Almost every week, there is an announcement of a new privatized HUDC estate or old project putting up for sale.
Recent candidates joining the collective sale craze include Braddell View, Pine Grove, Changi Garden, Amber Park, Jervois Gardens, Florence Regency and Normanton Park. Developers are simply spoiled for choice!
Collective sale hopefuls are probably inspired by the recent successful deal at Tampines Court.
The ex-HUDC deal managed to be closed at S$970 million after two failed attempts in the past. This is no doubt a heartwarming winback for the owners who stand to pocket $1.71 million to $1.75 million each for their unit.
It sends encouragement and positive signals to home owners who have failed to sell en bloc that it’s time to try again.
The Good, the Bad and the Ugly
I have covered the collective sale topic in my book No B.S. Guide to Property Investment.
“Like many hopefuls in an en bloc sale, it all started with excitement and greed, then gradually there were resistance and quarrels, and finally things ended in a mediated consensus. It turned out that the majority of the residents agreed to sign, not because of a better offer, but because of the fear of ‘missing the boat’.”
It reminds me of the famous 1966 movie The Good, the Bad and the Ugly. Fortune seekers are trying their luck to bag their pot of gold, but this time from selling their home.
In my previous blogs posts, I also talked about the good, the bad and the ugly in my personal encounters of going through the process of collective sale in two of my properties.
Both projects were over 25 years of age. Many residents bought their units first hand from the developer and have been staying there since the development obtained TOP.
These owners were already in their 50s. They were either near retirement age or already retired with grown-up kids. To them, putting their home for collective sale was a good opportunity to bag the windfall to achieve the following:
1. Plan for an early retirement;
2. Support their children’s overseas education; or
3. Move to a newer home so they don’t have to put aside money for repairs and renovations of the old estate.
Of course, there were en bloc speculators sitting in the Collective Sale Committee who just bought the units recently to wait for en bloc sale. But they were the minority.
Collective sale is not as glamorous as reported in the media. Owners have to go through the following “bad” in the whole process:
1. It is a long journey.
It is rare for any collective sale to be successful with the first attempt. It often takes a second or third round.
Amendments to en bloc sale legislation that took effect from 15 July 2010 imposed a two-year restriction period from the date of the initial failed en bloc attempt.
The first retry requires approval from at least half of the combined share value or number of owners. For the second and subsequent rounds, approval from 80 percent is needed.
The Collective Sales Committee will be automatically dissolved if it does not receive any signatories to its Collective Sales Agreement within one year of the Committee’s formation.
2. It is a lot of work, stress and uncertainties.
The Collective Sale Committee has to engage consultants, review proposals, agree on a selling price, and above all, collect enough signatures from the residents. Regular resident meetings are called for in the evenings and over the weekends. All of these have to be completed under the pressure of time.
Many residents who face a collective sale of their home are going through a lot of stress, tensions, frustrations and disappointment in the whole process of en bloc sale.
When the sale finally goes through, residents have to deal with the new uncertainties in the near future:
– Will they have sufficient time to find a new home given the timeline to move out of the old estate?
– Can they afford a similar or better unit in the same location with the sum from the en bloc sale?
– Will they miss the familiar environment and friendly neighbors they have for many years?
Every news article reports a successful en bloc sale in a similar way: how much is the project sold, what is the estimated amount each owner can pocket, which developer pays the top price, what is the potential of the future project, and so on.
The media is only covering part of the story of a successful en bloc sale. Have they interviewed the rest of the 20 percent owners who voted “No” to sell their home?
En bloc is a battle between the two camps of “sell” and “stay” owners. You will be surprised how a quiet and peaceful housing estate suddenly turns upside down when the talk of collective sale begins.
En bloc is not a straight-forward business deal. It is about money, greed, emotion, uncertainty and fear.
I shared my experience of the ugly side of an en bloc sale in my book No B.S. Guide to Property Investment:
“Objections came from a small group of residents. They thought that it was almost impossible to find an equivalent project with the same spacious layout and big site area. There were also new owners who just settled down in their new home after a lot of work doing the renovation.
Then unexpected things happened. People were targeting owners of big units who owned more shares of the condominium. There was also a rumor that the fengshui of this place was bad. This was followed by stories of harmful radiation from a rooftop antenna, terminal illness of a few residents, a suicide case …”
I am neutral to property investors who speculate in en bloc sale — provided that they use the honest means and show respect to owners who hold a different view.
Collective sale is good or bad for the residential market?
The 2007 en bloc fever was caused by the need of developers to refill their depleting landbank.
The 2017 en bloc fever is caused by the need of developers to refill their landbank after being outbid by Chinese developers.
The property agencies, bank analysts and owners of old estates are all excited by the revived collective sale market. It helps to fuel the optimism of a market recovery after a quiet market in the last few years.
Many believe in a bull market formula for the local residential property market:
high bid for new site = higher psf price of new project = higher sales volume = higher asking price in resale market = booming property market
This formula seems to work in the last few years. But two critical factors are missing in the equation: a stable economy and willing buyers.
Jones Lang LaSalle estimated that about 12,700 new private homes from 10 collective sales will be launched in 2018 and 2019. The number can be higher given the closing of new en bloc sales in the market.
According to URA, 15,085 units (17,827 units including ECs) remained unsold as at the end of 2nd Quarter 2017. The vacancy rate of completed private residential units (excluding ECs) remained unchanged at 8.1 percent.
Jones Lang LaSalle’s figures show that the 17 collective sale sites closed since last year have 3,141 existing homes. If all of these home owners need a replacement private residential unit, they are at most consuming only one-fifth of these unsold units, not forgetting the fact that there will be 12,700 new units to be launched in the next two years from the en bloc sites.
What if many of the collective sale owners are keeping the sale proceeds for retirement and opt for a cheaper HDB home?
Is our population growth and home buyers able to create a housing demand fast and big enough to consume the surge in supply?
Above all, developers are under the restriction to sell all the units from the collective sale within five years or pay 15 percent ABSD of the land price.
Do you think the current en bloc sale fever is good or bad for the market? Let me know whether you are an industry stakeholder or a home buyer when you answer this question.