From bank loans to by-laws: 9 things first-time condo owners should know
By Felicia Tan
/ EdgeProp Singapore |
Buying a new home in Singapore is a significant milestone. A new home usually symbolises your first step into adulthood (especially if it’s your first home), or it represents a sort of status symbol (if you’re upgrading).
Due to the high property prices in Singapore, the decision to purchase a new home is a big step, as it will mean a significant form of financial commitment that could last for years.
And that’s just the beginning. Here are other considerations when buying your first condo.
Landed houses in the 999-year Luxus Hills landed development. (Picture: Samuel Isaac Chua/The Edge Singapore)
Freehold or leasehold?
Freehold properties are generally understood to be more popular and more lucrative. Owning a property with freehold tenure means that there is no time limit on when the land will be given back to the state. The property will also remain under the owner’s name indefinitely, and can be passed down through the generations.
Leasehold, on the other hand, refers to the holding of a property for a limited number of years, before surrendering the land back to the government.
For leasehold properties, you have developments that have a 99-year leasehold, or 999-year leasehold. The latter is considered to be as good as freehold developments. For simplicity’s sake, we will be referring to leasehold properties as those that have a 99-year tenure.
Due to a lack of freehold, or 999-year leasehold, properties available in Singapore these days, such properties usually come at a premium of around 10-15% compared to what leasehold developments would cost.
Whether you ought to get a unit that’s freehold or leasehold depends on what you want out of it. If you intend to build a family home, and to pass it down to your children in future, you may prefer a freehold unit.
That said, due to land scarcity in Singapore, freehold properties aren’t always guaranteed to remain in your family in perpetuity. That is, should the government choose to redevelop a parcel of land that your property sits on for projects like, say, an expressway or an MRT station, they have a right to take it back, with compensation given to you.
If you intend to purchase the unit for investing purposes, a 99-year leasehold development makes more sense, as lower prices generate higher rental yields. The longevity of the unit also wouldn’t matter to potential tenants, who see their rented home as a temporary living place.
These days, 99-year leasehold properties are also gaining popularity in the market, due to the increase in overseas investors from, for example, China, where property leases last only up to 70 years.
Housing loans
For condo purchases, you will have to take up a bank home loan, if you’re not looking at paying in cash. This is unlike buying a public flat, where there is the additional option of getting a loan from the HDB.
When looking at housing loans from banks, it is imperative that you compare loan packages and interest rates offered by different banks to get bang for your buck.
For bank loans, you will need to set aside 5% of your property’s value in cash, and another 20% in cash, or from your CPF account.
Once you are able to relook at your home loans, especially when interest rates are falling like now, consider refinancing to a loan package that offers you a better interest rate with the same bank, or a different one.
Maintenance fees
If you’re upgrading from an HDB flat, you would already be familiar with maintenance fees and property taxes. For condos, compared to HDB flats, you will have to pay higher maintenance or monthly management fees that go into the upkeep of the facilities such as the swimming pool, gym, and function rooms.
For condos, you’re looking at a monthly fee of $500 and upwards. The bigger the development with more facilities, the higher your fees will be.
Property taxes
Another “hidden cost” most buyers don’t take into consideration, is property tax. Your property tax is calculated using the annual value of your property multiplied by the tax rates proposed by IRAS. Annual value refers to the yearly amount your property is able to fetch in terms of rental income. The value is determined based on estimated market rates. Naturally, the amount of tax you will have to fork out annually for your condo unit will be higher than that of your HDB flat.
Investors who are purchasing their second property will also have to take note of additional buyer’s stamp duty (or ABSD), which was raised from 7% to 12% in July 2018 in a bid to cool the property market in Singapore.
Non-Singapore citizens will have to pay an ABSD of 20%.
Photo: Pexels
Home insurance premiums
Your condo may provide insurance. However, that covers only incidents that take place within the condo’s premises, but outside of the residential units. Should something happen to your unit, for example, fire or burglary, that’s where your home insurance comes in.
Do note that when you’re moving from an HDB flat to a condo, the annual cost of your insurance premium will also increase.
En bloc potential
If you’re hoping to make some money out of your unit, going en bloc is one of the ways. Many savvy investors purchase a unit in a condo development mainly for its en bloc potential.
An en bloc sale, or collective sale, is when all the residents of a development sell their units to a buyer in exchange for a handsome amount of cash. For an en bloc sale to happen, the majority of the residents – 80% for developments that are 10 years and older, and 90% for developments that are 10 years and younger – have to agree to the sale.
This is where the choice between buying a freehold or a leasehold property matters, as developers generally prefer freehold condos.
Visit EdgeProp’s En Bloc Calculator Tool to see if your condo is likely to be put up for an en bloc sale.
Rental income
Should you be looking at buying a unit to rent out, the usual factors include a convenient location, whether the development is located near an MRT station, bus interchange, shopping mall, or an educational institution.
Click here to look at more factors that make a property popular with investors and tenants alike.
Click here to find properties near MRT stations.
Finding a good developer and condo management
Not all property developers and Management Corporation Strata Titles (MCST) are made equal. Once a development is completed, the developer will hand over management of the property to the MCST, which is an entity in charge of maintaining the condo’s grounds and facilities, external features, and so on.
The MCST is elected by unit holders at an Annual General Meeting (or AGM). This is important because a responsible MCST makes all the difference between clean and well-maintained facilities, and facilities (such as the swimming pool) that are in disrepair.
You will also want your property to be protected by responsible security teams, which are under the management of the MCST.
Search for MCSTs here.
Rules and regulations
Condos come with rules and by-laws too. Before confirming your purchase, make sure you go through the condo’s by-laws, which are put in place to ensure the comfort of the condo’s residents. Common by-laws cover home renovations, moving dates, noise levels past a certain hour, entering without an access pass, and so on.
Check if you agree with these by-laws or not, as you won’t want to pay a premium for your home to have your movements further restricted.
If you’re looking to renovate your unit extensively, do note that major changes to the condo’s façade, including safety features that are clearly visible from your balcony, are not allowed.
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