The changing face of collective sales

Oct 10, 2022

A collective sale is a sale of properties that are under multiple ownership to a single buyer. For strata-titled properties – such as apartments, town houses, office blocks, malls, mixed-use developments and flatted factories – that are at least 10 years old, 80 per cent (by share value and floor area) of owners’ consent is necessary before the property can be put up for sale. Properties that are less than 10 years old require 90 per cent of owners’ consent.

Historically, collective sales have been dominated by residential projects. During the recent collective sale wave in 2017 to 2018, 93 per cent of collective sales worth over S$18 billion comprised residential transactions. However, that trend appears to be changing, even as total volumes have declined.

In 2021 and 2022-to-date, there have been increasing big-ticket commercial and mixed-use collective sales, making up over 50 per cent of the total volume. While residential collective sales still make up over 40 per cent of the volumes, they have been focused on smaller sites.

CBRE Research believes this trend is driven by several factors, including the punitive cooling measures targeted at the residential sector, the government’s push for rejuvenation in the older commercial precincts in the city centre, and the brighter prospects for commercial real estate as we recover from the pandemic.

Residential cooling measures

After volumes stagnated and private home prices corrected 11.6 per cent over 4 years due to the 2013 cooling measures, which included a remittable 15 per cent additional buyer’s stamp duty (ABSD) imposed on developers, home-buying sentiment started to improve in 2017 as the Singapore economy benefited from the economic upswing, and incomes had risen across the board. The low unsold inventory and limited government land sales (GLS) supply prompted developers to tap residential collective sales to replenish their land banks. This set off a new collective sale wave of over 60 collective sales amounting to over S$18 billion between 2017 and mid-2018, and private home prices rose 9.1 per cent within a year.

However, this cycle was cut short by a fresh round of cooling measures announced on Jul 5, 2018, which included not just a 5 to 10 percentage-point increase in ABSD for all buyers and developers, but also an additional five per cent non-remittable ABSD for housing developers. This cooled the collective sales market significantly, with only three to four relatively smaller residential sites sold in 2019 and 2020 respectively. Developers were cautious about larger sites, as the risk and cost of not being able to fully sell the development within five years have increased disproportionately.

In 2021, as housing demand strengthened through the pandemic and as inventory wore down, developers were once again dipping their toes into the collective sales market selectively. CBRE estimated eight residential collective sales of S$1.18 billion were transacted in 2021, 10 times higher than 2020’s but a fraction of 2018’s volumes. The previous round of cooling measures, announced on Dec 15, 2021, dealt another blow to the fledgling residential collective sales market with a 10 percentage point increase, bringing total ABSD for a developer to up to 40 per cent, should it be unable to sell all units within five years.

However, the residential collective sale market is not dead, as unsold private housing inventory remains near historical lows and the GLS supply, while increased, is unlikely to satiate all end-user demand. Going forward, we expect small to medium-sized collective sale sites with attractive locational attributes such as those near key transport nodes, reputable schools and amenities, coupled with realistic asking prices, to draw developer interest. This year, we note that there continues to be successful collective sales, but these are largely sites with a quantum below S$300 million, such as Lakeside Apartments and Parkview Mansions.



City centre rejuvenation encouraging more mixed-use

Prior to the pandemic, in 2019, the Urban Redevelopment Authority (URA) introduced a new set of incentives to reposition Singapore’s CBD (central business district) as a 24/7 mixed-use district, so that the CBD will not only be a place to work, but also a vibrant place to live and play in.

URA rolled out two schemes – the CBD Incentive Scheme and Strategic Development Incentive (SDI) Scheme. The CBD Incentive Scheme offers incentives to encourage the conversion of existing, older, office developments into mixed-use developments that will help to rejuvenate the CBD, while the SDI Scheme is intended to encourage the redevelopment of older buildings in strategic areas into new, bold and innovative developments that will positively transform the surrounding urban environment. Upon fulfilling the eligibility criteria, including age and size of site, and depending on the mix of pro forma uses, buildable gross floor areas can be increased by 25 to 30 per cent.

The take-up rate for the schemes was patchy at first, but has picked up speed during the pandemic, with several institutionally-owned assets undergoing redevelopment, including the former AXA Tower and Fuji Xerox Towers under the CBD Incentive Scheme, and Central Mall and Central Square, as well as Faber House under the SDI Scheme.

While strata-titled projects are typically harder to execute, Maxwell House at the edge of the CBD was sold collectively for S$276.8 million in May 2021, with the developers encouraged by a 30 per cent increase in gross floor area, provided the predominantly commercial site is redeveloped into a predominantly (80 per cent) residential building.

In late 2019, URA offered redevelopment incentives to the owners of Midpoint Orchard, Faber House and Orchard OG under the SDI Scheme. These adjacent buildings, fragmentally held, if redeveloped together could bring about significant transformative impact to the Orchard Road vicinity. While eventually the proposal did not materialise, we expect URA to be inclined to support Orchard Road rejuvenation proposals. Meanwhile, freehold strata-titled mall, Midpoint Orchard, is preparing for its third attempt at a collective sale with a sale bid of around S$350 million. Other Orchard Road buildings that could also be in line for collective sale launch include Orchard Towers and Far East Shopping Centre.

Brighter commercial prospects; price gap narrows for ageing assets

The unexpected Covid-19 pandemic from 2020 may have also somewhat helped bridge the gap in pricing expectations between buyers and sellers and facilitated most of the successful collective sales of commercial sites recently. The two years of business disruptions, accelerated e-commerce adoption and slow tourism return, could mean a long full-recovery journey for older strata-titled retail assets. In addition, concerned about rising capital expenditure and maintenance costs, owners of ageing assets have turned more realistic when it comes to asking prices. Recently successful commercial collective sales, Golden Mile Complex (S$700 million), Tanglin Shopping Centre (S$868 million) and Peace Centre/Peace Mansion (S$650 million) were all relaunched and sold at a lower asking price vis-a-vis prior to the pandemic.

On the other hand, the developers’ perspective has become positive due to improving indicators such as retail sales, and the return-to-work with the gradual easing of border and domestic restrictions. This has given developers more confidence to undertake the redevelopment of commercial sites, with or without incentives or a large residential component. As such, with more realistically-priced sites and optimism towards a commercial sector recovery, more commercial collective sales could see success moving forward.



Looking ahead

The Singapore residential market is expected to remain attractive to local and foreign buyers and this will inevitably maintain developers’ interest in residential collective sale sites. However, due to a higher level of government intervention in this sector, developers may be more selective in their acquisition of residential sites. With the government’s push for rejuvenation and fundamentals favouring mixed-use commercial developments, developers now have a wider arena to deploy their capital.

All in all, interest in commercial collective sales is likely to remain firm and form a significant proportion of collective sales moving forward when compared to the past collective sales cycles.

Tricia Song is head of research (South-east Asia) at CBRE and Michael Tay is head of capital markets (Singapore).

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