Property Investors May Suffer Under New Property Legislation

As the bulk of property-related investments are stratified residential properties, three new property legislation have been updated for a more efficient delivery of strata titles.

While these new legislation provide more protection to house buyers, it equally impacts the cost for property investors that have invested in strata residential properties.

Among these are the Housing Development (Control and Licensing) (Amendment) Act 2012 (“HDAA”), Strata Titles (Amendment) Act 2013 and Strata Management Act 2013 (both “Strata regime”). The Strata Management Act came into effect on June 1, 2015.

Here are how the new legislation may impact property investors:

1. Higher property prices

Under the new legislation, developers are required to increase the amount to be deposited in the housing developing account and also to maintain the common property defects account prior to the delivery of the keys to the house buyers.

With the higher compliance cost, this may indirectly result in fluctuations of property prices.

2. Fewer options with fewer developers

As cost for developers goes up, developers need to be financially strong to maintain a feasible and sustainable cash flow. This will discourage the smaller players.

3. Higher transaction cost for property flippers

The earlier issuance of strata title upon delivery of vacant possession will require investors to fork out expenses related to the stamp duty before selling the completed property to the next buyer. For investors who bought directly from the developers, they will no longer be able to make savings on the stamp duty. This lowers the return on investment, along with the longer and complicated process of double transfers for those who are eager to dispose of the property on delivery of vacant possession.

4. No advance booking of units

The prescribed sale and purchase agreement (SPA) HDAA (Schedule H) states that the developer is no longer allowed to collect booking fee from the investors to lock in their preferred unit. Also, the unit they have selected is only secured upon the signing of the SPA with the 10% deposit. As such, there is no backing out once the SPA has been signed.

5. Additional cost incurred

Another cost that will burden property investors is the maintenance fees charged by the management office when they get their keys to their properties. The new strata regime hints for the possibility of limited common property usage, and the privilege of certain facilities will come with a price tag.

6. More time consuming

The new strata regime requires the active participation of all owners, as the tenure of the office bearer is limited. Other owners are required to sit in the management corporation committee on subsequent years. Despite the fact that taking up the responsibilities of committee members offers monetary gains, any misconduct or negligence may now result in a penalty.

Furthermore, with the new restrictions on advertisement and representation by the developers, investors are required to spend more time on research and do their own due diligence to better understand the investment. There is no longer permitted representation such as time or distance from a particular venue, projected monetary returns or gains and rental income.

Investors are advised to take these legislations into consideration when projecting future investment return.

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