The realities of collective sales

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/ EdgeProp
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November 10, 2017 11:00 AM SGT
The collective sale momentum of freehold sites has picked up in recent months (Credit: Samuel Isaac Chua/The Edge Singapore)
A growing number of old condominiums — both freehold and 99-year leasehold — are attempting en bloc sales even as rumblings among dissenters increase. What is the cost to minority owners?
The tender for Royalville, which was launched on Oct 12 was originally supposed to close on Nov 10. However, on the evening of Nov 9, marketing agent Edmund Tie & Co. announced that the tender period has been extended. The new closing date is Nov 30.
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Altogether, 80.25% of the owners had agreed to the collective sale at $368 million, which translates into a land rate of $1,509 psf per plot ratio (ppr).
However, not all the owners are expected to pop the champagne at the prospect of the collective sale going through. “Who likes moving? Especially if it’s against your wishes. That makes you feel even worse,” laments one of the owners who did not agree to the collective sale of Royalville. Having moved into Royalville more than a decade ago, he has witnessed all three collective sale attempts at the development. The first was in October 2007, when the asking price was $350 million, but there were no takers, so the price was cut to $305 million in April 2008 as the collective sale fever cooled. The second attempt was in 2011/12 when the asking price was $320 million to $370 million.
It was during this second collective sale attempt that the owner decided to buy another condo unit with similar attributes in the same neighbourhood in case the sale went through. Likewise, when the latest collective sale attempt was launched, he decided to buy another unit in the Bukit Timah area as a safeguard. “But now that the units are tenanted, we can’t ask the tenants to leave just because we’re being pushed out of [Royalville],” he reasons.
Replacement home
He reckons if the collective sale goes through, he will have another year before he has to move out. “We love the condo and the convenience of the location,” he says. “We’re not one of those people who bought a few years ago in the hopes of an en bloc sale.”
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The 30-year-old Royalville contains 93 condo units and 11 strata shops that sit on a freehold site of 174,176 sq ft. Under the URA Master Plan 2014, the site has a plot ratio of 1.4, and has the potential to be redeveloped into a new condo with 323 units.
The site in prime District 10 is said to have attracted strong interest from developers. This is not surprising as the last time a freehold site of this size in Bukit Timah was sold en bloc was more than 10 years ago, recounts Swee Shou Fern, Edmund Tie & Co’s (ET&Co) senior director of investment advisory. In 2006, GuocoLand purchased Casa Rosita, which has since been redeveloped into luxury condo Goodwood Residence.
ET&Co is the marketing agent for Royalville, which is expected to be third time lucky in its latest collective sale attempt.
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Pricing difference
For the minority owner at Royalville, what has also left him with a bittersweet feeling is the upcoming launch of the government land parcel on Fourth Avenue, located just 400m from Royalville. The 199,481 sq ft, 99-year leasehold site is deemed to be “a very attractive site”, as the Sixth Avenue MRT station is at its doorstep and it is near good schools and the established residential estate of Bukit Timah. A developer had triggered the site for sale after it committed to bid no less than $448.8 million ($1,250 psf ppr) for the site.
The Fourth Avenue site has a gross floor area (GFA) of 359,066 sq ft and can be developed into a 455-unit residential project. Nicholas Mak, executive director of ZACD Group, expects the site to draw 10 to 15 bids. “The top bid in the tender for this site could range from $500 million to $550 million ($1,392 to $1,532 psf ppr),” he says. This year, most of the Government Land Sales sites for sale have drawn more than 10 bids each.
On the other hand, Lee Nai Jia, head of research at ET&Co, is expecting eight to 10 bids for the site, with the winning bid projected to be around $567 million ($1,580 psf ppr).
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“I’m of the opinion that Royalville should have waited until the GLS site on Fourth Avenue was triggered before putting in an asking price,” says the minority owner at Royalville.
Tan Hong Boon, JLL regional director of capital markets, is of the view that Royalville’s asking price “is a good selling price for the vendors”. Based on the minimum bid price, the Fourth Avenue site’s land rate is $1,250 psf ppr, which is 20% below that of Royalville’s asking price of $1,509 psf ppr.
“There’s generally a 10% to 15% price difference between 99-year and freehold sites,” says Tan. “Some developers are even willing to pay a slight premium for GLS sites as the acquisition process is more straightforward and the turnaround time to launch the project is faster compared to buying a collective sale site.”
Having been involved in collective sale deals for close to two decades, he understands how owners feel. “Different people have different concerns,” he explains. “Those who live there and like the condo will have an emotional attachment to the place, and are reluctant to move. But if they claim they can’t find another unit in the area, it’s because of inertia. If you want to, perhaps you can find something more suitable to your current lifestyle, and still free up some cash.”
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Collective sale momentum intensifies
The collective sale momentum has intensified in recent months, with more collective sale committees (CSCs) being formed, notes Lee Liat Yeang, senior partner in Dentons Rodyk & Davidson’s real estate practice group. The legal firm represents the vendors of Royalville, and also represented those of Rio Casa, a privatised HUDC estate that was sold for $575 million in May, and those of the freehold Changi Garden, which fetched $248.8 million in mid-October.
