What condos that are en bloc hopefuls have in common
By Felicia Tan
/ EdgeProp Singapore |
Tulip Garden - What condos that are en bloc hopefuls have in common
SINGAPORE (EDGEPROP) - When purchasing a condominium unit, there are a few things many residents or investors hope to achieve out of their buy: Rental yields, capital gains, and gains from a potential en bloc sale.
En bloc, which refers to a collective sale made by the majority of residents in a condominium development to a particular buyer or developer, has made overnight millionaires out of the same residents.
For instance, the en bloc sale of the freehold Tulip Garden in April 2018 for $906.9 million netted owners of all 162 units in the development between $4.3 million and $7.6 million apiece.
To go en bloc, a development that is over 10 years old requires at least 80% of its residents to agree to the sale. Approval from at least 90% of residents is needed if the development is under 10 years old.
En bloc fever last swept Singapore between 2017 and 2018, before the property cooling measures introduced by the government in July 2018 put a curb to it.
With the Singapore property market heating up again despite the Covid-19 pandemic in 2020, en bloc sales may just make a comeback.
Now, if you’re wondering whether your condo has en bloc potential, here’s what developments that have successfully managed to go en bloc have in common:
Older developments
Most condos that are up for en bloc sales are generally older developments that require higher maintenance costs.
In addition, “many much older developments, especially those approved before 1990, may not have been built up to the prevailing Master Plan plot ratio and they will have much better redevelopment potential with the land value very much higher than the total value of all the existing apartments together”, says Tan Hong Boon, executive director, capital markets, at JLL Singapore.
“Also, the current market values of the units in older developments may be generally lower, and the en bloc premiums they may enjoy in selling their land could be more attractive,” he adds.
According to Alan Cheong, executive director, research and consultancy at Savills Singapore, non-landed properties tend to “lag behind the front price increases of new launches” as they age.
“A time will come when the disparity will be great enough to induce a collective sale,” says Cheong.
“That time varies according to the rate of increase of prices for new projects. If the market is hot, the tide of collective sales would begin to wash at the feet of projects that were completed a mere 25 years ago. Otherwise, buildings of the vintage 30 to 35 years would check the boxes for a collective sale,” he adds.
Lower plot ratio compared to nearby developments
Plot ratio is an indication of how intensively a particular plot of land is being used. With condos, the lower the plot ratio means there are a smaller number of units within the development. This means that new developers may be able to better utilise the plot with more units, which generates more profit.
However, this only applies if a development’s plot ratio is low compared to the other developments nearby, as some zones may require lower plot ratios due to their proximity to, say, the airport or air base.
Smaller developments
If you are living in a smaller development, the chances of your condo going en bloc may be higher. This is because there is a higher chance of all residents agreeing to sell their units collectively, or there may be a lower premium involved for smaller developments.
JLL’s Tan agrees that a smaller development will have a lesser number of owners to obtain consensus from, for a collective sale to go through. This also means that it “usually takes a shorter time to organise” an en bloc sale for a smaller development.
On the other hand, a smaller number of owners may also mean that should a few owners disagree with the sale, it may be difficult to achieve the required 80% consent level.
However, another reason that smaller developments are preferred is that there is lesser risk of selling all the units within five years from the date of award by the Strata Title Board, says Cheong.
Should developers fail to sell all the units within the stipulated time frame, they would need to pay an additional buyer’s stamp duty (ABSD) on the land, he adds.
Location
The higher the value of the land, the better. If your development is located in prime sites such as Districts 10, 9, 11, or even 15, where government land sites are less likely to be released, the chances of your condo going en bloc may be higher than the rest of the condos around the island.
Another way to determine whether your condo may be up for en bloc sale is whether your area has been earmarked for redevelopment by the government. For instance, older developments located near the Greater Southern Waterfront may be in for a windfall, as the area -- spanning 30km of the southern coast from Gardens by the Bay East to Pasir Panjang -- will be redeveloped, freeing up more land in the prime district.
“So long as a site is available at a reasonable price in relation to all the factors considered, they are likely to receive interest from developers,” says Tan.
“Apart from the above locational factors, we do see more sites in the Core Central Region being prepared for collective sale now. There is a lesser number of available collective sale sites in the Outside Central Region at the moment,” he adds.
Little to no condos around the area
Having few to no condos, or only a handful around the area, simply means less competition.
Size
Size does matter. These days, it’s difficult to find a condo development that has spacious units and spacious grounds.
To Cheong, residents living in old developments with bigger units may not want to sell, as it is unlikely that they will be able to find an apartment of the same size at the same rate.
The type of residents living in the development
To Cheong, the modal age of the residents may be a factor when it comes to determining if your condo will go en bloc successfully.
To him, a development with an older population may be more successful in seeing an en bloc take place as they “tend to give in”.
It’s already been up for en bloc
Not all en bloc sales are successful. For instance, Mandarin Gardens, a 99-year condominium that sits on a one million sq ft plot off East Coast Park, with a record asking price of $2.93 billion, failed to go en bloc.
Mandarin Gardens. Photo: EdgeProp Singapore
That said, if it happened once, it may happen again, especially since you know that there is keen interest on the developer’s end, and especially if the residents within the development change.
Do note, though, that should the condo fail in multiple attempts to en bloc, it may be suffering from “selling fatigue”, according to Cheong, and the owners may prefer to stay put instead.
Payment expectations
When it comes to en bloc, owners may expect a certain price premium compared to a resale unit.
“As a rule of thumb, for projects Outside Central Region (OCR), owners may expect a collective sale premium from 35%-40% onwards. Those in the Core Central Region (CCR) may expect 60%-70% onwards. Of course, the higher the better,” says Tan.
With that, the tenure -- whether freehold or a leasehold of 999 years or 99 years -- matters in terms of pricing, adds Tan.
“Whichever the price level the owners expect, it must make economic sense to the developers as it has to allow them to make a reasonable profit.”
“Ultimately, it boils down to price,” says Cheong. “For some developments, though, it doesn’t make sense for the developer to make a bid in view of the price premium needed to convince 80% or 90% [of the residents to agree to the sale]”.
Will your condo be put up for en bloc? Calculate the possibility of that with our en bloc calculator tool.
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