New-for-old swops may feature more in collective sales
Feb 25, 2007
New-for-old swops may feature more in collective sales
Deals where owners get new units in redeveloped property may be a way out for projects having trouble getting 80% approval
By Joyce Teo, Property Correspondent
COLLECTIVE sales may be hot but when homeowners are not tempted by the cash, a 'fair exchange' might be the way to get around the deadlock.
Hold-outs have stalled the sale process at quite a few estates - particularly prime ones - in recent months. The reluctance stems from the fear that the sale proceeds will be insufficient for a new unit of similar size in the same area, particularly given the rising market.
Typically, a collective sale for an estate more than 10 years old can proceed only if 80 per cent or more of the owners agree to it.
More cash might do the trick but another way is for the owners to do a swop - they get a new unit in the redeveloped property instead of money for their existing one, says lawyer SK Phang of Phang & Co.
So far, such 'exchange' deals have been few and far between, with some property consultants and developers calling them complicated and cumbersome.
But Dr Phang believes that more homeowners - particularly those in projects having trouble getting 80 per cent approval - are likely to consider it.
It could be a full exchange for all the owners or a hybrid deal, where some owners opt to sell for cash while the rest pick a unit swop.
This would allow investors to cash in at the collective sale price while owner-occupiers could move back into the redeveloped property, instead of relocating to a less ideal area, said Dr Phang.
In a hybrid deal, the cash offer would be worked out based on the assumption that the entire estate is to be sold for cash.
Last year, Dr Phang helped all 20 owners of Paterson Lodge in the Orchard Road area work out an exchange deal. He is now working on two similar projects.
The benefits to the developers are clear. They will enjoy reduced risks as they would have 'pre-sold' some of the units in their new project. The overall cost of the land will be less and so they will have less cash outlay.
Smaller developers, particularly contractor-developers which may not have access to vast amounts of cash, are likely to be more open to the idea, consultants said.
But while developers may save on costs, their potential return may also be less, said
Mr Lui Seng Fatt, the regional director and head of investments at Jones Lang LaSalle. The key would be whether the site is in a choice location. 'Otherwise, they will just pay cash. It's more clean cut,' he added.
DTZ Debenham Tie Leung's director, Ms Tang Wei Leng, said of exchange deals: 'There are a lot of uncertainties in terms of the time line; a lot of administrative hassles.'
Those keen on a swop deal are likely to be from estates where a conventional collective sale is not possible due to the large number of homeowners facing a loss, said Mr Lui.
'In a swop deal, you get a promise to own something yet to be built or even approved by the authorities,' said Credo Real Estate (Singapore)'s managing director, Mr Karamjit Singh. 'It's possible but there are hurdles. Owners have to be prepared for more steps.'
One such step is that when an owner delivers the apartment title to the developer, it has to be free of encumbrances, he said.
Homeowners typically have loans but this hitch could be resolved with the developer's help. Dr Phang cited a case where the developer provided a corporate guarantee to the bank to take over the encumbrances.
Owners will also have to find a place to live during the 18 months or more during construction of the new development, but they may be able to negotiate a rent subsidy with the developer, said Dr Phang.
Ms Tang also pointed to the 'risk of the developer not completing the project, or not completing it on time or according to specifications'.
In the case of Paterson Lodge, the owners will transfer their estate's land to the developer only when the project is completed and they have received titles to their new homes.
A performance bond will solve these problem, said Dr Phang.
For exchange deals, there will be an extra round of negotiations on the 'replacement' units, consultants said. And this is what some developers are wary of.
'It seems troublesome because you have to consider which unit on which floor or size to give to the owners,' said one developer. 'Documents have to be drafted watertight. I could put in a clause saying that we will just give a unit of a certain size, for example.'
Dealing with many owners is the tricky part, said another developer.
The major challenge is the acceptance of the market to the idea, said Dr Phang.
'In a dynamic market, with rising replacement costs, swop deals will become more popular,' said Mr Singh.
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Re: New-for-old swops may feature more in collective sales
how abt the dunearn gdns swop for st regis?
