Top Print Edition Stories
Published February 22, 2007

Failure rate hits 25-35% for en bloc deals

Some think the rising price of replacement homes could be one reason for the figures last year


(SINGAPORE) Asking prices may be going up, but not all collective sales are going through. About 25-35 per cent of more than 100 last year either fell through or are still on the market after failing to achieve reserve prices, property consultants say.

And the rising price of replacement property could be the reason.

No green light: Grangeford Apartment has yet to achieve the required 80 per cent mandate from owners to sell

Sy Wan, who is on the collective sales committee for Grangeford Apartment in Grange Road, says some residents fear they will not be able to afford a similar new apartment in the neighbourhood if they sell. Mr Wan himself is looking at a Housing and Development Board flat.

Last year the official price index for uncompleted non-landed properties in the Core Central Region, which includes Districts 9, 10, 11, rose 6 per cent in Q4 and 25.4 per cent for the whole year.

Grangeford Apartment has yet to achieve the required 80 per cent mandate from owners to sell. But it is believed those against a sale are now considering a reserve price of $350 million - an increase from $280 million last year.

'The main thing is that I make a profit,' says Mr Wan. 'I can always wait (the bull run) out and buy another place next time.'

Prices of prime collective sale properties have been rising lately. In October 2006, Ardmore Point sold for $1,369 psf per plot ratio. By December, The Parisian nearby sold for $1,734 psf per plot ratio, or 25 per cent more.

CB Richard Ellis executive director (investment sales) Jeremy Lake expects fewer transactions this year. 'It's extremely difficult to get 80 per cent because the market is almost too good and some owners are not prepared to commit to the minimum,' he says. Also, sellers' concerns about increasing replacement costs 'have become more evident' in the past three to six months.

Colliers International estimates over 30 of 110-130 collective sale sites launched last year remain unsold.

Director (investment sales) Ho Eng Joo estimates that 70 per cent of collective sales in 2006 were in Districts 9, 10, 11 - the traditional enclave of the well-to-do. Yet many could be looking at downgrading. 'En bloc sellers are becoming increasingly concerned about the replacement price for new homes because they have gone up substantially,' Mr Ho says.

Savills Singapore estimates that of 120 residential developments put on the market in 2006, 43 have not been sold or are still on the market.

Director (marketing and business development) Ku Swee Yong reckons most sellers are looking at 10-15 per cent upward adjustment. But he cautions owners not to ask too much, as developers also have to factor in rising charges and, more recently, higher construction costs. 'Property prices have been rising over the past 12 months, but associated development costs have also risen significantly,' Mr Ku points out.

But there could be some upside to the likely slowdown in collective sales - it could keep future land supply under control.

Knight Frank director (research and consultancy) Nicholas Mak says the number of collective sales increased 70 per cent from the previous peak of 39 in 1999 to 67 in 2006, and developers are worried.

'The Real Estate Developers Association of Singapore (Redas) has been trying to argue to get the government to reduce Government Land Sales because of supply from en bloc sales,' Mr Mak says.

He reckons, however, that the government will maintain its Reserve List system to 'take care of fluid demand'. He says 'the government is letting the market find its own supply and demand level'.

Interestingly, the number and value of collective sales in 1999 (39 transactions worth $2.5 billion) exceeded the 36 transactions worth $1.7 million in the previous peak of 1996 - a year before the government changed the law to allow collective sales with under a 100 per cent mandate from owners to go through.

The implications of this change for today's market are not known. 'It's like trying to guess how many more traffic accidents we would have on the roads if there were fewer traffic lights,' says Mr Mak.

The issue of a 'mandate' surfaced again recently when the Strata Titles Board (STB) ruled on Feb 6 that the principal amount withdrawn from CPF accounts and the accrued interest cannot be taken into account when determining whether a financial loss has been suffered by property owners - a clause that can block a collective sale. The ruling was made when an owner claimed to have suffered a financial loss in the collective sale of Waterfront View. Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says STB does appear to have 'fine-tuned' the mechanism for collective sales.

And Mr Lui believes such sales will remain relevant 'from a urban point of view' because 'nobody will want to pump money into an old building'.