Friday, July 6, 2007

En bloc hits sour note

Majority residents, unhappy with deals, are going back on collective sale agreements

Derrick A Paulo
[email protected]


THERE was a time, not so long ago, that the lines were neatly drawn in en-bloc sales.

On one side, the majority of residents, their signatures already on a collective sale agreement (CSA) and waiting to cash in; on the other, a minority bloc with objections.

Not any more.

In a growing number of estates, some residents from the majority group are gunning for the same goal as the minority to scupper the deal.

The reason? What were once sweet deals have turned sour, as juicier sales elsewhere are announced with each passing week.

Some majority residents at several estates are finding ways to challenge the legality of their CSAs. Under the law, a majority can only be formed if there is at least 80 per cent of support within the estate.

Take Gillman Heights, a privatised HUDC estate with 608 units in Telok Blangah. About 20 residents, out of the 532 who had signed the CSA, are now opposing the deal.

Their main contention is over a compensation fund set aside for minority residents who may receive less than the purchase price of their apartments.

One resident, Mr Jerry Lum, is trying to rally those in the majority to challenge the legality of the CSA as the final figure for the compensation fund was inserted after residents had signed the agreement.

According to the estate's sale committee chairman Robert Wiener, the agreement provided for a formula to calculate the amount of compensation a mechanism which one lawyer told Today is becoming commonplace and that residents were alerted about the fund.

But Mr Lum is disputing this last point. He said: "I'll fight this all the way."

The Strata Titles Board (STB) said it was "inappropriate" to comment on the case as the Gillman Heights application for sale approval is still pending.

However, as the STB's purview is to hear objections of only minority owners, Mr Lum and his neighbours have appealed in writing to the Ministry of Law to intervene.

Besides Mr Lum's group, another group of majority residents in the estate have changed their minds and declined to approve an extension to the CSA after a $548-million deal with CapitaLand was struck in February.

Circulars posted in the estate indicate unhappiness about how the once-blockbuster deal CapitaLand is paying $19 million above the reserve price now stacks up against recent en-bloc deals.

For example, CapitaLand recently paid $1.3 billion for Farrer Court, another privatised HUDC estate, which equates to about $2.15 million each for owners of the 618 units there.

In comparison, Gillman Heights residents are getting $363 per square foot of potential gross floor area, or about $870,000 to $950,000 per apartment.

"Never, never just sit back and allow others (to) sell your home on the cheap," one circular stated. One former management council member said the "tension" in the estate has become "a pain".

At Phoenix Court in River Valley a single block of 47 apartments with only one minority resident some majority residents were also against an extension to their CSA ... but to no avail. The STB last week approved the sale to Hiap Hoe for $88.1 million. Sources said some disgruntled owners are still seeking legal advice.

At Horizon Towers on Leonie Hill one of the first estates caught out by the fast-moving market when neighbouring estate Grangeford Apartments fetched more than double the former's price (psf) some majority residents had been hoping the deal would expire before approval is given. Their deadline is Aug 11.

But with the STB hearing brought forward to between July 27 and Aug 2, some residents have engaged lawyers to scrutinise the legality of the CSA in the first place.

More interestingly, at Minton Rise in Hougang, minority residents have secured a higher valuation for their estate than the collective sale price. Some of their majority neighbours are now up in arms about receiving around $100,000 less than they could have.

Kheng Leong, a privately-owned property group controlled by the family of banker Wee Cho Yaw, paid $209 million for the estate in January, $31 million less than the latest valuation.

Some majority residents are now trying to call for an extraordinary general meeting to grill the sales committee about the entire en-bloc process.

"People used to think an en-bloc exercise equals a windfall, but some people now realise the compensation they receive cannot afford them an equivalent property, resulting in a downgrade," said lawyer Chia Boon Teck, who represents Minton's minority.

Bernard & Rada Law Corporation associate director M Kumaran, who oversees his firm's en-bloc cases, has also noticed the growing incidence of backtracking majority residents. "If the market had remained steady, the people involved in these sales would never have looked back at the sales process. With the sudden realisation that so much money can be made, they discover what they may honestly believe to be flaws in the process," he said.

But Mr Kumaran warned that majority residents walk a thin line between legitimate objections and obstructing the performance of a contract they had, after all, consented to.

It remains to be seen whether this new trend of the majority rejecting the very CSA they had signed will continue.

Mr Nicholas Mak, head of research at Knight Frank, told Today that the jury is still out on whether property prices will keep on heading north.

"There are signs this can continue ... But the market is cyclical. If prices were to stagnate, that would slow down the en-bloc sale momentum," he said.

In the words of the former management council member from the Gillman Heights sale: "If the market had gone south, we'd all have been heroes. People need to have a sense of realism."