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The ABCs of en bloc sale
Published March 22, 2007
The ABCs of en bloc sale
JEREMY LAKE answers some of the commonly asked questions on the collective sales process
THE Singapore residential market is witnessing the third wave of collective sales, with a hive of transactions in 2006 and the highest volumes recorded in the last decade. The two other waves occurred in 1994-1997 and in 1999-2000.
This third wave is significantly different from the previous two waves in two aspects. One is the wider and more diverse pool of players. Back in 1999-2000, the market was dominated by a couple of locally listed companies. Now, this has expanded to include foreign funds, private equity groups and institutional players. Previously, such funds have focused on the retail and office sectors.
The other emerging trend is the faster turnaround from the purchase of sites to the launch of projects. The trend these days is for purchasers to buy, seek the necessary approvals and sell quickly, as opposed to adopting a wait-and-see approach. Many of the collective sale sites purchased in the last two years can be expected to be launched this year.
The key challenge for en bloc sales committees is in getting the 80 per cent consensus. Sales committee members are finding it more difficult to persuade owners to sign on the dotted line, as owners anticipate higher asking prices. (Note: The government will be seeking feedback for proposed changes to the process. Among them is getting consent from owners of at least 80 per cent of units in a development, in addition to the existing requirement of a nod from owners with at least 80 per cent of share values.)
We answer some of the commonly asked questions on the en bloc sales process.
Q: When is an en bloc sale feasible?
A: If the land value of your property is higher than the total value of the individual apartments, offices or houses combined, it means your property has redevelopment potential and you may well profit from a collective sale. These are the most common situations where a collective sale might be possible:
# Where the land use has been changed. For example, when use has been changed from landed to high-rise, as a result of re-zoning under the Master Plan. Changes were made to the Master Plan by the Urban Redevelopment Authority in 1993/1994 which sparked a series of collective sales.
# Where the Master Plan provides for an increase in plot ratio.
# Where the existing development has not fully utilised the allowable plot ratio. This is especially true of older apartment buildings built before 1985.
Q: How does one work out a collective sale agreement?
A: The land price which a purchaser pays is shared among the owners in a pre-determined method. The collective sale premium is the difference between the collective sale price and the most recent transaction of the same unit type in the open market.
Q. What are the methods of apportionment?
A: The Singapore Institute of Surveyors and Valuers (SISV) recommends five methods of apportionment:
# Share value
# Strata area
# Average of share value and strata area
# Valuation and share value excess
# Any other method
The guidelines provide for any other method - so any combination of the above methods is acceptable, as long as it is fair and equitable. There are no distinct pros and cons of one method over the other. But owners should consider various factors including the individual unit size.
For example, the share value method favours small units while the strata area method favours units with large areas. Share values and strata areas are facts that are available in your title deeds, so any method involving these two values is less contentious. Usually the property consultant will advise the sales committee on an appropriate method depending on each development's unit composition.
Q. How are owners of mixed developments apportioned their share?
How complicated is determining apportionments for owners of mixed developments over residential developments?
A: The number of collective sales for mixed developments is limited to date. The share of apportionment is a bit more complicated to determine in mixed developments where there are retail and office components. One needs to consider factors such as frontage of units and human traffic.
Q: Under what circumstances may disputes arise?
A: For example, if you have a collective sale of a shopping mall, the ground floor shops command a higher price than other floors, but others on the second floor beside the escalator will demand the same or a higher price than the ground floor back corner unit.
Q: How important are valuations in the settlement of disputes?
A: Valuations are subjective and different people will have different views on it. An owner may have three different valuers which give similar values but an owner may still disagree with it.
Q: Can CPF funds be included as financial loss?
A: Based on the latest Strata Titles Board (STB) judgment for the Waterfront View case, interest on CPF funds cannot be included as financial loss. If the board waives or does not require the owner to top up the account, it is not considered financial loss.
Q: What are the steps involved if you'd like to do an en bloc sale in your estate?
A: A group of interested owners can get together to form the pro-tem sale committee (PTSC). They can contact a property consultant to evaluate the potential. Then, the PTSC can appoint the property consultant and lawyers, who will then advise them on the process forward. (Note: The government is proposing that en bloc sale committees be formed only at extraordinary general meetings convened by management corporations.)
Q: How does one select a good agent?
A: A collective sale is a complex process and there are many pitfalls to be avoided. A good agent should help you to:
# Confirm the development potential of your property
# Assess accurately the land value and compare it with the value of the individual apartments, houses, shops or offices
# Recommend a minimum price
# Aggressively market the property in Singapore and internationally, to maximise the sale price
# Advise on and coordinate the signing of the collective sale agreement
# Help owners find replacement properties
# Advise on the legislation and how to apply to the Strata Titles Board for approval of the collective sale.
Q: How long does the entire process take?
A: By legislation, the sale committee has 12 months to obtain the 80 per cent and a further 12 months to make an application to the STB for approval. The STB usually approves the application within four to six months. Thereafter, the owners will receive their payments within three months. They will have another four to six months to vacate the premises.
The writer is executive director, investment properties, at CB Richard Ellis
