SINGAPORE EN BLOC 101: The ultimate collective sale guide
By EdgeProp Singapore
/ EdgeProp |
The red hot en bloc market from 2017 continues to sizzle this year, with about 15 properties sold en bloc in 1Q2018 alone. Just last week, Pacific Mansion along River Valley was sold for $980 million, the largest collective sale in over a decade and the second largest ever in history.
Naturally, the prospect of becoming overnight millionaires from these en bloc deals has sent many owners scrambling to put their properties up for collective sale.
In this article, we will answer all your burning en bloc questions with the hope of helping you make better property decisions.
1) How do I know if my condo has en bloc potential?
Contrary to popular belief, a property’s tenure or location isn’t everything. To better identify factors that contribute to a property’s en bloc potential, EdgeProp constructed our own en bloc calculator to determine the probability that a condo would be put up for collective sale.
The calculator is based on the logit model, which found that the following three variables increase the success of a collective sale. They are: a property’s age, number of units and plot value enhancement. They were statistically significant at 5% level. Find out more about our en bloc calculator, as well as your property’s en bloc potential here.
2) How do I start an en bloc attempt?
To start, owners have to elect a Collective Sale Committee (CSC) at a General Meeting. Requisition for the General Meeting requires at least 20% of total share value or of owners comprising 25% of the total number of owners.
Finding the right committee members is crucial for a collective sale’s success as they will act for all owners in a development. The CSC’s responsibilities include gathering consent from the requisite majority, appointing a property consultant and lawyer, and drafting the proposed reserve price as part of the collective sales agreement (CSA).
As such, responsible committee members should be appointed, and they should comprise owners across all unit types in a development. This is to ensure better cross-representation of different interests. Further, to avoid potential disagreements, CSC candidates should make full disclosure of any actual or potential conflicts of interest at the time of election.
3) What if I can’t get enough consenting owners to go en bloc?
Once a CSC has been formed, the committee should propose a reserve price in the Collective Sale Agreement (CSA) and collect signatures from owners agreeing to the collective sale. Application for a collective sale can only be made if there is majority consent by share value – 80% if the development is older than 10 years, and 90% if it is newer than 10 years.
The committee has one year following its formation to gather consent from the requisite majority. If the committee cannot get enough consenting owners to go en bloc, the CSC will automatically be dissolved.
4) What happens if I don’t want to go en bloc?
Non-consenting owners can raise a valid objection if they can prove that the collective sale process was not entered in good faith – this includes the sale price, method of apportionment, how decisions were made, the conduct of the sales committee, disclosures and conflicts of interests.
Another valid objection is if an owner suffers a financial loss. This is defined as getting less from the sale of the property (factoring in relevant costs, such as Sellers Stamp Duty if you bought it in the past three years), than you would get from selling it in the open market (However, do note that it is not considered a financial loss if you make less than your neighbour). However, the CSC would have almost always considered this point when setting the reserve price, so this is unlikely to be a viable option.
5) How long is a typical en bloc process?
The en bloc process can take up to a year or two. The downside to this is that the demand-and-supply situation could have changed during this period. For example, the en bloc fever could have cooled down, or the market could have moved to a different phase of the property cycle.
6) When will I get my money if the collective sale is successful?
In most cases, owners will receive proceeds from a collective sale within three to six months. However, this could take longer if approval from the Strata Titles Board or the Courts are required. In the meantime, they might be required to seek temporary accommodation or purchase a replacement property (if they can afford to do so before the proceeds come in). Properties are available for rent or sale on EdgeProp.
7) What is the impact of collective sales on property prices?
There is no fixed answer for this one, but there has been some evidence that en bloc exercises may have an uplifting effect on property prices.
This is evidenced in the uptrend in property prices within the Core Central Region (CCR) in recent months. The prime districts have seen a number of successful collective sales all through 2017 and into 2018, the biggest being that of Pacific Mansion on River Valley Close. The 290-unit freehold development was sold en bloc for $980 million in March.
The 290-unit freehold Pacific Mansion was sold en bloc for $980 million or $1,806 psf ppr in March.
The purchase translates into a land rate of $1,806 psf per plot ratio (ppr), which means the new freehold development on the site is likely to have selling prices in the range of $3,000 to $3,200 psf, property consultants estimate.
Meanwhile, Cairnhill Mansions was sold en bloc in February for $362 million, or a land rate of $2,311 psf ppr, which will mean that the selling prices of the new development are likely to be $3,500 psf and above.
Given the future prices of these new developments, some developers are also increasing the prices of their projects. For example, when the 450-unit luxury condo Martin Modern was launched last July, the average price was $2,100 to $2,200 psf. In March, many units at the development were sold at over $2,800 psf.
Overall, it is estimated that projects in River Valley and Cairnhill could reach $3,500 psf in the current property cycle.
8) What if there are no bids for my en bloc property?
Some sites have indeed closed their tender without any bids. In this case, some might enter a private treaty (PT) negotiation with interested parties. Shunfu Ville is one such example – the sale committee had launched two public tenders since 2015 and both were at a reserve price of $688 million. In both tender exercises, no formal bids were received.
Shunfu Ville was sold by private treaty to Qingjian Realty for $638 million.
The 358-unit privatised Housing and Urban Development Company estate was later sold by private treaty to Qingjian Realty for $638 million, which is $50 million below the reserve price.
However, the law allows only a 10-week private treaty period after the closer of tender. If no deal is struck within that 10-week period, the law requires for another tender to be called.
9) How long is this en bloc cycle likely to last?
We don’t have a crystal ball, but industry experts expect the en bloc momentum to last through 2018 and 2019.
To cite a research by Colliers, a surge in collective sale transactions in the residential market typically goes on for eight to 12 quarters. The last collective sale fever lasted for about three years, from 2005 to 2007, with sales totalling $21.8 billion.
10) If my property is sold in an en bloc, will I be eligible to purchase a new HDB (BTO) or an EC?
You will not be eligible to purchase a new HDB or an EC unit within 30 months upon the sale of your en bloc property. You do, however, have the option to buy resale EC or resale HDB flats.
11) I am Singaporean and my en bloc property was my first and only private residential property. Will I be subject to the 7% Additional Buyer’s Stamp Duty (ABSD) for my next property purchase?
Technically, your property count turns to -1 when your property is sold in a collective sale. So, you will not be considered to be holding on to any property and therefore, will not be required to pay ABSD.
12) What is a bridging loan and how can it help en bloc owners?
A bridging loan is a type of short-term loan, typically taken out for a period of less than three years pending the arrangement of larger or longer-term financing.
For owners of properties that were sold in a collective sale, securing a replacement property with the help of bridging loans may be a viable option, especially as housing prices continue to uptrend while they wait for their proceeds.
As part of a bridging loan, banks can extend a loan of up to 15% of your new property’s value, at rates of around 6.5% per annum. Bridging loans can be used to cover the costs of buying a new home, until the proceeds from selling your old home arrive.
Do you have more en bloc questions for us? Let us know in the comments section below.
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