Condo projects that have secured at least 80% consensus for a collective sale and will be launched for tender in the coming weeks include Derby Court, a boutique freehold condo in Novena, located in prime District 11. The 12-storey block sits on an 18,506 sq ft site at 5 Derbyshire Road. The building is 38 years old and contains just 20 units. The site is zoned “residential” and has a plot ratio of 2.8 under the 2014 Master Plan. The indicative price could be around $1,200 psf ppr.
Another boutique development is the 43-unit Kismis View, located on Lorong Kismis off Toh Tuck Road. The property has a 99-year lease from 1983 and is likely to be priced at more than $100 million. “These boutique developments are palatable to developers,” notes JLL’s Tan. JLL has been appointed marketing agent for both Kismis View and Derby Court.
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The en bloc sale of the 17-unit apartment block at 11 Balmoral Road kicked off on Oct 31 after all the owners agreed to put the property on the market with an asking price of $75 million. Including estimated development charges of $10 million, this translates into a land rate of $1,761 psf ppr.
This is the first en bloc sale attempt by the owners of 11 Balmoral Road, says JLL, which is the marketing agent.
With 100% consent, the sale would not need approval from the Strata Titles Board, so the buyer can take ownership of the site at the end of the vacant possession period, says JLL’s Tan. “The developer can therefore plan for the marketing and building of the new project more quickly.” The tender for 11 Balmoral Road closes on Nov 29.
More freehold sites launched
While the privatised HUDC estates have grabbed attention, owing to their sizes and absolute prices, increasingly, more freehold collective sale sites are coming onstream, observes Dentons Rodyk & Davidson’s Lee.
Just off Tanglin Road is Jervois Green, a block of just eight apartments that was put up for en bloc sale by tender on Nov 6. The price tag is $48 million, or $1,373 psf ppr. The asking price includes the additional 10% GFA for balconies and a development charge of $9.87 million, says marketing agent Colliers International.
The challenges in securing an 80% consensus among the owners have not changed, says Dentons Rodyk & Davidson’s Lee. “But many owners are of the opinion that speed to market is important, reflecting a desire to take advantage of the strong interest manifested by developers in recent tenders,” he adds.
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However, Lee advises CSC members to be mindful of legal pitfalls, and not to sacrifice the necessary steps in their desire to move quickly in the collective sale process.
After two aborted collective sale attempts in 2007 and 2011, Tulip Garden on Farrer Road is giving it another go. The CSC has appointed Colliers as the marketing agent and the process of collecting signatures is well underway to hit the 80% threshold required.
According to a letter from the CSC of Tulip Garden to residents dated Oct 31, the reserve price has been set at $688 million, which translates into $1,358 psf ppr. The 164-unit project sits on a freehold site of 316,709 sq ft, with a plot ratio of 1.6 and a maximum height of 12 storeys under the 2008 Master Plan. “With every successful en bloc, Tulip Garden will have one less potential buyer,” according to a letter written by a resident on behalf of the CSC. “The longer we drag Tulip Garden’s tender to the market, the lower the likelihood of a bidding war. If it’s not obvious already, this is a race to the finish line.”
The letter also expressed a concern echoed by other collective sale hopefuls and real estate industry players. “I cannot help but fear [the] ‘cooling measures’ aimed at collective sale deals,” writes Tulip Garden’s CSC. “Already, we have witnessed the government increasing development charges last month to take off some heat from the current en bloc cycle. To me, that was the biggest signal that the government is not going to allow the current cycle to drive unsustainable home prices.”
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While developer interest in collective sale sites remains strong, some have started to express concern about the heightened risk of not being able to sell all the units in the new project within five years if their land acquisition price is too high. “Owners should be realistic in their price expectations and not assume tender prices will continue to go higher and higher,” advises Dentons Rodyk & Davidson’s Lee.
Short-term pricing pressure
In the short term, however, with more successful collective sales, prices are likely to inch up as more en bloc beneficiaries enter the market seeking replacement properties, says JLL’s Tan. “This comes on top of the normal demand and pent-up demand, and is therefore expected to put pressure on prices.”
Ultimately, developers will price the units based on affordability to homebuyers, he points out. For some of these collective sale beneficiaries, this could be their second property. In that case, their loan-to-value ratio is only 50%. That means they have to pay the remainder of the purchase price by cash. And the total debt servicing ratio loan framework also puts a cap on the amount an owner can borrow for a residential property purchase, Tan notes.
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However, the minority owner at Royalville is not appeased. “Sellers are already withdrawing their units from the resale market or raising their asking prices, especially if they know you are a collective sale beneficiary,” he says. “If this is a 99-year leasehold condo that is 30 to 40 years old, I understand the rush to launch the property for collective sale. But this is a prime freehold site, and it will only become more valuable over time.”
The 164-unit Tulip Garden is in the process of securing an 80% consensus for a collective sale (Credit: The Edge Singapore)
The tender for Royalville closes on Nov 10, and the property is said to have seen strong interest (Credit: ET&Co)
This article, written by Cecilia Chow, appeared in EdgeProp Pullout, Issue 805 (Nov 13, 2017).