How Lloyd SixtyFive’s experiential leasing scheme could be a game changer

Lloyd SixtyFive has a “rent before you buy” scheme that will probably look familiar to foreigners – while it’s common in the United States and Europe, it’s atypical for developers in Singapore. Nonetheless, the scheme introduces a new approach to property buying here, and it may be something of a game changer. Here’s why:

About Lloyd SixtyFive

Lloyd SixtyFive is a freehold, 76 unit condo in River Valley. As the name implies, it’s at 65 Lloyd Road. It’s close to Somerset MRT station, and Orchard Central. This is a 10 storey development, ranging from single bedroom (592 to 904 square feet), to four bedrooms (6,620 square feet).

Lloyd SixtyFive has an “experiential leasing scheme”: rather than buy a unit outright, you can choose to rent for two years. At the end of the lease, you will have the option to buy.

This involves paying a rental advance, of 10 percent of the purchase price, and a further 2.5 percent deposit. Rental costs are about $2,760 per square foot, or about $6,750 per month. At the end of the two years, if you do decide to buy, the rental costs will be refunded. If you decide not to buy, only the 2.5 percent deposit is refunded.

Why this scheme is a game changer

There are a number of subtle advantages that this scheme provides to buyers. We also see a good chance it will catch on, if loan restrictions remain tight:

• Subletting the unit can significantly lower costs
• Avoiding interest payments for two years
• More time means fewer cash flow issues for buyers
• Being able to live there before committing

• Subletting the unit can significantly lower costs

We’ve confirmed that you can sublet the unit you rent from Lloyd SixtyFive. Now at $6,750 for a single bedder, there’s almost no chance you are going to cover the whole cost. But other, comparable listings in this area show that rental rates of $4,000 are quite within reach.

If you’re okay to not reside there for two years, this can significantly offset your cost. Assuming you get rental income of $4,000 a month, you would shave around $92,000 off the total cost over two years (minus $4,000 for the agent fees).

• Avoiding interest payments for two years

You’re renting, not loaning. No mortgage means no interest repayments. How much does that come to?

Well, assume it’s a 3-bedroom unit, which would mean a cost of around $6.8 million. The loan amount is $5.4 million (80 percent Loan-to-Value), at around 1.8 percent per annum (this is true for at least the first two years). We’ll also assume a 25 year loan tenure. Monthly instalments would be around $22,366.

Total interest paid (excluding the principal), within 24 months, would come to approximately $188,355.

By renting instead of buying, you have no loan and avoid paying this sum.

• More time means fewer cash flow issues for buyers

In the first place, we doubt that anyone buying a district nine condo will have cash flow issues. Nonetheless, the significant down payments involved (buying a three-room would require some $1.3 million down) can be troublesome. They often require buyers to liquidate certain assets early, or to skip certain investment opportunities.

Renting requires a much smaller cash outlay, which will appeal to buyers who don’t want to re-tweak their portfolios.

• Being able to live there before committing

Is living near Orchard all it’s cracked up to be? Not for everyone – despite the convenience, a handful grow to despise the weekend crowds and the noise pollution. Renting gives you a sense of what it’s like to live in the area, before you are forced to commit.

This could be helpful for other developments as well

This scheme could be helpful to mass market properties. There are many buyers whose main gripe is the large capital outlay needed to buy private properties – and the rental option gives them the time they need to get their cash together.

The subletting will be of especial interest to landlords, many of whom don’t intend to reside in the property anyway. The two years would translate to nothing more than a discount in many eyes, and it might help to lift a moribund property market.

Check out other rental related articles here: Short-term apartment rentals: The answer to the slow leasing market? and Here’s why renting in Singapore isn’t as expensive as you think

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