4 Condo Strategy that may Backfire When Buying Property

Below are 4 popular condo strategy commonly used by investors. Every condo strategy will have their pros & cons and may not be suitable for everyone. Without property planning or guidance from professional, they may backfire and create problems for inexperienced buyers 

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     Table of Content

  • 99-1 Strategy
  • Pledging & Show cash
  • Rental Yield vs Capital Appreciation
  • Buy for En Bloc

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📌 1. 99-1 Strategy

  • When a couple buys a condo, by default, they will own the property under Joint Tenancy.
  • Those who aspire to own a second property will choose Tenancy-in-Common instead and hold the first property in 99-1 manner.
  • The key purpose for 99-1 holding is to save on both buyer stamp duties and additional buyer stamp duty (ABSD).
  • Refer to my article “3 Tips when Co-investing in a Private Condo with your Spouse” for details.

Common Challenges

  • During decoupling, buying spouse (99%) realized he (she) is unable to take over the full loan amount for first property.
  • The buying spouse (99%) needs to refund the CPF + accrued interests used by the outgoing spouse (1%) 
  • The outgoing spouse (1%) does not have enough income to qualify for the bank loans needed to buy the second property.

📌 2. Pledging & Show cash

  • Total Debt Servicing Ratio (TDSR) is applied to loans for the purchase of private properties.
  • Under MAS Notice 645, your cash, fixed deposits and shares can be included as part of your gross monthly income.
  • Buyers who fail TDSR will not qualify for the loan amount they needed to buy their dream property
  • They may attempt to use pledging or show cash methods to improve their TDSR and take higher loan amounts

Common Challenges

  • The objective of TDSR is to encourage buyers to be prudent and not take excessive loans.
  • Pledging and show cash are legitimate methods to help buyers take higher loans but they should be used with discretion and care
  • Buyers who are financially overstretched will find it tough to service their higher monthly mortgage later, especially when bank interest rates rise.

📌 3. Rental Yield vs Capital Appreciation

  • Some buyers like to look at rental yield as the key factor when deciding which property to buy
  • Besides rental yield, I feel capital appreciation factor must also be considered together
  • For example, there are many freehold condos in Geylang that promises high rental yield @5%.
  • Its unique location, food offerings and rich culture is a draw for many tenants.
  • However, due to stigma and bank loan limits, the capital appreciation potential there tends to be lower than other parts of Singapore

Common Challenges

  • Besides rental yield and capital appreciation, you should also have an exit strategy, especially when you are investing in overseas properties.
  • I have seen overseas projects using “guaranteed rental returns for X years” to attract Singaporean investors. 
  • However, the question is after X years, “Is there rental demand?”, “is the rental yield sustainable?
  • Many overseas investors also overlook the presence of the secondary markets e.g., who are the future buyers of your property?

📌 4. Buy for En Bloc

  • A recent study observed a price increase when condos reach 31 to 40 years old.
  • This is because of their higher en bloc potential.
  • In Singapore, not many condos survive beyond 40 years
  • En bloc Investors will aim to enter at the lowest price possible.
  • They will buy the cheapest units e.g., low floor units in original conditions.
  • When there is a collective sale, every owner will be paid based on share value, regardless of floor levels or interior conditions.
  • After completion, these buyers will spend the minimum for renovations, then rent out unit and wait for the collective sale.

Common Challenges

  • En bloc is a long-term game and is not for everyone.
  • It is not suitable for short term investors or buyers with a fixed time frame
  • While older condos are good en bloc candidates, we do not know whether the collective sale will happen 5, 10 or 15 years later or maybe not at all.

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Dennis Lim

Dennis has more than a decade of experience investing in real estate. Like many fellow Singaporeans, he grew up in a HDB flat with dreams to live in a condominium. Through careful financial planning & hardwork, this became a reality when he was 30. He now owns 3 private properties in Singapore and has helped hundreds of Singaporeans to achieve their goal of upgrading their homes in land-scarce Singapore.

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