Roadblocks for en blocs

/ EdgeProp
August 18, 2018 1:45 PM SGT

The latest property cooling measures have amplified the risks of collective sales, with some owners’ hopes of a windfall hampered by High Court proceedings, while others face the possibility of developers backing out

Kathleen Tan has lived in Brookvale Park for 17 years. “This has been our home since my husband and I got married in 2001, and it’s where our son was born,” says the Singaporean part-time tutor with Nanyang Technological University. “We love the Sunset Way neighbourhood, where we’re surrounded by greenery and nice houses.”
In February this year, the 160-unit, 999-year leasehold Brookvale Park was sold en bloc to a joint venture (JV) between Hoi Hup Realty and Sunway Developments for $530 million. That would translate to gross proceeds of $2.5 million to $4.4 million for each owner.
Brookvale Park owners are now awaiting the High Court process as owners of five units object to the en bloc sale (Credit: JLL)
Tan, who owns a 1,615 sq ft, threebedroom unit, will therefore receive $2.5 million from the en bloc sale. “We were happy that Brookvale Park was sold en bloc,” says Tan. “We thought the price was fair and, for us, the windfall would definitely help pay for our new place.” Last October, Tan and her husband purchased a terraced house at Merryn Terrace, which is near St Joseph’s Institution, where her son started Secondary 1 this year.

Rise in number of objectors

Owners of five units at Brookvale Park objected to the sale on the grounds of the valuation being too low. After two failed mediation sessions by the Strata Titles Board (STB) in July, a “stop order” was issued, with the case proceeding to High Court for hearing.
Brookvale Park joins a list of en bloc sales awaiting High Court proceedings. It includes The Wilshire, which was sold to a JV between Roxy-Pacific Holdings and the family vehicle of Tong Eng Group for $98.8 million ($1,536 psf per plot ratio) in January; City Towers in Bukit Timah, which was sold en bloc to a unit of CK Hutchison Holdings for $401.9 million ($1,847 psf ppr) in February; and Katong Park Towers on Arthur Road, off Mountbatten Road, which was sold en bloc to Bukit Sembawang Estates for $345 million ($1,280 psf ppr) in March.
The collective sale committee of Katong Park Towers is now waiting for a date for its pre-trial conference. If the objections are not withdrawn, it will proceed to High Court for approval (C&W)
Other earlier reported cases of en bloc sales done this year that are headed for the High Court include Goodluck Garden on Toh Tuck Road, which was sold to Qingjian Group and Perennial Real Estate for $610 million ($1,110 psf ppr) in March; and Cairnhill Mansions, which was sold en bloc to Low Keng Huat for $362 million ($2,311 psf ppr) in February. Most of the objections so far have been on the grounds that the collective sale committee (CSC) had not acted in good faith and typically revolve around the method of apportionment or valuation. Other objections are from owners who bought units in recent years and are subject to the seller’s stamp duty (SSD).
Shaun Poh, Cushman & Wakefield’s executive director of capital markets, says it is “quite common” for en bloc sales to fail in the mediation process at STB, triggering the issue of a stop order and an application to the High Court for approval. “People are more vocal these days and more well-informed about their rights,” he says.

Growing list heading to High Court

Not all objections have merit, however, as seen in the High Court hearing on July 27 for the collective sale of The Albracca on Meyer Road. The judge threw out the objections by a sole unit owner at the 11-unit condo that was sold en bloc to Sustained Land for $69.1 million in July last year, paving the way for the collective sale to go ahead.
In late July, the High Court judge gave the en bloc sale of The Albracca on Meyer Road the go-ahead (Credit: JLL)
“In conclusion, I find that the defendant’s objections against the collective sale are unmeritorious,” said Judge Tan Siong Thye in his ruling. “The CSC had acted in good faith in carrying out the collective sale. Accordingly, I quash the stop order imposed by STB and allow the collective sale to proceed.”
Suzie Mok, Savills Singapore senior director of investment sales, points to some of the collective sales in the past that had headed to High Court, the most famous being those of Horizon Towers, Gilstead Court and Thomson View. “I wouldn’t say there’s been a spike now,” says Mok.
Nevertheless, the growing list of en bloc sales heading to High Court and the uncertainty of their outcome have had a sobering effect on an en bloc market that has already cooled considerably since July 5, following the announcement of the latest and ninth round of property cooling measures.

Greater uncertainty

Dalvey Court (pictured), Horizon Towers and Katong Plaza are among the collective sales that have extended their sale tender period (Credit: C&W)
Based on data compiled by Colliers International Research, more than 30 collective sale tenders have closed without a sale this year. A handful were launched on or after July 5, and have extended their sale tender period. They include Horizon Towers, which is on the market for $1.1 billion ($1,968 psf ppr); commercial and residential project Katong Plaza, which has a price tag of $188 million ($1,969 psf ppr); Dalvey Court, which is going for $160 million ($2,009 psf ppr); and Lakeside Apartments in Jurong East, which has an asking price of $240 million ($1,049 psf ppr).
Others have also relaunched recently at a lower reserve price, including Windy Heights at $750 million ($1,198 psf ppr); Sutton Place at $268 million ($1,917 psf ppr); and Pinetree Condominium at $148 million ($2,241 psf ppr).
“The impact of the measures has sunk in,” says Ian Loh, Knight Frank executive director of capital markets and investment sales. “We are talking to some of the en bloc sale hopefuls about revising the reserve price. Some are hesitant, as it takes a lot of effort to go back to the owners to get them to sign the collective sale agreement at a lower price.”
The Regalia at River Valley Close is the latest collective sale site that has been launched on the market (Credit: CBRE)
Some deals are too far ahead in the collective sale process to change course. At Laguna Park on Marine Parade Road, the CSC has decided to continue with the collective sale process, as 77% of the owners have signed up. The price tag is $1.5 billion and it is marketed by Knight Frank. “That will set a record price in Singapore for en bloc sales if it is successful,” says Loh.
The latest launch of a collective sale site is The Regalia at River Valley Close by CBRE. The project in prime District 9 occupies a freehold site of 63,371 sq ft. The existing development has 112 apartments and four penthouses. The guide price is $403 million ($1,892 psf ppr) and the tender will close on Sept 25.
“Once you start the collective sale process, you don’t stop by and large,” says Jeremy Lake, CBRE managing director and head of capital markets. “So, we’re still collecting signatures for a couple of projects but they are not ready for launch yet.”

