April 17, 2007

More transparency needed to protect owners' interest in en bloc sales

TIGHTENING the tendering procedures and making the sale process more transparent would help to protect the interest of owners in en bloc sales, majority and minority alike.

The tender process being practised now is nothing more than a sale by negotiation in disguise. Developers hardly ever put in a firm price in their tender as they should; they merely express an interest in negotiating a sale.

A collective sale by negotiation with a developer always works to the disadvantage of the owners. In a properly conducted tender, it is the owners who set the terms. They can take time to work out the collective sale agreement and the detailed tender conditions. The highest bidder above the reserve price gets to buy the property.

In a private treaty negotiation, on the other hand, the bidder gets a chance to set the terms, often without reference to the conditions the owners had agreed for the tender.

Negotiating positions of the owners have to be worked out in open discussion, but the developer can play his cards close to his chest. One side's bottom line is exposed, while the other side's is carefully hidden.

Furthermore, when an offer comes in, owners have very limited time to work out their positions. Pressure can be brought to bear by the developer or the property agents to get terms to their liking. The stress creates dissension among owners, pitting majority against minority, which the developer can use to his advantage.

The reserve price in a tender is meant as the fall-back in case you cannot get more in an open competition. But when a tender is turned into a private sale, the reserve price is misused merely as a gauge to what price the developer, now free from open competition, feels inclined to offer.

This is particularly harmful to the owners in a rising market and when the offer comes in near the end of a long validity period of the CSA.

Public tenders are uniquely suited for en bloc sales. A sale by negotiation lends itself to abuse. It should be made illegal, for the sake of keeping the public peace and protecting the interest of owners.

Regulations should be introduced to require en bloc sales to be done solely by public tender, and, even more importantly, to require that tenders be conducted to the same standard of transparency as those conducted by our public authorities in the sale of land, such as the URA.

Ms Teresa Boon