In Singapore, purchasing private properties is an attractive option for many looking to invest their money.
However, with properties like landed homes and condominiums being more exclusive and much more expensive when compared to public HDBs, it is understandable that buying such properties is a very important financial decision to make.
If you’ve planned it well, buying a condominium can become a profitable investment that can help you retire early and comfortably. Furthermore, with amenities like gyms and swimming pools that you don’t have to personally maintain and open spaces for your family to roam and hold private events, a condominium may become more of a value add to you than you expect.
However, the purchase of a condominium comes with a financial commitment that you will have to carry for quite a few years. That’s why it's important to know these factors before you decide to sign that contract.
1) Leasehold Vs Freehold
In Singapore, due to the shortage of land, most properties are built on land with a 99-year lease. This means that after 99 years, the government is free to take back the land at no cost.
If you’re buying a new condominium for investment purposes, a 99-year leasehold condo might be an affordable option for you to invest in. This is due to the fact that when compared to a freehold condominium, new condos with a 99-year lease are often sold at a price that is about 10-15% cheaper.
Furthermore, when it comes to renting, the length of the remaining lease period is not a consideration. Tenants usually do not care if you have 20 or 40 years left on your property as it is not common for them to be renting for the entirety of that period.
The 99-year lease condo that you purchased will still be able to net you the same rental income as a freehold condo. We mentioned that 99-year leasehold condominiums are usually about 10-15% cheaper than Freehold condominiums. This “discount” that you get actually adds to your profit margin.
In short, a cheaper leasehold condo will be better for investment as the lower prices generate a better rental yield.
However, if your plan is to buy a family condominium that you wish to pass down to your children (and grandchildren), a 999-year leasehold or a freehold development might be a better choice.
2) The Hidden Potential of the Property
Apart from rental income and selling your property after the price appreciates, another possible source of income that you might make money from is from your unit going en bloc.
For those who are unaware, an en bloc sale is a sale where everyone staying in a development agrees to sell their units to a developer for redevelopment.
As 90% of all residents in a new development (less than 10 years) or 80% of those in older buildings (more than 10 years old) have to agree to the sale, developers are often forced to pay an amount that is much higher than the market price. This means that you will be able to make a handsome profit if your condo goes enbloc.
While there are many factors (like value of the land, proximity to good amenities, etc.) that affect the en bloc potential of a piece of land, freehold developments are often more attractive to developers.
3) The Cost of Housing Loans
Now that you have decided the particular condo to purchase after looking at the lease and en bloc potential, it is time to fund the purchase.
Unlike buying a HDB, buying a private condo means that you will not be able to apply for a HDB housing loan. This means that you will likely need to look at the home loans provided by various banks and find one that is most suitable for you.
The interest rates and repayment periods are all important factors that you have to consider. With so many different banks and packages, finding the best loan package can save you a lot of money in the long run.
Apart from that, it is important to note that you have to set 5% of your property’s value in cash and a further 20% in cash from your savings or from your CPF account.
Lastly, you shouldn’t stop looking for good loan packages after choosing one. When interest rates are down, it might be good to look for better deals and refinance your home loan with a different package that has a lower interest rate.
4) The Other Hidden Costs
Apart from paying for the property itself, it is important for you to budget for the various other costs that come with your new condo.
The first hidden cost comes in the form of property tax. Depending on the value of your new home, the amount you have to pay IRAS in taxes might amount to a huge bill.
Furthermore, if you are not a local Singaporean or if you are buying a second property, you will have to pay the additional buyer’s stamp duty (ABSD). At 12% for second property owners and 20% for non-locals, the amount of tax might throw your finances off if you do not plan for them carefully.
Another hidden cost would be the maintenance fees for condominiums. While not as costly as the property tax, you might have to pay upwards of $500 monthly for the upkeep of the shared amenities within the condominium such as the swimming pool and gyms.
Be mentally prepared for such costs. Find out everything before you make the purchase. Do not let these costs come as a shock to you.
5) Insurance for Your New Home
While the management for your condo might have insurance for the development, it is important for you to understand that the insurance only extends to incidents that happen within the condominium’s premises but not what happens in your Condo unit.
To cover for incidence that happens within your unit (Fires, Flooding, Burglary), that is where your home insurance comes in. The two insurance are separate and different.
6) The Livability of the Condo
After spending so much time and effort to choose a good condo and planning your finances to afford the condo, imagine if you have to live under a condo management that has ultra-strict and restrictive regulations.
Before you decide to buy a condo to live in, check the condo’s by-laws as these by-laws can restrict the amount of home renovations allowed, the dates you can move, noise levels and even the number of guests allowed.
It is important to ensure that you will be able to live within all of these regulations before deciding to buy a condo to live in. if you end up living somewhere with regulations that are too restrictive for you, you might have to make huge lifestyle changes that you might not be comfortable with.
7) The Rentability of the Condo
If you aren’t planning to live in the condo, you will have to take note of the rentability. While many factors affect the amount of rental income you can receive, things like proximity to MRT stations and shopping malls attract higher rental prices.
Being located nearby important office buildings and tertiary education institutions also means that your unit has a higher chance of finding a tenant fast.
Apart from these, having a good condo management team is important as well.
In condos, the Management Corporation Strata Titles (MCST) is in charge of maintaining the facilities and features of the condo. With an irresponsible MCST, your condo might not be maintained as well, with facilities falling into disrepair and security teams that are too lax.
As a result, your condo might not fetch attractive rental prices. That’s why it is important to ensure that your condo will be handed over to a reputable and trusted MCST. A good MCST will also ensure better livability and better selling prices in the future as well.
The Final Word
With all these factors in mind, you will be better able to choose a condo that suits your needs and prevent making a financial commitment to a condo that you regret buying.
It pains us when we see people buying properties they regret almost immediately
However, with the right decisions, you will be able to buy a condo that is not only a great property investment but also a good place to live in.
What are you waiting for? Contact us now and we will help you find the most suitable property to invest in today.