Property Unpacked: What are share values and why they are important
By Elizabeth Choong
/ EdgeProp Singapore |
Bagnall Court was the first successful en bloc sale that took place last year. (Picture: JLL)
SINGAPORE (EDGEPROP) – When purchasing a condo unit, most buyers will pay attention to the price, location, and the amenities surrounding the development. However, many buyers neglect to inquire about the share value of the unit and the total number of share values for the development. In this article, we will highlight the importance of share values for condo owners.
What is share value?
The share values for a unit can be defined as the figure that represents the proportionate share of entitlement assigned to each strata unit in the same development. For example, if a condo development has a total of 500 share values and one of the condo units has a share value of five, then the owner of the unit would be deemed to own 1% of the shares in the development.
Owners should be able to find out the number of share values allocated to their unit by checking their sale and purchase agreement or their invoice for management and sinking funds. If they wish to find out the breakdown of share values for each unit in the development, they can write to the managing agent and make a request for the strata roll. Under Section 47 of the Building Maintenance and Strata Management Act, a copy of the strata roll must be provided to the owner after payment of a fee.
How are share values determined?
A surveyor engaged by the developer will allocate a share value to each unit before the developer submits the proposed allocation of share values to the Commissioner of Buildings (COB) for acceptance. The share value for each unit must be accepted by the COB before the developer can sell the unit.
The COB has a set of guidelines to assist developers in the allocation of share values. Generally, the share values for a unit is determined by the perceived usage of common facilities by the occupants of that unit. Residential units are usually grouped together based on floor area, and the same share value is assigned to all units in the same grouping. Bigger units tend to have more share values because it is assumed that such units will have more occupants and, hence, a higher usage of the common facilities.
The share value of a unit cannot be changed once the strata title application is registered. However, the Registrar of Titles may allow changes if there is an error. Amendments may also be made in the case of a subdivision of a lot or the amalgamation of two or more lots.
Share value impacts your expenses
It is crucial for condo owners to pay attention to the number of share values allocated to their unit and the proportion of their share value in relation to the entire development. This is because the share value determines the amount of contribution the owner has to make towards the management and sinking funds for the development.
The management fund is utilized to cover day-to-day recurrent expenses for maintaining the development. Examples include monthly fees to the managing agent, security guards, cleaners, and ad hoc expenses, such as repairs to common facilities. The sinking fund is collected in anticipation of future capital expenses, such as painting the development’s façade.
Annually, the condo's managing agent will prepare a budget for all potential expenses that may be incurred in the following year to maintain the condo. The total projected expenses are then divided by the total number of share values for the entire development to determine the approximate amount that each share value has to bear. Savvy owners and investors should keep this recurring contribution in mind before committing to the purchase of a condo unit, as it will impact their monthly expenses and, consequently, their cash flow.
Impact of share value on en bloc sales
There are two significant ways that the share value of a unit affects the owner in the event of an en bloc sale. Under the Land Titles (Strata) Act, a development must secure majority consent before undergoing an en bloc sale. The Act stipulates that consent must be given by at least 90% of the owners, determined by share value and strata area, for developments less than 10 years old. This percentage is lowered to 80% for developments that are 10 years or older.
Owners with more share values could potentially wield greater influence in achieving majority consent. However, this may not hold true if the development has many small units, and owners of these units band together and vote as a bloc.
Several methods determine the division of en bloc proceeds, including share value, floor area, and valuation. Allocation by share value can be unfair to some owners because the original intent of share value is to determine the proportion of management and sinking funds that each owner has to pay, not the division of en bloc proceeds.
For instance, the owner of a 50 sq m unit will have five share values per Table 1 above. However, the owner of a unit that is 51 sq m has six share values and is entitled to more of the proceeds despite the unit being only slightly bigger.
Due to the perceived unfairness of using share value alone to divide the en bloc proceeds, owners usually decide to use a combination of the three methods cited above to divide the proceeds.
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