Savvy Buyers Ask These 5 Questions Before Buying an Old Condo

So you insist on buying that 40+ year old condo for some reason. Maybe you want a high rental yield, or maybe your children are well off and don’t need to inherit a property. Whatever the case, make sure you ask these questions first:

1. Is there an en-bloc committee going around?

No, it’s not so you can rub your hands in glee and count on a windfall. It’s to ensure you don’t end up losing money.

You see, if the property you buy happens to go en-bloc in the first three years, you face this little thing called the Sellers Stamp Duty (SSD). This is a tax applied to your sale proceeds:

It’s 12 per cent of the sale price or valuation (whichever is higher) if the condo gets sold within the first year you buy it, eight per cent on the second year, and four per cent on the third year.

On top of this, an older condo probably requires extensive renovation and furnishing on your part. An en-bloc may not take such costs into account, when you’re allocated the sales proceeds.

So if you buy that old condo for, say, $700,000, and spend $60,000 renovating it, an en-bloc on the first year could cost you ($84,000 for the SSD + $60,000 in wasted renovations) = $144,000. Ouch.

And remember, you have to pay the SSD even if you vote against the en-bloc – which we imagine you will, probably while hurling vulgarities and a golf club.

So while an en-bloc could mean a nice payout if you buy at the right time, it could also burn you if it happens too soon. Get a gauge of how close the owners are to selling, if en-bloc efforts are happening (e.g. check how close they are to the 80 per cent consensus required).

2. Are those leaks a problem with your unit, or with the entire block?

Do you see any leaks in the ceiling? That’s quite common in older condo units. But the key is to make sure the problem is within your control.

If the leak is an issue with your unit – such as an air-conditioning pipe that’s deteriorated – you can fix that. But sometimes, the problem with an aging condo block in general. You may find that the same leak is happening in your neighbour’s units (ask around); fixing that will require collective action, and roughly 26 million emails to the management committee.

(Maybe one will even be answered someday).

If the problem is with the block in general, we strongly advise you to find a unit in another block. Or maybe just find a different condo.

3. What is the property’s history of rental transactions (even if you’re not a landlord)?

You can check out the property’s past rental transactions on 99.co. You can also ask the property agent what type of tenants are in the development, and what the typical rental rates are. There are two reasons you want to know this:

First, continued rental demand, with little drop in rental income, means the property is still very liveable. If tenants are still willing to move in, and pay good rates despite the building’s age, that speaks well of the management (it usually means facilities like the gym, pool, BBQ pits, and so forth are in good shape).

Second, many older condo units are bought by investors looking for high rental yields. This is especially true of aging condos near the Core Central Region (CCR). You can expect that many units will see tenants who are around for short periods, such a year or three, before they move on. It’s a good idea to get a sense of what these tenants are like – if most of them are business people, for example, there are probably fewer rowdy parties at two in the morning.

4. What are the zoning restrictions here?

Take note of the condo’s height limitations, as well as how the area around it is zoned. For example, if the land around the development is increasingly zoned for commercial as well as residential use, it can be a sign the area is being built up into a hub – that brings long term benefits, with more amenities and better en-bloc prospects.

The condo’s height limitations also affect en-bloc potential: the higher developers can build, the more units they they can construct (and the more generous the sales proceeds will be).

It’s important to know these things even if you’re not banking on an en-bloc sale. This is because, if an en-bloc does happen and you can’t stop it, you want to make sure the outcome is the best possible one for you.

In terms of home ownership, you want to know these details as they impact your comfort. You may not want to have a huge shopping mall next to your condo, snarling up the roads on weekends. Such changes can also clash with the aging condo’s previous concept – it may have been designed for “quiet garden living” 10 years ago, when the neighbourhood matched; but the area around it now could be a roaring tech hub.

5. How does the remaining lease impact the financing?

Check with different banks, before taking up a loan. Many of them are hesitant to lend for condos with a diminishing lease. However, they all have different policies – one bank may not mind a condo with 40 years left on the lease, whilst another may reduce your maximum loan to a pittance.

This isn’t really your property agent’s job to settle – contact a mortgage broker for help (they don’t charge you for their services). You might be able to get more leverage than you think, even for an older property.

Would you want a higher or lower valuation for your property? Voice your thoughts in our comments section or on our Facebook community page.

Looking for a property? Find the home of your dreams today on Singapore’s largest property portal 99.co! You can also access a wide range of tools to calculate your down payments and loan repayments, to make an informed purchase.

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