Deals in limbo

At Hollandia, the buyer has indicated that it reserves the right to "rescind and cancel the contract".
Several collective sales are currently in limbo. EdgeProp Singapore understands that, on the Hollandia en bloc sale, the CSC received notice from the purchaser’s lawyer Eldan Law LLP in June, saying that the Outline Planning Permission had not been obtained and the purchaser reserves the right to “rescind and cancel the contract”. The CSC has in turn instructed Lee & Lee to refute the purchaser’s allegation and reserve the right to forfeit the deposit under the contract.
The buyer of Hollandia on Holland Road is an 80:20 joint venture between Hong Kong-listed Far East Consortium and Singapore-listed Koh Brothers Group. The JV partners paid $183.4 million ($1,703 psf ppr) for the en bloc purchase in March in a deal brokered by Savills Singapore. The JV partners also snapped up the neighbouring The Estoril in an en bloc purchase for $223.94 million ($1.654 psf ppr) in April, with CBRE as the marketing agent.
The plan then had been to amalgamate both freehold sites and redevelop them into a 350-unit, 12-storey condominium with units averaging 70 sq m (753 sq ft). The Estoril has since been granted a sale order for the en bloc sale to proceed. Meanwhile, the Hollandia sale has yet to proceed to STB. Both Far East Consortium and Koh Brothers declined to comment. Savills’ Mok declined to comment too.
Tulip Garden was considered the biggest en bloc sale in 2Q2018 when it was sold to MCL Land and Yanlord Land Group for $906.9 million ($1,790 psf ppr)​
(Credit: Colliers)
The biggest en bloc deal in 2Q2018 was that of Tulip Garden on Farrer Road, which was sold to a 50:50 JV between MCL Land and Singapore-listed Yanlord Land Group for $906.9 million ($1,790 psf ppr) in April. Word on the street is that the en bloc deal of Tulip Garden may also have hit a roadblock in the form of the Pre-Application Feasibility Study on traffic impact, which has been a requirement for en bloc sales since last November.
Market sources say the number of residential units approved and conditions stipulated by the Land Transport Authority in response to the buyers’ development application could have fallen below the minimum number as a condition precedent for the en bloc sale.
MCL Land and Yanlord Group could not be reached for comment at the time of publication. “The Tulip Garden sale process is still ongoing and communications between various stakeholders involved in the deal are in progress,” says Tang Wei Leng, managing director of Colliers International, who brokered the sale.
The en bloc sale of Villa D'Este is "going ahead", according to KOP group CEO Leny Suparman (Credit: CBRE)
Market talk was that the en bloc sale of Villa D’Este had been called off. Villa D’Este on Dalvey Road was sold to Singapore-listed KOP for $93 million ($1,898 psf ppr) in May. Leny Suparman, group CEO of KOP, denied that it had fallen through, saying, “That’s not true. We are going ahead.”
According to property consultants, any sale cancellations are likely to be “exceptions” rather than the norm. “The big developers will be concerned about reputational risk and the signal that it would send the market by pulling out of their contracts,” says a consultant who declined to be named. “But I do believe there are some small developers who are relooking at the small print in their contracts.”

Prices to be ‘reset’

Developers are already wary about looking at potential residential site acquisitions in view of the increase in the additional buyer’s stamp duty to 25%, from 15%, in addition to the 5% ABSD that is non-remittable and has to be paid upfront.
Owners considering embarking on a collective sale will therefore have to bear in mind that, for developers, the 5% ABSD that has to be paid upfront will have to be built in as an additional transaction cost, says Savills’ Mok. The collective sale owners will also have to look at perhaps another 10% discount on the reserve price pre-property cooling measures on July 5. “Collective sale prices will have to be reset,” she adds.
Collective sale sites could linger on the market for the next two to three months (Credit: Samuel Isaac Chua/EdgeProp Singapore)
Cushman & Wakefield’s Poh does not see the market crashing. He points to the executive condo development site at Anchorvale Crescent on the reserve list of the government land sales (GLS) programme that was triggered on July 25. The unknown developer had committed to a minimum bid of $255 million ($461 psf ppr).
“I wouldn’t be surprised if there are 10 bids for the site at the close of the tender,” adds Poh. “That means developers are still keen on development sites on GLS, as they are straightforward and most developers can launch within seven to nine months of acquiring the site.” He foresees, however, that developers’ bids will be “sober” and “less aggressive” than they were prior to July 5.
On the other hand, collective sale sites could linger on the market for the next two to three months. “Developers will want to wait and see,” says Tan Hong Boon, JLL regional director of investments. “They will want to monitor sales at new launches over the next few months to get a sense of housing demand and what the market can support. Prices haven’t really come off. It’s just that the rate of increase has slowed.”
According to Cushman & Wakefield’s Poh, if there are any en bloc deals, they are likely to be priced at $150 million or lower.
Meanwhile at Brookvale Park, unit owner Tan — like the other owners of the condo — is waiting for the High Court process to begin. “While I would certainly prefer for the sale to conclude sooner rather than later, I understand the need for due process should there be reason to dispute the sale,” says Tan.