Recently, there has been a debate about whether the government should step in and provide support to condo Management Corporation Strata Title (MCSTs) who may find themselves unable to fund essential works.
This comes as the government reviews the Building (Strata Management) Act, which outlines how MCSTs manage their estates.
But given that about 80% of Singaporeans don’t live in condos, extending government financial support in this area is not something I can ever see most taxpayers supporting.
However, I do recognise the wider underlying issue, in that poorly maintained features in condos become safety hazards that have implications beyond the private owners, but public funding for private property maintenance is an almost impossible sell.
A significant point that needs to be highlighted is the fact that 1,000 out of some 3,750 residential developments are over the age of 30. That’s a number much higher than I would have suspected, as our last deep dive suggested very few projects get that old.
As these projects age, maintenance costs are likely to keep mounting higher, and this may have implications for possible en bloc attempts by owners.
So far, in our young country’s history, the conversation around property en bloc sales has mostly centred on the upside benefits, such as the windfall that owners could make when it happens.
But rising maintenance costs introduce a different kind of pressure. As time goes on and condos age further, the question may shift from whether an en bloc is attractive to whether staying in the condo is even still viable.
Some developments may face a situation where the upkeep and cost to replace ageing features and equipment becomes increasingly expensive, yet they cannot secure the level of consensus needed for a collective sale. Without sufficient sinking funds and with major works looming, they risk being caught in a slow decline, with no clear way out.
One possible direction, at least in theory, is a more conditional approach to collective sale thresholds. For example, developments that are halfway through their lease and don’t have enough in their sinking fund for essential works could be given a lower threshold to attempt a collective sale.
To be clear, that won’t overcome some fundamental issues, such as whether the price makes sense to developers or the existing owners struggling to find a replacement home. But it could offer a possible way out, if any projects ever come dangerously close to wiping out their funds.
So far, we’ve yet to see a condo truly run aground this way, but it is a concern going forward, as more of those 1,000-odd projects start to reach the remaining years on their lease.
There’s another alternative, but it depends on the collective behaviour of the owners.
There have been cases where developments, after unsuccessful en-bloc attempts, have instead chosen to reinvest in maintenance. In some instances, this has proven to be a viable alternative to sale and redevelopment.
A good example is Mandarin Gardens. After its most recent collective sale attempt failed to secure the required 80% support, the direction among residents shifted. Instead of continuing to push for a sale, they focused on renewal and upgrading works.
Residents approved around $5 million in improvements, including works such as water tank replacements and waterproofing, which had previously been hard to gain consensus for.
The failed en bloc attempt partly made these upgrades easier to gain the consensus of most owners there. Once a collective sale is off the table, there may be less incentive to defer maintenance. This is the other path ageing condos can take, but it hinges entirely on the owners’ ability to make such collective efforts.
Going forward, this may also change how buyers consider older resale condos.
Right now, most buyers tend to acknowledge their condo maintenance from the monthly fee they’ll pay. But as more developments age, they’re going to have to pay more attention.
Buyers may need to start probing into the sinking fund, whether major works have been carried out or deferred, whether the MCST has been proactive in managing the estate, and so forth. All of these are factors we take for granted today, but this will have to change as more resale condos enter their final decades.
We also had some questions from readers this week.
I’m 33 this year and don’t have the luxury of waiting for a new launch to complete. I’m currently looking at options like Stirling Residences (newer, leasehold, strong MRT access) and Signature Park (older, freehold, larger units). My main concern is choosing the right first property that can appreciate well and still be easy to exit later. Could you share whether tenure vs location/liquidity matters more for capital gains?
What you’re describing is a common trade-off, and based on how we’ve seen different projects perform over time, here’s what I can say:
The freehold tenure of residential developments can support their property value over the very long term, but it also raises the entry price. That higher base means percentage growth is often weaker compared to leasehold projects in similar locations. In most cases, a much longer holding period is needed to justify the freehold premium; so, unless you’re looking at 15 to 20 years or more, freehold may not pay off in terms of gains.
(There’s a bit more detail on the freehold versus leasehold issue here.)
