I nearly bought a condo with a ceiling leak and depleting sinking fund issue: Why MCST problems need to be more transparent

Of late, we’ve had questions from a reader about the MCST system in Singapore; and about how it’s a little opaque and unfair.

If you’re a foreigner or have bought property overseas, you may be struck by how little information there is given to you as a buyer on our MCSTs, or by just how much they’re allowed to keep private. Here’s a quick look at the issues that arise – and what you may be forced to just accept:

The MCST issue from a more external perspective 

S had just moved to Singapore from New York, and noted a huge difference in the way we do things:

“When I was looking at apartments there, it was common to ask for and receive the last three years of a building’s audited finances. Depending on the type or age of the building, some banks may also require this information when analysing the mortgage application. In this experience, I received this information every time that I asked for it. Usually, if a buyer is interested in the unit, this is an expected part of their due diligence process.”

In Singapore however, asking for the audited finances of a condo will either draw blank stares, or flat-out refusal. Unless you’re an owner, condo management will almost never disclose the information. 

“I really only asked for this information for one - two places that I viewed and I really liked,” S says, “Each time though, the seller’s broker said that it was an unusual request and they normally wouldn’t be able to get that information. I never did receive any in the end.” 

Thankfully for S, this didn’t become a case of major buyer’s remorse for her. It could have been worse though, but she, fortunately, was able to bypass this when she was outbid for an earlier apartment that she had her eye on. 

This was a boutique condo, which provided little detail about its maintenance and fees: “I was originally drawn to the building because it was smaller and felt more private and intimate. In the end I was outbid which was lucky for me.”

As it turns out, the intended project had a leak in the rooftop pool, that significantly ramped up maintenance costs to repair. At the same time, it caused issues with the unit directly below it, as the pool leaked into the apartment:

“A small increase of $100 to the monthly maintenance might not be a huge deal but what about $1,000? 

The unit’s owner is suing the building. It might not be a big issue if the cost is shared from an outstanding sinking fund or across hundreds of owners. However, this particular building only has 63 units.

I would have been extremely upset if I had to deal with increasing monthly maintenance soon after buying, and then having to deal with litigation costs and subsequently the settlement cost.”

Why don’t we check maintenance funds in Singapore? 

The simple reason is, we assume the governing authorities have it in hand. As most condo management will tell you, their records are vetted by the authorities every year. The MCST is audited, and the certified true copy of the audited accounts will be sent to the Commissioner of Buildings (COB). 

While condo developers have gone bust before finishing a project (Laurel Tree and Sycamore Tree being the most recent examples), we haven’t yet heard of any MCST running out of funds to maintain a condo. As such, it may be that no one checks simply because the situation seems so rare, no one is really looking into it. 

The opacity is not a great thing to live with 

S doesn’t agree with just accepting the opacity of condo management:

“From a buyer’s perspective, understanding your financial risk is obviously important. What if a small sinking fund gets wiped out because the building needs brand new lifts, or gets sued, or any number of life’s issues?…

…During the purchase process, are there even practices in place that search for litigation against or outstanding debt lodged against the entire building?”

With regard to the purchase process, we can tell you that banks at least do their research. It’s not unheard of for banks to deny loans for condos, while the MCST is currently embroiled in some form of litigation. Buyers, however, may not know this (until, of course, their loan application is denied and the bank explains it to them). 

However, it’s rare for anyone to check the sinking fund or other maintenance ledgers, unless they’re considering an en-bloc without redevelopment (e.g., a company is buying over the whole block as a rental asset). Buyers of individual units are seldom as particular. 

The details can be revealed to owners but not to outsiders; so buyers are reliant on the seller being willing to request and produce the financial statements. 

Uncertainty over what MCSTs can or cannot do 

S notes that she only saw the by-laws after the first meeting; these weren’t well publicised beforehand. Certainly, few sellers or agents bother to brief buyers on this – and in the current system, it’s the buyers’ job to unearth these details. 

Even so, we find that most buyers are unaware of the difference between by-laws and regulations; or what exactly the MCST can enforce (we have an article on that here). We’re also quite fuzzy on how exactly the MCST can use the maintenance money. 

In the notorious case of Neptune Court, for instance, the condo management used the condo’s funds to pay for a failed defamation suit against some owners (they were forced to repay $420,000 into the estate fund). 

Most recently, we also heard a surprise that owners can be forcibly evicted for unpaid maintenance fees, as was the case with Arc @ Tampines. The amount ballooning to $36,000, by the way, is totally possible as your MCST can impose interest rates of around 15 per cent per annum. 

This issue seems to be an evolving one, and we’re slowly laying the groundwork on what’s permissible as the years roll by. 

What should change in the MCST system? 

S had some suggestions on what changes would work in the MCST system:

“I see that a good MCST brings value in two ways. The first is to provide a comfortable living environment from a day-to-day aspect. The second is to maintain the value of the building and subsequently the value of your home. In an ideal world, the relationship between owners and MCST’s should be an equal two-way street with both parties sharing the same mindset.

In terms of sharing building financials to prospective buyers, I honestly do not see why that is an issue. If the financials are good, what kind of repercussions would buildings face for sharing a report? Why would someone go around pretending to be a buyer to obtain building reports?

Generally, it seems that MCST systems still operate in an old-school fashion. Bringing them up to date with technology (hello, iCondo) or other methods is probably an easy way to make a quick but significant improvement. That said, I would definitely get feedback from other people on this question since I have limited experience and by no means an expert on this.”

We’d venture to say few are experts on MCST issues, as they’re seldom discussed topics. Property management is in some ways a closed world, with its own set of specialists. But S is not the first to bring up the issue of opaque financials; and more buyers are now asking if BCA or the COB can provide such details. 

ALSO READ: We own an executive maisonette and a condo - should we sell our maisonette to buy another condo or sell both to buy a landed property?

Another suggestion, which we’ve increasingly often, is that owners should be involved with picking the very first MCST put in place – usually this is chosen by the developer. To date, this is an element that most buyers have had no control over. 

In the meantime, our ability to assess an MCST is based purely on what we can see: whether the facilities seem well maintained, whether the guards are polite, whether the by-laws seem reasonable, etc.  

S has some basic things she looks for, in lieu of transparent MCSTs:

“The easiest way would be reviewing the building’s financials against the physical condition of the building. But without that, I might look at a couple of things:

• Building condition versus building age
• Anything that might look super expensive to fix or so unique that it would be a custom job to fix (like the lift at The Palisades on Pasir Panjang Rd) and the current condition looks like it hasn’t been well taken care of
• Do the building staff look happy to be working there? It’s like any office environment, if people are underpaid or ill-treated, chances are there are underlying issues with management. 
• Are there a ton of notices put up regarding rules and regulation? Maybe that means neighbourly disputes are being handled by a top-down enforcement of rules. And who enjoys when one person ruins it for everyone? 
• If the building has few units but a lot of recent transactions. Why is everyone selling? 

With regard to the notice board though, we’d say that quite often it reflects on some problem tenants rather than management issues. When there are repeated notices not to park bikes in a certain area, for instance, this tends to be directed at the one or two families who keep doing it. 

What we would look for is the tone of the messages – fussy or unreasonable MCSTs tend to take on a hectoring voice, often involving threats, spelling out long fines and quoting passages from by-laws, etc. Sometimes, there are cases like Castle Green, where the MCST uses name-and-shame methods. These are usually signs of a toxic MCST in place.

We’ll take a deeper look at this issue and what can be done shortly, follow us on Stacked, as we check out how the MCST situation is changing. We’ll also provide you with in-depth reviews of new and resale condos on the market. 

This article was first published in Stackedhomes.