En bloc deadlock to continue in 2023

Dec 20, 2022

MANY residential collective sale sites will likely remain unsold next year, as a mismatch in price expectations between buyers and sellers continues. The situation is exacerbated by factors such as high replacement cost for homeowners, uncertain macroeconomic conditions for developers, as well as property cooling measures.

This year, 12 collective sale sites were sold out of 36 put on the market. According to a compilation done by real estate consultancy Colliers, the deals done as of Dec 5 were worth close to S$2.6 billion. For comparison, S$2.3 billion worth of deals were done last year.

The list includes the largest transaction this year – Chuan Park condominium at S$890 million – as well as Golden Mile Complex, which is a mixed development. The Chuan Park sale was given a stop order by the Strata Titles Board on Dec 9, as a group of six minority owners continue to object to the transaction.



Analysts and industry professionals told The Business Times that a general rise in property prices has led to owners hiking their asking prices for collective sales, so they can afford a replacement property.

But the result is “unrealistic” reserve prices, which is the main reason why many en bloc projects failed to find buyers, said Tracy Goh, PropNex’s head of investment and collective sales.

Need a good profit

Foreigners and those owning more than one property are also reluctant to sell unless they enjoy a huge en bloc premium (profit over resale prices) from the deal. This is because when they buy a replacement property, they are subject to the Additional Buyer’s Stamp Duty (ABSD) of up to 30 per cent. 

According to Tan Hong Boon, JLL’s executive director of capital markets, the ABSD will dilute or completely erode the expected collective sale premium, which is generally between 30 and 50 per cent.

In addition, interest rates have yet to reach their peak. With uncertainty as to when collective sales complete, sellers find it hard to accept a lower price, said Tang Wei Leng, Colliers’ managing director and head of capital markets and investment services.

Finally, PropNex’s Goh expects the latest cooling measure announced on Sep 30 to be a key stumbling block for en bloc projects trying to garner the requisite 80 per cent consensus in the coming months.

The measure requires homeowners to wait 15 months following the sale of their private properties before they can purchase a resale Housing and Development Board flat. This means downgraders have to incur rental costs during the waiting period.

For the above reasons, and to entice the required number of owners to agree to a sale, many collective sale committees and their marketing agents eventually price their sites out of the market, said JLL’s Tan.

Need to factor risks

Meanwhile, developers are facing risks from the rising cost of construction and financing, government cooling measures, and high ABSD penalties if they do not sell a project within five years.

The harmonisation of floor area definitions by government agencies – effective from Jun 1, 2023 – will also reduce the amount of saleable area and margins for developers’ residential projects, noted Chia Mein Mein, head of capital markets (land and collective sale) at Knight Frank.

Moreover, the timeline for collective sales tends to be long. Those that do not have 100 per cent owners’ consensus have to go through various steps to obtain a sale order. This process could take a few months to a few years, depending on how far the dissenting owners take their objections, said Colliers’ Tang. Developers will thus have to adjust their land bids to reflect the uncertainties and risks involved.

Recessionary pressures will inevitably affect the sentiments of developers in 2023, added Knight Frank’s Chia. Any aberrant Covid variant that might result in a sharp rise in infections could cause lockdowns, affect cross-border home buying, and lead developers to adopt an even more conservative wait-and-see posture.

But since developers’ inventory of new units is low, they will need to replenish their land banks. To do so, they will likely turn to Government Land Sales (GLS) sites. These offer a shorter and more straightforward tender process, as well as better control over their project timeline, said consultants.

GLS will also be developers’ preferred choice in 2023 because their prices are more reasonable, said Galven Tan, Savills’ deputy managing director, investment sales and capital markets.

This means they will remain measured on en bloc sales. “Many collective sale sites would probably end their exercises without buyers,” said JLL’s Tan.

What might succeed

There are some bright spots though. 

Developers are generally interested in small to medium-sized sites in attractive locations – such as those near key transport nodes, reputable schools and amenities – at realistic asking prices, said Tricia Song, CBRE’s head of research for South-east Asia.

Savills’ Tan said developers are looking at sites that cost about S$250 million to S$300 million and yielding no more than 500 units. Those near MRT stations hold a big advantage.

On top of that, well-located sites that come with freehold land tenure – something not offered by GLS sites – will also continue to tempt developers, said PropNex’s Goh, who expects the collective sale market to be less active in 2023 compared with this year.

And while there were no residential en bloc deals in the central area this year, developers may be drawn to prime higher-end land parcels as more foreign high-net-worth buyers enter the local market, said Knight Frank’s Chia.

Indeed, JLL’s Tan noted that since residential price increases in the Core Central Region (CCR) lag those in the Rest of Central Region and Outside Central Region, developers looking for high-end sites will turn to the collective sale market in the prime districts. This is especially so as the CCR is expected to perform better in the new year, he added. 

Ultimately, whether sites are sold boils down to buyers and sellers finding a new price equilibrium, said Colliers’ Tang. “And until then, it is probably tough to strike any deal.”

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