It can be troublesome in short. Avoid buying these properties no matter what the property agents are telling you. Their primary motive is to sell the property they have been assigned to, as opposed to acting on the buyers’ best interests.
Before I expand on the title, I need to explain the importance of an individual/strata title. When a developer launches their properties (let’s call them a township), they would be develop the township on a big-ass piece of land; we will call this land the master land, which is documented as a master title. The master land is usually owned by the developed or assigned to them by the owner, of which case this would be a joint-venture development.
You may be asking, why wouldn’t the developer subdivide the lands into smaller plots before building the properties? Realignments are not uncommon during developments; roads may need to be moved, soil conditions may not be as expected, old and forgotten cemeteries may be found, etc. So it may not be too prudent for them to subdivide the lan
d before everything is set in stone (haha, get it?). The same thing applies to high-rise properties where there wouldn’t be any units to be subdivided – you can’t really divide ‘air’ can you?
Once the properties are completed however, the developer is supposed to start subdividing the master land into individual plots/units. This process allows each plot to be assigned an individual title (for landed properties) or a strata title (for high-rise units). Sometimes it is also possible to find landed units that are assigned strata titles, but we will get into that in a different post.
The issue that I would like to tackle this time around is the practice of buying older properties that are older than 10 years but without any individual or strata titles. Banks are not keen on financing these properties.
Why not you say? Well, consider that the developer could have subdivided the master title in the past 10 years, but refuses to do so for a multitude of reasons; mainly due to the fact that it costs money for them to proceed with the subdivision. The same money that has been allocated to them when they sold the property 10 years ago. Are they short on cash? Mismanaged the earmarked funds? Whatever the reasons are, banks view that these developers as errant and may even start black listing them.
But why does it matter? Aren’t the developers going to subdivide the properties sooner or later after all? Well, not necessarily. There have been plenty of cases where the developers became insolvent before they get to subdivide the properties. And when this happens there would be no subdivision of the master title, nor would there be any transfer of title (for the purpose of selling/buying the properties) to take place until a liquidator is appointed. This matters a lot since they will view the property as risky.
There are exeptions to this rule, that is some banks wouldn’t mind financing these properties. However, it is dependent on the developer still being around, and has a good financial record. Banks are able to perform credit checks on them through CTOS and RAM credit ratings. But my question is: why bother? If the developer has wasted the past 10 years, there is no telling when they would subdivide the master title before they become insolvent or purposely liquidated by the parent company.
The banks in general would prefer to minimize their risks, and properties this old and without a title is risky. The ones with bankrupt developers are even riskier. This matters to the buyer as well as the owner. For the buyer, there is a high chance that most banks would finance the purchase, so you would be limited in terms of your choices; the higher risk also increases the interest rates as the rates are reflective of the risks the banks are taking. On the vendors’ side, they may find it difficult to dispose the property as there may not be buyers who are keen on one, or they simply couldn’t get the right financing.