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Stratified considerations
02/08/2003 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

Most units in residential strata schemes such as flats, apartments and condos are small in size so that they can be affordably priced to suit the budgets of home-makers just starting out in life, such as singles and newlyweds.

This price is often coupled with an attractive sales pitch: You only need a small downpayment, while the monthly repayment on the mortgage will be equivalent to renting a similar unit in the area! And as the icing on the cake, there are the recreational facilities and services promised to make a deal almost irresistible. Yes, many a homemaker has been seduced by the glamorous images of life in a stratified unit in the sky. Unfortunately, the actual act of living in one can be quite different. Here are some things you have to be mindful of:

Service charge

Consider the monthly service fee a developer might impose on you. As owner of one of the building’s units, you’re required to pay this charge, which covers maintenance and management of the project’s common areas. However, unlike a mortgage, you never pay it off - it’s a recurring expense you have to accept until the day you sell your property.

Nap-shot, the service fee is also guaranteed to rise over time, due to inflation and the expensive maintenance cost of equipment such as lifts, swimming pools, landscaped gardens and even the security services. As any long-time apartment owner will attest, your contribution to service charges can actually be a compounding cost which is not tax-deductible.

In fact, some strata unit owners are required to also pay service tax on their monthly fees.

Strata titles

It’s taken a long, long time for many stratified homes to be issued with their own titles, and even in such a situation, it’s only happened in cases where the developer is still around to apply at “its cost and expense” for the strata titles to be transferred to you.

Without the titles, you will have to pay an administrative fee to get the developer to consent to a sale and transfer. With the lethargy of the Ministry of Land & Cooperative Development in administering and enforcing the strata title law, you have to be prepared that the state of affairs isn’t going to change any time soon.


Another area of concern has to do with the price you can obtain when it’s time to sell your unit and upgrade. How much do you think you’ll be able to obtain?

If you acknowledge the fact that your target buyers are those without fat wallets, like how your financial condition used to be when you first bought the unit, then you must also concede that unless there’s a dramatic rise in salary among the buyers, your property won’t be able to substantially grow in value. If it does, it will exceed their purchasing power, thus putting your property in the hands of a different target audience who may, or may not, “appreciate” what you have to offer - in every sense of the word.

Another threat to your home’s value comes from the other strata unit owners. Chances are, when it comes time for you to put it on the market, you’ll be joining a throng of other vendors. With so many properties for a prospective buyer to choose from, why would he select yours? Do you have a unique advantage, or an interior design to die for?

If both answers are “no”, then your only other marketing gambit could lie in offering a lower price compared to others, which could make it difficult for units to maintain their values.

Also, be reminded that a purchaser would have to obtain a valuation report before obtaining a mortgage to finance the acquisition. This appraisal usually involves comparing your unit against recent transactions of similar properties. That means if another vendor was distressed, or was compelled to give a substantial reduction in price for one reason or another, it could reflect on your unit’s price.

However, this would also be applicable to other types of mass housing, such as standard terraces.

Renting out

A flip through the Classifieds section of major dailies will show that there are plenty of units for rent in a certain apartment or condo project. This is usually because the owners have moved to better premises, but can’t find buyers for their units yet, leaving them with little alternative but to become landlords.

If you’re contemplating the same thing, there are a few things to note: One is competition from the developer itself. As it could have several units to lease out, you’ll have to give a tenant a better deal than what the developer is offering. This could mean reducing your asking rent.

Also, the presence of too many owners trying to rent out their units could create a case where you might not be able to sell your unit even if you have a buyer! This is because a mortgage lender could reject your buyer’s application for a loan, unless at least half of a building is owner-occupied.

Obviously, smart lenders would check to make sure a project has sustainable rents and capital values before extending a loan to a borrower. They know that tenant-filled buildings usually are not as well maintained as owner-occupied ones, and that poor upkeep could cause rents to spiral downwards as disrepair starts to creep in. Once that occurs, property values would fall, placing the lender’s loan at risk.

These words of advice aren’t meant to frighten you away from owning a home, even if it is in a stratified project. What they intend to do is open your eyes so that you can make informed decisions on owning the best home you can afford.


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