than 30 years remaining face challenges in securing financing or may come with reduced loan-to-value (LTV) ratios.

Limitations of Bala’s Curve

While Bala’s Curve is a useful framework, it’s not without its shortcomings. Investors and property owners should consider these limitations:

1. Simplified Depreciation

Bala’s Curve assumes a standard depreciation rate across all properties, but in reality, factors like location, market demand, and property condition significantly influence a leasehold property’s value. For instance, a well-maintained leasehold condo in a prime district may hold its value better than an aging property in a less desirable location.

2. Exclusion of Market Trends

The model does not account for external market forces, such as property market booms or regulatory changes. For example, en bloc sales or rezoning initiatives can cause leasehold property values to spike, contradicting the predictable decline suggested by Bala’s Curve.

3. Limited Insight for Short Leases

Bala’s Curve provides diminishing values as the lease shortens, but it doesn’t fully address the complexities of shorter leases. For instance, properties with less than 20 years remaining may have little market demand, even if their theoretical value remains.

4. Static Table Values

The percentages in Bala’s Table remain constant over time, but actual property values are influenced by evolving economic and market conditions. Investors should use the curve as a baseline, supplementing it with current market data.

How Investors Can Use Bala’s Curve for Better Decisions

Understanding Bala’s Curve can help property investors make smarter decisions, particularly when evaluating leasehold properties. Here’s what to keep in mind:

1. Focus on Lease Duration Properties with at least 60 years remaining are generally more secure investments, offering better resale potential and easier financing. Shorter leases may require significant cash outlay, as banks often reduce LTV ratios.

2. Plan for Lease Renewal If a property has fewer than 30 years remaining, consider the cost of renewing the lease. Factor this into your investment calculations, as the renewal premium can significantly impact your returns.

3. Assess Rental Yield Leasehold properties may offer high rental yields relative to their purchase price, but consider the depreciation in capital value over time. A balance between rental returns and declining asset value is key.

4. Seek Professional Advice Consult property agents, valuers, or financial advisors to understand the full implications of Bala’s Curve on your investment. This is especially important for high-value transactions or properties nearing the end of their lease.